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there when it matters most


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Contents PRIMARY AGENT MAGAZINE

Financial ratios: Unlocking the metrics key to your agency’s success What you don’t know can hurt you. It’s time to dig into your agency’s income statement and learn what the ratios, margins and balances mean to your — and your agency’s — future.

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Page 10 Taking commercial lines real-time rating to the streets Bumps admittedly remain on the path to real-time rating perfection for commercial lines. But opportunities already exist to speed up the quoting process. Read on to learn how you can put your commercial lines rating into overdrive.

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22 Mission Statement Primary Agent delivers ideas to help Insurance Agents & Brokers’ members negotiate their unique position as guardians of trust between insurance consumers and companies while facing the challenges of maintaining a small business. Primary Agent also supports IA&B’s mission to preserve and advocate the American Agency System.

Get social with IA&B

The cloud-enabled transformation of enterprise IT Thanks to exponential advances in processing power, bandwidth, and storage, the business environment is undergoing a major transformation. Based on the technology-enabled hard trends that are already in place, including advances in cloud computing and virtualization, over the next five years we will transform how we sell, market, communicate, collaborate, innovate, train and educate.

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In every issue 2 3 4 6 8 13

Chair of the Board’s Message Ask Our Experts State News Preventing Errors & Omissions Coverage Corner My Events

15 22 IBC IBC IBC

IA&B Partners Technology Update Advertisers Index Classified Ads Last & Least

Subscriptions: Non-member price: $2.25 per copy or $15 per year. All communications for publications, including news, features, advertising copy, cuts, etc., must reach the editor by 1st of month two months prior to publication. Advertising rates furnished upon request. Address inquiries to:   Primary Agent Editor 5050 Ritter Road    Mechanicsburg, PA 17055-0763    Phone (800) 998-9644 or (717) 795-9100    Fax (717) 795-8347 Periodical postage paid at Mechanicsburg, Pa. and additional entry post office. Postmaster: Send address changes to above address. Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2014-3 is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.  Copyright 2014. All rights reserved. No material may be reproduced in whole or in part without written consent of the publisher. The information in this publication is general in nature and is not intended to serve as legal, accounting, financial, insurance, investment advisory or other professional advice as to any reader’s particular situation. Users are encouraged to consult with competent legal, financial, insurance, investment advisory and or other professional advisors concerning specific matters before making any decisions and we disclaim any responsibility for any decisions or actions by readers. Statements of fact and opinion in Primary Agent are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the IA&B. Participation in IA&B events, activities and/or publications is available on a non-discriminatory basis and does not reflect IA&B endorsement of the products and/or services.


Board of Directors Officers G. Greg Gunn, CIC Chair of the Board Lemoyne, Pa. Diana M. Hornung Hanby, ACSR Vice Chair of the Board Wilmington, Del. Norman F. Basso, CPCU Immediate Past Chair of the Board York, Pa.

Members Henry “Butch” Bradley, Jr. Forest Hill, Md. E. Stephen Burnett, CIC, ARM Wilmington, Del. Richard F. Corroon, CPCU Wilmington, Del. N. Lee Dotson, CIC, AAI Wilmington, Del. Michael P. Ertel Columbia, Md. John L. Frankenfield Telford, Pa. John B. Hollister Milford, Pa. Jocelyn R. Howard-Sinopoli, CIC, CISR Butler, Pa. Robert S. Klinger, LUTCF, CPIA+ Germantown, Md. Douglas A. Loesel, CPCU Erie, Pa. Michael F. McGroarty Sr. Pittsburgh, Pa. Craig S. Mader Gambrills, Md. Ann Gallen Moll, CIC Reading, Pa. Joseph R. Pastor, CPCU, AAI Oil City, Pa. Richard M. Rankin, CIC Lancaster, Pa. April E. Ressler, CIC Altoona, Pa. Scott C. Rogers, CPIA* York, Pa. David B. Wasson Sr., CIC State College, Pa. Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** New Castle, Del.

G. Greg Gunn, CIC

Chair of the Board’s M

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Weathering whatever tomorrow brings Kudos, fellow warm-weather fans. We’ve made it to March! Of course before we can dust off our golf clubs, we likely have a few more tussles with winter. When I think March, I think “unpredictable.” Anything — from a snowstorm to a heat wave — is possible, and a ping-ponging thermometer is more of a norm than any average temperature. No doubt, there’s an analogy to be made with the state of the industry. We’re coming off of a deep recession and a lengthy soft market, and the rebound has been tempered by a difficult legislative and regulatory climate, severe competition and rapidly evolving risks. We can sense more placid days ahead, but first we must weather the remaining volatility. During these sometimes stormy transitions in the insurance cycle, let your agents’ association be your stronghold. Rely on IA&B’s resources, advocacy, information and training to ride out whatever tomorrow brings. The 2014-15 IA&B membership year begins April 1, so if you haven’t already, I encourage you to renew now. In related news, the state legislative session heated up in recent weeks. So, along with your membership renewal, I ask you to consider a significant donation to IA&B’s state-level political action committee — AgentPAC. PAC contributions help to get our story out and protect ourselves, our businesses and our clients. Please don’t wait for your fellow agents to do something. Make this a priority in 2014. I did. Until next time,

G. Greg Gunn, CIC

* Pa. IIABA National Director ** Del. IIABA National Director + Md. PIA National Director

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Ask our Experts QUESTION: Can we provide financial information about carriers to prospects or policyholders? What can we share with them?

ANSWER: When communicating about financials, you should always draft your message carefully. That being said, let’s distinguish general comments on an insurer’s financial condition and how the restrictions can play into notification to customers of an insurer’s downgrade by a financial rating agency.

For our three states, here are the most relevant citations: Delaware – Title 18 § 2304. Unfair methods of competition and unfair or deceptive acts or practices defined (Excerpt) (3) Defamation.—No person shall make, publish, disseminate or circulate, directly or indirectly, or aid, abet or encourage the making, publishing, disseminating or circulating of any oral or written statement or any pamphlet, circular, article or literature which is false, or maliciously critical of or derogatory to the financial condition of an insurer, or of an organization proposing to become an insurer, and which is circulated to injure any person engaged or proposing to engage in the business of insurance.

Defamation prohibited State statutes – and our three states are no exception – generally place restrictions on what producers and others can state with regard to an insurer’s financial condition, particularly if the description seems derogatory, maliciously critical or generally defamatory. If you are commenting on the carrier with whom the prospect is currently insured and you are critical of their financials, the practice is more likely to be questioned; it could be viewed as an attempt to sway the insured and deemed unfair competition. In fact, the statutory restrictions are generally found in the Unfair Trade Practices laws (see box to right).

Maryland – Title 27 § 27-204. False statements about insurer A person may not make, publish, disseminate, or circulate, directly or indirectly, or aid, abet, or encourage the making, publishing, disseminating, or circulating of an oral or written statement or a pamphlet, circular, article, or literature that: (1) is false or maliciously critical of or derogatory to the financial condition of an insurer or person proposing to become an insurer; and (2) is calculated to injure a person engaged in or proposing to engage in the business of insurance.

Notification of downgrades The above should be distinguished from letters sent by agencies to policyholders notifying them of carrier financial downgrades. Many agencies notify customers of an insurer’s downgrade (for various reasons including E&O prevention). While the same restrictions on defamation apply, notification is fine as long as you remain both factual and cautious when communicating that information. For agencies wishing to notify insureds of carrier downgrades, we would suggest reviewing our related online resource (which includes sample letters), “Do producers have a legal duty to notify policyholders when their insurer has been downgraded by a financial rating agency (such as A.M. Best or Standard & Poor’s)?” — available at IABforME.com/ratings.

Pennsylvania – 40 P.S. § 1171.5 Unfair methods of competition and unfair or deceptive acts or practices defined “Unfair methods of competition” and “unfair or deceptive acts or practices” in the business of insurance means: (1) Making, publishing, issuing or circulating any estimate, illustration, circular, statement, sales presentation, omission comparison which […] (iv) Is misleading or is a misrepresentation as to the financial condition of any person, or as to the legal reserve system upon which any insurer operates; […] (3) Making, issuing, publishing or circulating any oral or written statement which is false or maliciously critical of or derogatory to the financial condition of any person, and which is calculated to injure such person. […]

HAVE A QUESTION? ASK OUR EXPERTS! Rely on our experts to answer your most perplexing questions. Visit the new Ask Our Experts section of IA&BforME.com (find the link in the website footer) to submit your question and review answers to other frequently asked questions. Or email your question to us at IAB@IABforME.com. We look forward to hearing from you! [3]


Primary Agent | March 2014

State News Joint effort elevates brokers in Maryland health insurance exchange We launched an initiative this winter, along with two partnered associations, to connect Maryland Health Connection users (individuals and small businesses) with health insurance producers. Health insurance producers now have more direct access to individuals and small-businesses seeking coverage through the Maryland Health Connection. We partnered with the National Association of Insurance & Financial Advisors of Maryland and the Maryland Association of Health Underwriters — as well as the Maryland Health Benefit Exchange — to introduce the Producer Referral Program. The program allows those seeking coverage through the exchange to call a help line, where enrollees will be connected with licensed health insurance producers who can help individuals select an appropriate plan and assist small businesses with signing up for tax credits and plans before they are available through the Maryland Health Connection. (As a reminder, the exchange’s twice-delayed small business program is set to launch in April.) All producers who are certified to work within the exchange can request to participate. The program asserts health insurance producers into the exchange, calling attention to their existing — and underutilized — role as licensed, educated advisors. Contact us to participate: IAB@IABforME.com [4]

Md. homeowners’ policies now subject to ACC law Read up on the anti-concurrent causation (ACC) provision. A new state law – which impacts all homeowners’ policies issued, delivered or renewed on or after Jan. 1, 2014 – may trigger customer questions. Expect customers’ inquiries on the anti-concurrent causation (ACC) provision to continue in the months ahead. As reported in Agent Headlines, a new Maryland law requires homeowners’ insurers to notify policyholders of the ACC provision, describe the clause and encourage them to communicate with their producer or insurer for any additional information. While IA&B successfully lobbied to remove language from the final version of the bill which would have required agents to provide insureds with “a description, including an example of the manner in which the ACC clause may be applied,” you should nonetheless be ready to respond to inquiries on the subject. The new law took effect June 1 and applies to all homeowners’ insurance policies issued, delivered or renewed on or after Jan. 1, 2014. For a refresher on how ACC clauses made their way into everyday contracts, and their impact on losses, review our online resource on the topic. IABforME.com/ coverage_issues/ACC


Time to recognize a CSR who’s gone above and beyond Show your appreciation for an exceptional CSR with a nomination for the Outstanding Customer Service Representative of the Year Award. Nominations are being accepted now, and completed entries are due May 1. For independent agencies, exceptional staff on the front line often lead to a healthy bottom line. So, if there’s someone in your agency (even yourself) who has provided exceptional customer service and deserves recognition, now is the time to nominate him or her for the Outstanding Customer Service Representative (OCSR) of the Year Award. Sponsored by the Society of Certified Insurance Service Representatives (CISR) and the Society of Certified Insurance Counselors (CIC), this awards program is the highest honor for insurance agency CSRs. Anyone may make a nomination, and it’s as easy as providing a name and contact information. Anyone whose primary duties center on insurance customer service is eligible to enter (a CIC or CISR designation is not required). It is recommended, however, that candidates have a minimum of two years of experience in the industry and sufficient experience to share through their essays. Nominations currently are being accepted, and completed entries (including an essay of approximately 1,000 words) will be due by May 1. IABforME.com/awards

Dog bites: data, insurance coverage and liability

to liability, many landlords informed tenants with pit bulls that they must either remove their dogs from the rented premises or face eviction.

Fallout continues from the 2012 Maryland Court of Appeals decision that applied a strict liability standard for dog-bite negligence cases involving pit bulls. In conjunction with a potential legislative response, a new report aims to educate the General Assembly on the impact of dog bites on homeowners’ and landlords’ insurance coverage.

w Comprehensive dog-bite related statistics specific to Maryland

As this issue of Primary Agent went to print, dog-bite liability was once again on the General Assembly’s radar, the subject of a Senate hearing. In preparation, the Department of Legislative Services’ Office of Policy Analysis late last fall issued a report to provide legislators with a better understanding of the issue:

w Since 2005, only one death in Maryland was attributable to a dog-bite injury

w The extent, nature and severity of dog bites in the state w The impact of dog bites on homeowners’ and landlords’ insurance coverage w The nature and extent of damages recovered as a result of injuries sustained by dog-bite victims Legislation could address the implications of a 2012 Maryland Court of Appeals decision, Tracey v. Solesky, which determined that pit bulls are an inherently dangerous breed of dog and which established that pit bull owners, and landlords who know a tenant has a pit bull, could be held strictly liable for damages, even if neither had knowledge that the dog may be dangerous. The effects of the Solesky decision immediately reverberated across the state. Fearing increased insurance premiums and increased exposure [5]

Among other interesting data, the Office of Policy Analysis report includes:

w Statistics comparing Maryland dog-bite data to that of other states w An overview regarding carrier response to the Solesky decision In addition, the Office of Policy Analysis concludes:

w Maryland has an average number of (or fewer) dog-bite injuries, compared to other states w The number of dog bites does not appear to be increasing over time w There are limitations with available data, and research indicates people can’t reliably identify breeds of dogs, including people experienced in handling or caring for dogs Read the report — and access our resources on dog-breed exclusions and the Solesky decision — on our website. And watch Agent Headlines for any legislative updates. IABforME.com/ dog_breed_exclusion

WELCOME

New Members

Grady, Wright & Associates Inc. Glen Burnie, Md. Commercial Risk Solutions LLC Columbia, Md.


Primary Agent | March 2014

Preventing ERRORS AND OMISSIONS

HOW WELL ARE YOU HOLDING YOUR CUSTOMERS ACCOUNTABLE?

The Utica National E&O Program supplied this article. Insurance Agents & Brokers Service Group Inc. is the exclusive agent for the Utica E&O program in Delaware, Maryland and Pennsylvania. For questions regarding this article or your E&O coverage, contact IA&B at 800-998-9644 or IAB@IABforME.com.

If one were to ask insurance agents for a list of frustrations when dealing with their customers, there is no doubt that high on that list would be: “Why is it always our fault when a customer has a loss that is not covered? They knew that they didn’t have that coverage.”

The agency file is discoverable It is important to start off by stating that when an E&O claim occurs, the E&O carrier will look to secure the actual file in question to see what it looks like and what is included. Whether the file is paper or electronic, there is no doubt that solid documentation makes the E&O carrier’s job much easier. Conversely a file with sketchy documentation could prove to be a challenge in building a strong defense for the agency.

Unfortunately, this scenario has played itself out over and over again. Then when an E&O claim happens, it typically will be the agent’s word against the customer’s word. While the agent may win some, there is a good chance that they will lose once in a while. So what can an agent do to hold their customers more accountable? Some agents may contend “just document the conversation in the system,” but there is really more to it than that. Let’s took a look at some of the typical scenarios.

Completion of an app This could involve explanations of coverages, responses to questions, etc. Since the best type of documentation involves something with the insured’s signature on it, holding customers accountable is enhanced when an agency can get

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the customer’s signature on a document. This is one of the main reasons why getting customers to sign applications is so important. In virtually all legal jurisdictions, a customer is going to be held responsible for the accuracy of the information in an application if they signed it. So when an agency is completing an application based on the responses from the customer, a solid best practice is to require that the customer review the application and, if everything looks in order, to sign it. Other customer interactions As customers look to make modifications to their insurance program, once again, look to get their signature acknowledging the request. This is more doable when


the customer is in your office or you are meeting with them at their business or residence. However there may be times where this is not possible and thus the level of documentation needs to be tailored for the situation. How would your agency handle a request from a customer to delete certain coverage? Some agencies have taken the position that they will not make any changes without some form of written communication from the customer. This is great if you can get it, but what if the customer doesn’t want to “cooperate”? Without some form of documentation that confirms or memorializes the discussion, mistakes can occur. Possibly, what the agency heard is not what the customer requested, or possibly what the customer advised is not what they really meant. Thus the need for some form of correspondence. If the customer doesn’t want to send you a note, then you send them one! Something to the effect of the following: “per your request or per our conversation, we are deleting the collision on your Ford truck. If this is contrary to your understanding, please contact the agency immediately.” The goal here is to attempt to address any potential misunderstandings between what the customer told you or thought that they told you and what you heard. Simply documenting the conversation in the agency management system does not help to identify a misunderstanding. If the misunderstanding surfaces after an uninsured loss occurs, this is when it could turn nasty.

How about the scenario of the agency providing the customer with a proposal and the customer orders the package, the auto and the workers’ compensation but states “let me think about the umbrella and I will get back to you.” There should be some form of documentation back to the customer advising them “at this time, per your request, the umbrella coverage has not been placed.” Customer questions Probably not a day does go by where your agency is asked a question pertaining to an insurance matter. It could be a question such as: w Do I need to let you know if my son is taking the car to college? w Mom and Dad are in a nursing home, and their house is vacant. Is there anything that I need to know regarding their homeowners’ insurance? w Do I have full coverage for my wife’s ring under my homeowners’ policy? Again, these conversations need to be documented. Why? There is a good chance that the customers are not only documenting what you told them but that they are also heavily relying on what you told them. Obviously be certain that you know the answer to the questions. Documenting back to the customer the essence of the conversation will confirm the discussion. Offer limit options Virtually every E&O class has advised agencies to get rejections on various coverages or limits provided. One very effective manner to do that is to offer

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a variety of options. Don’t just offer a proposal for a $1 million umbrella; offer multiple options. By the insured accepting the $1 million umbrella proposal, this then is confirmation of the rejection of the other limits offered. Customer contact providing information Let’s assume that you are completing an app with a customer and you ask them if they have been cancelled for non-pay in the last three years. They don’t know, so they pledge to call you the next day with the answer. When they call you the next day, they advise you, “No, we have not been cancelled for non-pay in the last three years.” This should be documented and confirmed back in some form of written communication. Once again, the goal is to build a file that contains quality documentation, and while this takes time, it could make all the difference if an E&O claim were to develop. Bottom line, if your agency is really looking to hold your customers accountable, documentation is the key. Getting a document with the insured’s signature is the best approach, but if that is not possible, then document the various conversations in your file, and send some form of written communication back to the customer memorializing the discussion in detail.


Primary Agent | March 2014

Coverage COR N E R

ISO INTRODUCES BUSINESS INCOME COVERAGE FOR VEHICLES AND MOBILE EQUIPMENT JERRY M. MILTON, CIC Jerry M. Milton, CIC teaches and consults on industry issues. The legal profession recognizes him as an expert on insurance coverages. He is also the education consultant for IA&B, working with CISR, CIC and continuing education programs.

Traditional business income and extra expense coverage responds only when a loss or damage occurs at a specific, described location. Insureds can cover their loss of income and any resulting extra expenses for a loss which occurs at their described premises, as well as losses that occur at the premises of suppliers, customers and other dependent locations.

stated, “This exposure can be especially significant when the equipment is customized and cannot be repaired or replaced quickly in the event of a loss. There’s a need in the marketplace to address this exposure, whether the insured is a small business owner running a mobile pet-grooming business or food truck or a larger business that depends on multi-million dollar well-drilling or geophysical equipment.”

The Insurance Services Office (ISO) announced new coverage options that will enable a business to insure business income and extra expense losses arising out of damage to their vehicles and/or mobile equipment while away from the described premises.

If the insured has business income and/or extra expense coverage under a Commercial Property Coverage Form or a Businessowners Form, that coverage can be extended to vehicles and/ or mobile equipment by endorsement. There is also the option of adding this coverage to the Commercial Auto policy by endorsement.

In his announcement of this new coverage, Kevin Thompson, President of ISO Insurance Programs and Analytic Services,

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These new endorsements for Commercial Property, Businessowners and Commercial Auto were filed to be effective in February 2014. These endorsements are: w Off-Premises Interruption Of Business – Vehicles And Mobile Equipment (CP 15 06) w Off-Premises Interruption Of Business – Vehicles And Mobile Equipment (BP 10 80) w Business Interruption Coverage (CA 99 05) The CP 15 06 can be used only if business income coverage applies to the described premises, and the Causes Of Loss —– Special Form applies to the business income coverage. Collision can be added as a covered cause of loss under the CP 15 06 and the BP 10 80. The options under the


CA 99 05 are Comprehensive, Specified Causes Of Loss and Collision. All three endorsements have the following provisions: w 72-hour waiting period (unless modified by endorsement) w Extended Business Income for 60 days (unless a different number of days is entered in the Schedule)

repair, servicing, destruction or direct and accidental loss The business income and/or extra expense coverage can be written on a scheduled basis with a specific limit per item, or all items can be covered under a single limit of insurance. The Coinsurance clause, if applicable to the underlying policy, does not apply to this off-premises coverage.

Keeping tabs on ISO changes The ISO forms Jerry discusses here come on the heels of 2013 changes to Commercial Property and CGL forms and endorsements.

w Limited coverage for newlyacquired equipment

There is no coverage for the expense to repair or replace any damaged vehicles, equipment or other property.

Rely on our On-Demand courses to learn about last year’s ISO changes, the rationale behind them and how they impact coverage.

w Coverage for property used as a temporary substitute for scheduled property if the scheduled property is out of service due to breakdown,

Some of your insureds may need this coverage.

IABforME.com/on-demand

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AGENCY MANAGEMENT

Financial ratios Unlocking the metrics key to your agency’s success

What you don’t know can hurt you. It’s time to dig into your agency’s income statement and learn what the ratios, margins and balances mean to your — and your agency’s — future.

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Primary Agent | March 2014

C

hris Burand has seen it all. As an agency consultant, he has helped countless agencies at various stages of dysfunction (and to be fair, in some cases, stages of successfulness) with valuation, perpetuation, compensation and management.

A nationally recognized expert and a repeat presenter at our IA&B Executive Management Conferences, Burand last fall pulled his years of experience to present a Power Hour webinar on agency financial management. On the following pages, we share a few highlights from his presentation … hopefully enough to whet your appetite and prompt you to access the complete webinar recording, which is exclusive and free — as always — for IA&B members.

Profit margins From profit margins to compensation expense to growth rate, an income statement offers extensive insight into an agency’s financial health. “Actual profit margin is an important indicator of agency health, of how well an agency is managed,” shares Burand of the report your agency management system provides. “The very best agencies have the best actual profit margins.” He warns that at some point tax returns must match income statements. The longer this happens, the better off you’ll be when it’s time to sell your agency or take out a bank loan. Another — often overlooked — income statement ratio to monitor is your cash flow profit margin. According to Burand, almost no agency runs it on a monthly basis, but they should. “It’s far better than EBITA,” he explains, referring to the acronym for the common earnings before interest, taxes and amortization financial indicator. “EBITA makes the cost of an agency’s growth look free. If an agency grows through acquisition, EBITA will make it look 10 times more profitable than looking at cash flow.”

“We need to manage compensation expense first and foremost. Everything else is small potatoes.” Compensation expense “We need to manage compensation expense first and foremost,” says Burand of agency expenditures. “Everything else is small potatoes. What is spent on telephones, education and automation is so tiny in comparison to compensation.” With compensation expenses, ratios (percent of revenues) — not dollars — are important. Attracting a high-quality CSR with a worthy compensation-to-commissions-serviced ratio is wise. Paying the worst producers the most money — a dangerous propensity within the industry — is not. Neither is paying the same for all sales, those profitable and those not. [ 11 ]

More where this came from Last fall agency consultant and valuation expert Chris Burand spent an hour highlighting a handful of financial ratios for agency principals to easily calculate and monitor their agency’s financial health. This article offers a few highlights of the Power Hour webinar, which was recorded and is available in its entirety online.

IABforME.com/power_hour


AGENCY MANAGEMENT “Somewhere between 30 and 50 percent of producers will never sell enough insurance to justify their positions on a financial basis,” shares Burand.

Hit ratio Burand also touted the importance of calculating your agency’s hit ratio. Calling it the “hidden income statement ratio,” it’s not actually on the income statement, but — with accurate information — it can be calculated easily: accounts sold divided by accounts quoted. A bad hit ratio equates to low productivity and high compensation ratios because CSRs quote so many accounts that are never written. “I’ve literally seen agencies need to employ extra CSRs just to handle the quotes they never write,” warns Burand. He also predicts that some companies soon will begin tracking hit ratios and use it to manage their agency force. Burand recommends aiming for a hit ratio of 50 percent or better. He cites an industry average of just 20-25 percent because not enough due diligence is put into determining if the account is truly a good fit for the agency or willing to leave its current agency. The agencies with the best hit ratios write nearly 80 percent of the business they quote.

Growth rate When looking at your income statement, tracking organic growth rate is far more important than overall growth rate.

“The one thing you can do to make your agency more valuable is obtain true organic growth,” says Burand. He goes on to tout the importance of the oft-overlooked balance sheets — particularly the critical trust ratio: (cash + premiums receivable) / premiums payable. If your agency’s ratio is less than one, you may be violating state laws and likely are violating company contracts.

“I’ve literally seen agencies need to employ extra CSRs just to handle the quotes they never write.”

“More and more agencies are writing business in multiple states, and these ratios and E&O exposures follow the customer,” explains Burand. This, of course, makes a complex situation for agencies, which must know trust ratio requirements beyond their resident state’s.

Key points Burand concluded his Power Hour presentation with three key takeaways about agency financial ratios: Use good data. It may sound simplistic, but through his agency-operations analyses and valuations, Burand sees a lot of bad data — the same bad data that owners often use to manage their agencies. He cites numerous reasons, including

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data inputted incorrectly and without checks and reports run without the right parameters. Seeking a tutorial from your agency management system vendor will set you on the right path. “Another factor we see in nearly a quarter of agencies is that producers are being paid more than they are supposed to be paid,” shares Burand. “Sometimes the bookkeeping is poor; other times, someone is inputting the wrong commission rates, whether it’s knowingly or accidental.” He shared that a recent review found one agency spending 6 percent of its annual revenue on excessive producer compensation. Analyze ratios often. Burand recommends monthly analysis of ratios, except for trust ratios, which should be reviewed weekly. Trend ratios. “Watch them over time,” advises Burand. He encourages agencies to create a simple graph and look for a steady trust ratio and 5 percent of annual organic growth. Learn more from Burand about financial ratios — what they mean and how to track them — by accessing our recorded Power Hour webinar at IABforME.com/ power_hour (select “Financial Ratios” from the archive of past recordings).


My Events MARCH & APRIL

Date

Topic

Location

3-6

CIC Life & Health

Erie, Pa.

4

William T. Hold: Dealing with Disasters

Mechanicsburg, Pa.

5

William T. Hold: Dealing with Disasters

Lehigh Valley, Pa.

6

CISR Personal Lines Miscellaneous

Philadelphia, Pa.

10-11

James K. Ruble Graduate Seminar

Ellicott City, Md.

18

William T. Hold: 3 C’s—Comp, Crime & Cyber

Pittsburgh, Pa.

25-27

P&C Licensing Study Course

Mechanicsburg, Pa.

26-29

CIC Personal Lines

Newark, Del.

1

William T. Hold: Dealing with Disasters

Altoona, Pa.

2

CISR Commercial Casualty I

Mechanicsburg, Pa.

3

William T. Hold: Dealing with Disasters

Baltimore, Md.

8

CISR Commercial Casualty II

Wilkes-Barre, Pa.

9

CISR Commercial Casualty I

Erie, Pa.

CISR Commercial Casualty I

Dover, Del.

E&O Coverage Standards

Baltimore, Md.

9-12

CIC Life & Health

Lehigh Valley, Pa.

10

CISR Commercial Casualty I

Pittsburgh, Pa.

CISR Personal Auto

Philadelphia, Pa.

14-15

James K. Ruble

Pittsburgh, Pa.

22

E&O Risk Management

Lehigh Valley, Pa.

22-24

P&C Licensing Study Course

Philadelphia, Pa.

23

William T. Hold: Comp, Crime & Cyber

Mechanicsburg, Pa.

24

William T. Hold: Comp, Crime & Cyber

Frederick, Md.

29

E&O Risk Management

Mechanicsburg, Pa.

30

CISR Commercial Property

York, Pa.

MARCH 2014

APRIL 2014

[ 13 ]


Platinum Profile Insurance Agents & Brokers proudly recognizes Millers Mutual Group as one of its Platinum Partners. IA&B Platinum Partners dedicate the highest level of sponsorship to our organization.

Still more. You’ve probably heard us say “There’s more for you at Millers.” It’s a slogan that fits us well. Our agent partners have seen “more” in our bigger, broader underwriting appetite. Which is why we’re writing a whole lot more Main Street commercial package and BOP business of all kinds these days.

FEATURED PARTNER: Millers Mutual Group CHIEF EXECUTIVE OFFICER: Robert L. Lyon, President/CEO

But the “more” at Millers goes beyond what we write. It’s how we conduct our business. Like giving agents truly personal support. Like making sure our underwriters are always accessible. Like doing business on a first name basis. Give us a call, send us an e-mail, and we’re on it, getting answers right now when you need them. And of course, courtesy, respect and integrity are always a given at Millers Mutual. Agents have told us how much they admire that, and it’s a compliment we never tire of hearing — or living up to.

COMPANY LOCATION: Harrisburg, Pennsylvania A.M. BEST RATING: A- (Excellent)

If all that sounds more to your liking than the service you may be getting now, Millers Mutual could be a welcome presence in your agency. We’re a regional insurer — operating in the Mid-Atlantic states — with an A- (Excellent) A.M. Best rating and superb financial strength ratings across the board. So we have the financial muscle to be a substantial player in your agency as well as the attitude that will make us a welcome and valued addition.

“We have the financial muscle to be a substantial player in your agency and the attitude that will make us a welcome and valued addition.”

There’s still more to discover at Millers. And a growing list of reasons you’ll like what you find. Give me a call and let’s talk about how we might help.

Robert L. Lyon

[ 14 ]


Listed below are those companies that strongly support the independent agency system and Insurance Agents & Brokers. Thank you for your continued sponsorship.

WHAT IS IA&B PARTNERS? The IA&B Partners program gives company and allied businesses the opportunity to demonstrate their commitment of support to independent agents and receive maximum market exposure. As an IA&B Partner, you will also realize the benefits of IA&B membership to help you succeed in the insurance industry.

DO YOU SEE YOUR NAME? To become an IA&B Partner, choose the sponsorship package that matches your commitment of support. Contact the Member Sales Center at 800-998-9644, 717-795-9100 or visit us online at IABforME.com to get started.

PLATINUM LEVEL ACUITY Berkley Mid-Atlantic Group Donegal Insurance Group Erie Insurance Group Harleysville Insurance HM Insurance Group Insurance Agents & Brokers Service Group Inc Liberty Mutual Insurance MMG Insurance Company Millers Mutual Group Millville Mutual Insurance Co Mutual Benefit Group Penn National Insurance Swiss Re The Main Street America Group Utica National Insurance Group

BRONZE LEVEL Aegis Security Insurance Co Agency Insurance Company AmWINS Program Underwriters Inc Auto-Owners Insurance Company Bailey Special Risks Inc Briar Creek Mutual Insurance Company Chubb Group of Insurance Companies Conemaugh Valley Mutual Insurance Co Countryway Insurance Company Encompass Insurance Foremost Insurance Group GMI Insurance Goodville Mutual Casualty Company Guard Insurance Group Hanover Fire & Casualty Insurance Company Harford Mutual Insurance Co Insurance Alliance of Central PA Inc

GOLD LEVEL

Insurance Placement Facility of PA

ISU Insurance Agency Network Progressive Westfield Insurance

Keystone Insurers Group Inc Lebanon Valley Insurance Company Mercer Insurance Group

SILVER LEVEL

Merchants Insurance Group

Access Insurance Company Allied Insurance American Mining Insurance Co Burns & Wilcox Limited Cumberland Insurance Group Farmers Mutual Insurance Company of Western Pennsylvania Frederick Mutual Insurance Co ICW Group Insurance Companies Juniata Mutual Insurance Co PSBA Insurance Trust Selective The Philadelphia Contributionship [ 15 ]

Mercury Casualty Mutual Aid Exchange Penn PRIME Municipal Insurance Reamstown Mutual Insurance Company Rockwood Casualty Insurance State Auto Mutual Insurance Company TAPCO Underwriters Inc The Brethren Mutual Insurance Company The Motorists Insurance Group The Mutual Service Office Inc Travelers Tuscarora Wayne Group of Companies Zenith Insurance Primary Agent March 2014


AGENCY MANAGEMENT

Taking commercial lines real-time rating to the streets Driving home today’s benefits and tomorrow’s implications

Bumps admittedly remain on the path to real-time rating perfection for commercial lines. But opportunities already exist to speed up the quoting process. Read on to learn how you can put your commercial lines rating into overdrive.

[ 16 ]


Primary Agent | March 2014

W

here would we be today without the evolution of the Interstate Highway system? We had roads — we could have remained complacent – but think of the time savings and efficiencies we now have due to interstates. It took 35 years to be considered “complete,” but there are still sections that aren’t complete; roads are being widened and extended, repaved and changed. And yet, this one initiative has been a major contributor in making the United States a world economic superpower and a highly industrialized nation. By now you are probably asking yourself, what does this have to do with insurance and real-time rating? Try this analogy: We may still have some bumps in the road, but real-time rating for commercial lines is very usable now and will continue to evolve. And it certainly does not need to take anywhere near 35 years for it to be considered complete. It also promises to add significant efficiencies to our distribution system and to help the agencies and carriers which implement it position themselves as modern, efficient businesses — our version of an economic superpower.

Let’s take a drive The type of road and the route you take between agent and carrier destinations may vary. You may use a bridge, you may take the superhighway (where a rate is returned directly to you), and you may make a quick stop on the way. That’s OK, and that is how we move forward. The one thing that is constant is that this is real: Implementations continue to evolve, and agents are getting value. We are seeing success across the board from BOP and package, commercial auto, workers’ compensation and other commercial monolines. The amount of data that is being moved in a real-time quote is tremendous, including large schedules. Whether an agent starts in the agency management system and uses TransactNOW or Transformation Station or an MGA or broker who has implemented ACORD standards to pass policy data to their carriers, these roads are ready for travel.

Here’s what agents may find on their drive Real-time quote bridge: With a bridge (also known as rating bridge, bridging, real-time upload), the agency can “bridge” the data for a quote from the client file in its agency system to the carrier, eliminating the need to rekey data into one or many carrier websites. The agent then typically completes the quote at the carrier site. This is not a website sign-on from the agency system; this is bridging the extensive amount of data that would otherwise be keyed manually. Carriers can respond with a link in HTML that automatically launches the agent user to the website and drops him or her in the

[ 17 ]

Why rekey when you can save these kinds of keystrokes? A  n agent was able to pull the data for a 621-vehicle fleet from his agency system and send it directly to the carrier system. Not rekeying translated to a savings of 62,500 keystrokes. O  ne company estimates agents experience a 98 percent keystroke savings by bridging commercial lines quotes versus starting in the website.


AGENCY MANAGEMENT

An agent’s viewpoint According to Laura Bankos Kury, vice president of Collens-Wagner Agency, Inc. in York, Pa., “I find the approach that Millers Mutual has taken to be most efficient for my agency. Using my agency system and Transformation Station to quote, I get a BOP rate back without rekeying data or ever going to the website.”

quote with the bridged data, providing one continuous workflow. By imbedding the agent credentials, it eliminates the need for the agent to sign onto the website. In the recent 2013 Real-Time/ Download Campaign Agency Survey, agents said the number two improvement priority was to reduce the number of quotes that error out. The primary reason errors can occur are from either passing values that are not valid in the carrier system or having missing data that stops the entire quote from bridging. Here are some examples as to how carriers have resolved transactions erroring out: w If a limit or deductible is not an available value for that carrier, the carrier does do not error the bridge but instead, based on rules, default to the next highest value and provide a message

back to the agent describing what has changed, or blank the value to be completed at the website. w If required data is missing, a carrier can dynamically evaluate the data and either display a page to the agent to collect or change the critical pieces of data, or the carrier can default the missing data based on defined business rules. The goal is to get the data that exists bridged, and the rest of the rating rules can happen in the website. Real-time rating (the superhighway): For true rating, every piece of rating data needs to either be available from the agency system or needs to be defaulted or retrieved from other sources. Carrier systems need to be capable of processing the data in real time to return a rate and quote proposal. The goal is to stay out of the carrier’s proprietary system. In reality though, this ideal scenario across commercial lines is rare. This doesn’t mean we have hit a dead end. There are successful implementations emerging that are using technology that is available to provide the same result – a rate and quote proposal back without the need to go to the carrier website. It may require a quick stop along the highway, but it paves the way for change. Here’s a snapshot of what some of these look like. Some carriers are streamlining the agent process by creating

procedures that review in real time each quote and compare it against business rules. With the technology available today, by interrogating the ACORD XML data we can dynamically present a screen to the agent to gather only the missing information for a specific quote that requires agent input. The benefit to this approach is that the agent is only answering what is necessary, and the company is not maintaining rules in multiple places. Carriers are keeping the data input to a minimum, and they default values wherever feasible. That’s the quick stop along the highway. Behind the scenes the additional data that was collected is added to the agent quote request. Defaults are applied based on rules to bump or roll other data before submitting the rating request. Quotes are then returned within seconds, including an accurate rate and PDF quote proposal. The agent doesn’t need to move to the carrier website, an accurate quote is returned, and errors are minimized. If the data submitted surpasses the bounds of the business rules, we bridge what we can, which still saves the agent duplicate entry inside the website. What is important from the carrier’s perspective is that rules are still maintained in one place, which also benefits the agency from an accuracy perspective. The implementations that are emerging are not just for single location or vehicle risks. For example, Millers Mutual Continued on page 20

[ 18 ]


AGENCY MANAGEMENT Continued from page 18 real-time rating includes larger habitational risks with as many as 50 locations and hundreds of buildings.

How can agents switch into overdrive? This leads in to some of the feedback from agents in the 2013 Real-Time/Download Campaign Agency Survey.

Why are different routes necessary as part of the evolution?

Agents that are using real time clearly saw the value, citing the top three benefits as:

Just as agents are independent and use different systems to run their business, so do carriers. And just as each agency has different system capabilities, the carriers have different rating system requirements and capabilities. As a result, each carrier may plan their trip differently. That does not change the destination. What it does is provide a road map for progress and efficiency gains along the way.

w Saves many keystrokes w Significant time saver w Easy to use These are great benefits that should have the industry excited to move forward, so why can’t we get more agents out of first gear? In the same survey, agents that were not using commercial lines real time were asked to cite the top three reasons why. Here are their responses and some of my thoughts.

Agents: No consistent realtime comparative rater for commercial lines. My response: I agree they are not as prevalent for commercial lines as they are for personal lines, but I don’t know why that should stop an agent from using realtime rating. You are still quoting today, and you are rekeying commercial lines data that exists in your agency management system to get a quote. Wouldn’t you rather use the data in your system than rekey the same data in to multiple websites? Agents: Too few carriers. My response: We should shout out to the world about the carriers that do provide this functionality. Why not use what is available and realize significant savings now? Don’t wait for the road system to be 100 percent complete; that won’t

“The road

to

success is always under construction.”

[ 20 ]


Primary Agent | March 2014

happen. (There is constant road construction in this country.) More use means more roads will be built.

What can carriers do?

Agents: Easier to go to website.

w If you haven’t begun, plan your trip.

My response: Really? Granted workflow changes can present challenges. (Have you ever bought a new car where the gas cap switched sides? I bet you were able to still figure out how to fill up the tank.) Hitting a button on your system and saving hundreds if not thousands of keystrokes — using the system you already have put a significant investment into — has got to be easier than duplicating your entry of data into one or many carrier systems. Agents, here are some key ways you can help shape your future and move the industry forward: w Use commercial lines bridging and rating for those carriers that are providing it. w Give feedback to your carriers on what works and what doesn’t. w Tell carriers you need this functionality. w Embrace the next improvement or new development. w Thank senior carrier executives when they provide you with time-saving, real-time functionality.

w Get out your roadmap. w Understand your options.

w Understand your internal capabilities and what is available externally to assist you. w Talk to industry resources to help. w Get started. Begin with one line. w If you have implemented, talk to your agents, get feedback, and enhance existing implementations.

Thad Bauer is president and co-founder of NxTech, Inc., a firm that helps carriers, MGAs and brokers implement Real Time and Download, using ACORD Standards, to exchange data electronically with their agent partners. Thad has almost 25 years of experience in the propertycasualty insurance industry and in automating workflows between companies and agencies. Thad authored this article for ACT and can be reached at tbauer@ nxtechcorp.com. This article reflects the views of the author and should not be construed as an official statement by ACT.

w Get creative! w Plan your next trip.

Don’t wait for perfection Travel the roads available. Build more roads. Improve those roads. Much like the interstate system, commercial lines realtime rating will continue to evolve, but it is essential for the future of the independent agent distribution system to have agents and carriers get on the road and start that drive today. We need both the engineers to design it and the drivers to use it to understand its full capabilities. Now is the time to pave the road for our future. As the noted authority Lily Tomlin said: “The road to success is always under construction.”

[ 21 ]

Coastal Agents Alliance, LLC


Primary Agent | March 2014

Technology U P DAT E

THE CLOUD-ENABLED TRANSFORMATION OF ENTERPRISE IT

DANIEL BURRUS Daniel Burrus is considered one of the world’s leading technology forecasters and strategists. He is the founder and CEO of Burrus Research, a research and consulting firm that monitors global advancements in technology-driven trends to help clients better understand how technological, social and business forces are converging to create enormous, untapped opportunities. The New York Times has referred to him as one of America’s top three business “gurus” in the highest demand as a speaker. For more information on the services and products offered by Daniel Burrus, please visit burrus.com.

Thanks to exponential advances in processing power, bandwidth, and storage (what I call the three change accelerators), the business environment is undergoing a major transformation. I have been tracking the trajectory of these three change accelerators for the past 30 years, and they have now entered

a predictable new phase – one that will transform every business process. In fact, based on the technology-enabled hard trends that are already in place, including advances in cloud computing and virtualization, over the next five years we will transform how we sell, market, communicate, collaborate, innovate, train and educate. [ 22 ]

In order to fully understand how cloud computing and virtualization will work together in new ways to transform the business world, let’s take a quick look at the evolution of each. Cloud computing, which refers to companies using remote servers that store data and allow users


to access information from anywhere, takes three different evolutionary forms. Most of us first started using a public cloud provided by companies such as Microsoft, Google or Apple, where we stored documents remotely on their servers, or we used a cloud service like Flickr to store and share photos.

have a private part of your corporate cloud that is secure and only accessible by employees, and you have a part of the cloud that is public where strategic partners, vendors and customers can access limited content.

The private cloud soon followed when companies wanted to provide employees secure access to company files from any device anywhere. Since it’s private, it’s secure and the public does not have access to it. Midsize and large companies have been rapidly establishing private clouds.

The game changer Cloud computing and virtualization go hand-in-hand, and virtualizing desktops and servers is just the beginning. For example, we’re already seeing virtualized processing power. Think of this as accessing a supercomputer in the cloud and having that supercomputer’s processing power available on your smart phone or tablet.

It didn’t take long to see the private/ public cloud emerge – also called a hybrid cloud. In this configuration, you

Part of this evolution of cloud computing and virtualization is that we can now virtualize large components

of IT. We are already seeing IT as a Service, much like how software as a service (SaaS) became popular. This means that much of the IT department will be virtualized as an on-demand service and running in the cloud.

Over the next five years we will transform how we sell, market, communicate, collaborate, innovate, train and educate. I was in China two months ago consulting with CIOs who were not only using software as a service (SaaS), but several were also in the process of implementing hardware as a service,

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[ 23 ]


TECHNOLOGY UPDATE

connectivity as a service, collaboration as a service and security as a service. The real excitement was around implementing everything as a service (XaaS). Clearly, IT is quickly becoming an integrated collection of intelligent services that are on demand, on the move and on any device. The benefits of IT as a service are immense. Not only will it save money, but it can also increase speed and agility. Since your servers aren’t being used 100 percent of the time, the efficiency varies. With IT as a service, you can scale in real time as demand dictates by the nanosecond. As sales increase or decrease, the system will instantly self-configure. Now you’re only paying for what you’re using, meaning you’ll benefit from dynamic

resource allocation, maximizing what you have and what you’re paying for at all times.

Not only will it save money, but it can also increase speed and agility. IT as a service is a game changer. Because you now have components of the IT department existing in the cloud, you free your in-house IT staff to shift from a maintenance mode to an innovation mode. As such, your IT department can focus on achieving business goals, creating innovative

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[ 24 ]

solutions and driving sales rather than upgrading individual user’s computers and firefighting everyday problems. It allows the IT department to examine unfolding the industry trends so your company can give customers the products and services they would ask for, if they only knew what was possible. The fact is that the ability to innovate has never been more possible and has never happened faster. In transformational game changing times such as what we’re experiencing now, the key rule is this: If it can be done, it will be done … and if you don’t do it, someone else will.


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Donkey ball claim a pain in the arse for insurer West Bend Mutual Insurance Co. must defend Buckeye Donkey Ball LLC in a case brought by two Bucks County, Pa. middle school teachers. A federal judge decided that, while the insurer’s general liability policy excluded coverage for injuries suffered during sports sponsored by Buckeye, the term “sponsor” was unclear. The November 2009 event — during which the teachers said they were thrown off of the donkeys they were riding while playing basketball — was actually sponsored by another organization. Sources: law360.com, businessinsurance.com ________________________________________________________________

The Last & Least column is dedicated to the industry’s oddities — from creative claims and kooky coverages, to (tasteful) jokes and strange stories. Submit yours to IAB@IABforME.com, subject line: Last & Least. The editor will happily protect sources’ anonymity upon request.


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Primary Agent - March 2014 - MD Edition