Primary Agent - March 2013 - PA Edition

PENNSYLVANIA

ALSO INTHISISSUE: ________________ 10 ways to prevent E&O How to appeal a WC classification Tenants & flood insurance When business income coverage falls short

RENEW ONLINE

iabgroup.com/renew Your membership expires March 31.

10

Contents PRIMARY AGENT MAGAZINE The ins and outs of Claims-Made Policies Navigating the intricacies of Claims-Made Policies is no easy feat. One missed turn in recognizing and reporting a claim can lead to a dead end — and no coverage. The following pages shed light on the complexities and explain how agents can lead their clients to a satisfactory finish.

16

Page 10

IA&B Marketing Center Position yourself as a trusted insurance expert by taking advantage of IA&B’s consumer education pieces, available in the new Marketing Center.

Page 16

22

Appealing workers’ comp reclassifications A workers’ compensation reclassification — and resulting rate increase — can take a client from smooth sailing to all-hands-on-deck-crisis mode.

Here, IA&B member Frank Pastuck shares his lessons learned for how an agent can successfully steer a client through an appeal.

Page 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

In every issue 2 3 4 6 8 17

Chair of the Board’s Message Member FAQ State News Preventing E&O Coverage Corner Glance at Events

21 26 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. Ride-along enclosed.

Postmaster: Send address changes to above address.

Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2013-3 is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.

Copyright 2013. 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

Norman F. Basso, CPCU

Officers

Chair of the Board’s

Norman F. Basso, CPCU Chair of the Board York, Pa. G. Greg Gunn, CIC Vice Chair of the Board Lemoyne, Pa.

M

E

S

S

A

G

E

Robert B. Hall, CPCU, CLU, ChFC, ARM, ARM-P Immediate Past Chair of the Board West Chester, Pa.

Members

Spring fever

Joyce M. Bailey, CIC, CRM, CPIW Newark, Del. Henry “Butch” Bradley, Jr. Forest Hill, Md.

At last, it’s March. With those first signs of spring, we all feel a little more invigorated. Goodbye, hibernation. Hello, productivity!

Members are the reason we exist. Capitalizing on the season of change and energy, IA&B will launch a new Member Agent Panel (MAP) program in the coming weeks. MAP meetings bring together member agents and IA&B leadership and staff to discuss the independent agency experience — and how the association can help members succeed. The spring 2013 MAP meetings are the first in a two-year cycle with a fresh format and new participants.

Timothy P. Burris Mifflintown, Pa. N. Lee Dotson, CIC, AAI Wilmington, Del. Michael P. Ertel Columbia, Md. John L. Frankenfield Telford, Pa. John B. Hollister Milford, Pa. Diana M. Hornung Hanby, ACSR Wilmington, Del. 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.

In addition, IA&B will unveil additional opportunities to engage members, such as gathering groups of demographically similar members to better understand their specific needs. The goal is for your association to remain flexible and relevant. To embrace the changes that members are facing.

So this spring (and I promise that it is on its way), as you witness the change in seasons and deal with the changing industry, know that IA&B is poised to help members face whatever tomorrow brings.

Craig S. Mader Gambrills, Md. Ann Gallen Moll, CIC Reading, Pa.

Until next month,

Joseph R. Pastor, CPCU, AAI Oil City, Pa. April E. Ressler, CIC Altoona, Pa.

Norm Basso

Scott C. Rogers, CPIA* York, Pa. David B. Wasson Sr., CIC State College, Pa. Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** New Castle, Del.

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

Driving members to distinction.

[2]

Member FAQ QUESTION: One of my commercial insureds is a tenant in a commercial building.

Shortly after moving in, he installed a $50,000 floor. He bought flood insurance, but I’ve heard that coverage for a tenant’s improvements and betterments under the flood policy is different. How do I make sure his floor is properly covered for flood?

ANSWER: 2) The building policy must be issued in the names of both building owner and tenant, with the tenant’s Contents policy remaining separate.

Great question. The flood policy does not always “behave” like a traditional property policy, and you need to know what your options are and make sure that you are in fact going to have coverage for the tenant. To do so, you need to review the General Rules (p. 13). The section addressing the improvements and betterments is section F1. Under the January 2013 manual, some slight revisions have been made, but the general setup is the same.

Note: Since the NFIP does not allow duplicate coverage, only one building policy can be issued. If that is the case, caution should be paid to the wording so that both parties can be properly indemnified; e.g. the policy could be issued in both names as their interests may appear.

The tenant can purchase coverage for the improvements and betterments under the Contents policy. The maximum amount available is 10 percent of the contents limit, which could very well be insufficient in your case; so you may have to increase the policy limits. The improvements and betterments will include such items as fixtures, alterations, installations and additions that become part of the building … nothing new here. The new floor would meet those criteria.

In your case, two hurdles must be cleared.

A) The value of the improvements: Is the value of the floor going to be insurable under the Contents policy?

B) The lease: What does the lease currently state?

Does it meet one or both conditions above, in which case securing coverage under a separate building policy might be possible?

The tenant may purchase Building coverage to cover his or her insurable interest in the improvements and betterments only if certain specific conditions are met:

DO YOU HAVE A QUESTION? Email it to us at iab@iabgroup.com. Please use “Primary Agent FAQ” in the subject line of your message.

You can also fax your question to 717-795-8347. We look forward to answering your questions!

1) The lease agreement signed with the owner must: a. require the tenant to purchase insurance for the tenant’s improvements and betterments made or acquired by the tenant; and/or b. state that the tenant is responsible for the repair of the building and/or improvements and betterments that become damaged.

1 This reflects the most current manual is available from http://www.fema.gov/flood-insurance-manual at the writing of this article. You can access the different sections separately, including the General Rules, to find the latest instructions.

[3]

State News Primary Agent | March 2013

IA&B members set sights on federal advocacy

Del. non-resident license renewals overdue

Independent agents’ voices will be heard on Capitol Hill. Next month IA&B members — along with over 1,000 agents from across the country — will congregate in Washington, D.C. for the annual IIABA (Big “I”) National Legislative Conference. Participants will meet with their representatives and senators to discuss terrorism risk insurance, health care, insurance regulation and agent licensing, among other hot-button federal legislative issues.

Producers and agencies with non-resident licenses in Delaware: Your renewal was due Feb. 28.

Look for highlights from the April 17-18 conference in Agent Headlines and future editions of Primary Agent, as well as on IA&B’s Twitter feed (@IAB_PA).

WELCOME

New Members Mooney Insurance Brokers Flourtown, Pa.

[4]

Delaware Insurance Commissioner Karen Weldin Stewart announced late last year that renewal notices no longer will be mailed. Instead, the Delaware Department of Insurance will post them on its homepage 90 days prior to renewal date. Licensees are now responsible for checking the website to ensure they are up to date with renewal payments. http://delawareinsurance.gov/

Buckle up for Producer Peak Performance This intensive insurance sales training program, which will be held April 15-18 in Mechanicsburg, is tailored for independent agents by a dynamic presenter with 30 years of real-world experience as a broker and consultant.

It is a unique, affordable, one-time opportunity to gain the skills and knowledge to shift sales into high gear.

With the challenges of independent agencies in mind, IA&B has worked with Maureen Gallagher, CIC, CWCP, CRM (founder and director of Insurance Partners Academy), to develop a nononsense sales training program that is timely, detailed and loaded with practical sales strategies for producers. www.iabgroup.com/ performance

CGL and CP changes looming; IA&B class addresses revision Producers should start preparing for major changes scheduled to affect the Commercial General Liability (CGL) and the Commercial Property (CP) programs in the spring. Multistate filings submitted by the Insurance Services Office (ISO) have been approved for an April 1 effective date. From liquor liability, blanket additional insured, water exclusion or coverage for roof surfacing, and many more, the changes impact many different facets of the policies.

To help members keep up with the revisions — and keep E&O at bay — IA&B developed a course (approved for 8 hours of CE) that will allow producers to understand how the changes expand or reduce coverage and, ultimately, how their insureds are impacted.

IA&B members must start preparing for carrier implementation. As with any ISO filing, some carriers will automatically adopt the changes, others may delay the adoption, and others still may adopt some of them and file their own separate forms, picking and choosing the items they wish to retain.

IA&B course dates and locations in Pennsylvania: March 5 – Mars March 13 – Mechanicsburg March 26 – Ft. Washington March 27 – Bethlehem April 30 – Erie May 9 – Wilkes-Barre May 23 – Lancaster June 20 – Altoona www.iabgroup.com/education

MAPs to meet Approximately 100 IA&B of Pennsylvania members will weigh in on the association’s new Marketing Center, education initiatives and advocacy efforts and will discuss the evolving independent agency experience. The 2013 Member Agent Panels (MAPs) are scheduled for April in nine locations throughout the state.

IA&B announces new deputy CEO

The MAPs allows IA&B to keep a finger on the pulse of the independent agency system. Feedback from the meetings will go to the association’s board of directors, where leadership will use it to strategize priorities.

Awareness week opens floodgates for sales Pennsylvania is one of the most floodprone states in the nation, according to the Pennsylvania Emergency Management Agency. Thanks to the Susquehanna, Delaware and Ohio River basins and, by some accounts, more miles of running water than roads, little of the state is immune.

March 18-22 is National Flood Safety Awareness Week, an annual National Weather Service-sponsored public awareness campaign — upon which agents can piggyback to promote the need for flood insurance.

The IA&B website is overflowing with flood insurance resources: ◗ Consumer tips ◗ Coverage explanations ◗ Market access ◗ Sales tips ◗ Sample notification/rejection of coverage form www.iabgroup.com/pa/ coverages/flood [5]

Insurance Agents & Brokers has promoted Jason F. Ernest, Esq., to deputy CEO and counsel.

Ernest heads the advocacy department at IA&B, where legal, government and industry affairs are handled on behalf of independent agents in Delaware, Maryland and Pennsylvania.

Ernest is an undergraduate of The Pennsylvania State University, where he majored in public policy.

He attended law school at Widener University, and became licensed to practice in Pennsylvania in 2005. While at IA&B, Ernest successfully argued before the Insurance Department and the Commonwealth Court, representing the interests of independent agents.

His background includes over two years in the litigation department at the Washington, D.C. office of Skadden, Arps and, while in law school, work for Cincinnati Insurance and two Harrisburg, Pa. insurance-defense firms.

Preventing Primary Agent | March 2013

ERRORS AND OMISSIONS

PREPARING FOR THE NEXT HURRICANE SANDY? 10 ways to prevent E&O CURTIS M. PEARSALL CPCU, AIAF, CPIA Curtis M. Pearsall, CPCU, AIAF, CPIA, president of Pearsall Associates Inc. and special consultant to 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@iabgroup.com.

thought their damage would be covered by insurance are now finding out differently. This is why E&O claims have already started coming in. Presently, it is difficult to foresee any specific trends from this storm, yet it is projected that uncovered business interruption losses could result in a significant number of claims by customers against their agents.

There is an expression in the errors and omissions world: “Nothing identifies an agent’s mistake as quick as a catastrophe.” When an agency has potentially hundreds of customers affected by a single occurrence, there is obviously a greater chance there will be an “error or omission” in at least one of those files.

In some respects, Hurricane Sandy redefined the worst that can happen. Not only did it seem to emerge all of a sudden, it wound up taking a path of destruction that has never been seen before. Has there ever been a weatherrelated catastrophe that literally impacted more than 30 percent of the entire country? While it may be some time before we know the final overall impact of this storm, there are reports that the total, including economic impact, could be upwards of $50 billion.

What to do Where will the next Sandy be? What will it look like?

What will be the extent of the damage? Will it be a hurricane, an earthquake, a massive flood, a tornado or some other type of catastrophe? What are the chances of your community suffering from Mother Nature’s wrath? No one knows the answers at this point. So, what should we learn from this recent catastrophe? What, if anything, should agents do differently or better moving forward?

Much of this will be covered by insurance. Some customers, though, who [6]

Conduct periodic reviews with customers. One initiative that agents should be diligent in performing, if not already doing so, is periodic reviews for and with their personal and commercial lines accounts. The overall goal or focus should be education.

Reviewing the coverages the customer has, and addressing possible exposures that are currently uninsured, will help make the customer a more educated and astute insurance buyer.

Make an offer. Ideally, this account review process should be performed with every client. Send a letter to your customers inviting them to call to schedule a time for this review. In some respects, now is a great time to do that as everyone, regardless of whether they have been personally affected by Hurricane Sandy, can only wonder how well their insurance program would respond if this catastrophe happened to them. Including a statement such as “We

want to make sure you understand the coverage you have and what options are available” is enticing.

It may be somewhat idealistic to think every customer will want this review, but just the offer of the review could be a significant part of the agency’s defense if a problem arises down the road.

Use an exposure analysis checklist.

As you perform the review, use some type of an exposure analysis checklist (see box). This will assist in ensuring that the necessary questions are asked and the various exposures are identified. If the customer declines the coverage, secure his or her signature acknowledging the refusal of that specific coverage.

Send a letter. At the conclusion of the review, send the customer a letter documenting the issues discussed and the final resolutions.

This will serve to identify any misunderstandings that potentially exist. In addition to the valuable educational component, this document will reinforce that the customer is ultimately accountable for his or her buying decisions. This process should, in fact, result in new business sales and higher retention.

As you interact with your customers, it might be appropriate to ask “What would happen to you/your business if Hurricane Sandy hit your community? Is your insurance program up to date? Do your limits (property/time element, etc.) reflect your current business model?” If the recent events of Hurricane Sandy don’t result in your personal and commercial customers reflecting on their insurance program, it is difficult to know what will.

Other solid ways to educate customers Newsletters. These can be paper or electronic. Cover issues that are unique to the time of year — seasonrelated matters such as boating issues or the insurance implications of a child going off to college.

Social media postings. This is a great tool to educate customers on a variety of issues. This also can be a tremendous marketing boost as your followers will clearly see your expertise.

Rough Notes Producer Online outlines the exposures of businesses in over 650 different industries, and IA&B members enjoy discounted access.

Del.: www.iabgroup.com/de/ rough_notes Md.: www.iabgroup.com/md/ rough_notes Pa.: www.iabgroup.com/pa/ rough_notes

The insurance proposal. Strengthen your proposals by including definitions of key insurance terms.

Ensure your customers sign-off on those coverages they do not want.

Look for cross-selling opportunities.

Every time your agency interacts with a customer, look for cross-selling opportunities. Many agencies provide a new business incentive for CSRs in rounding out the insurance for their customers. This can be a win-win for everyone.

Include limit options for your customer to consider. Not only will this help them to realize that higher limits are available, they may also find that higher limits are not as expensive as they originally thought.

Exposureanalysis checklists

Send the customer a cover letter with the policy, requesting that they review the policy and advise your agency of any questions or problems. This could prompt the customer to realize they have some coverage gaps.

Take the initiative, sooner rather than later, to educate your customers on the coverage they have and how it will respond if the next weatherrelated catastrophe strikes your community. When that event happens, you will be glad you did.

For those agencies affected by this terrible disaster, our thoughts and prayers are with you and your entire family of customers.

Coastal Homeowners Insurance /^K ,Kϯͬ,Kϲ ͻ /ŵŵĞĚŝĂƚĞ YƵŽƚĞƐ Primary and Secondary Homes are eligible

AM Best !A" Rated 15% commission

For an appointment, contact:

Sharon Karlsson

Phone: 201-407-7151 skarlsson@coastalagentsalliance.com

[7]

Coastal Agents Alliance, LLC

Coverage Primary Agent | March 2013

CORNER

BUSINESS INCOME: THE BUSINESS REOPENS, BUT THE LOSS CONTINUES

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.

A small clothing manufacturer had a contract to supply jackets to a large national clothing company.

Their plant was badly damaged by a fire and the plant was shut down for four months. Since they were unable to supply the jackets, the national clothing company terminated their contract. This contract accounted for 85 percent of their sales. It took another 12 months for the clothing manufacturer to restore their sales to their pre-loss level.

Their loss of business income over that 16 month period totaled $2,400,000.

An apartment complex was badly damaged by a tornado. Because of the extensive damage, all the tenants were forced to move elsewhere. The apartment buildings were repaired in three months, but it took nine months for the rental income from the apartments to reach its pre-loss level.

The loss of rental income for those nine months totaled $210,000.

A tool manufacturer had a fire at its plant and, as a result, was unable to manufacture any of their products for six months.

Once they reopened, they discovered that while they were shut down several of their regular customers began purchasing their tools from a competitor. Their income did not reach its pre-loss level for another six months after they reopened. Their business income loss for those 12 months totaled $1,500,000.

The apartment complex, the tool manufacturer and the clothing manufacturer had Business Income policies with limits of insurance sufficient to pay for their total loss. But, were they paid for the total loss?

No! Why not?

The Business Income Coverage Form states, “We

[8]

will pay for the actual loss of Business Income you sustain due to the necessary ‘suspension’ of your ‘operations’ during the ‘period of restoration.’” The “period of restoration” ends when the property at the described premises should be repaired, rebuilt or replaced with reasonable speed and similar quality or when business is resumed at a new permanent location.

Therefore, the “period of restoration” for the apartment complex was three months; for the tool manufacturer, it was six months; and, for the clothing manufacturer, it was four months.

However, there is some (very little) good news. The Business Income Coverage Form has an Additional Coverage — Extended Business Income. This coverage begins on the date the property is repaired, rebuilt or replaced and

operations are resumed or tenantability is restored. It ends the earlier of the date that the business income or rental value reaches the level that would have existed if no loss had occurred, or 30 days after operations are resumed or tenantability is restored. (Note: The 30 days limitation will be increased to 60 days under the April 2013 Commercial Property revisions.)

So the apartment complex, the tool manufacturer and the clothing manufacturer will have coverage for their business income loss for an additional 30 (soon to be 60) days.

However, they are not going to be paid for their total loss.

Could, and should, they have been covered for their total loss? Yes and yes.

That 30 (soon to be 60) days can be

increased to 90 days, 120 days, 240 days, 360 days or all the way to 730 days, in 30-day increments. It’s an optional coverage — Extended Period of Indemnity.

What about the clothing manufacturer’s loss of income due to the cancellation of a contract. The Causes of Loss Forms have the following exclusion.

Suspension, lapse or cancellation of any license, lease or contract. But if the suspension, lapse or cancellation is directly caused by the ‘suspension’ of ‘operations,’ we will cover such loss that affects your Business Income during the ‘period of restoration’ and any extension of the ‘period of restoration’ in accordance with the terms of the Extended Business Income

Public servants

are an

asset.

We help protect them from liability.

At PennPRIME, we specialize in risk management for municipal entities.

We start by helping you define the factors that affect your total cost of risk, including insurance premiums, proactive loss control and claims reduction.

Then, we tailor a solution to help you manage it.

Why take the risk without PennPRIME?

800.848.2040 717.236.9469 www.pennprime.com

[9]

Additional Coverage and the Extended Period Of Indemnity Optional Coverage or any variation of these.

What you should be able to say is, “We will cover your loss of business income until we run out of money, we run out of days or you return to your pre-loss level.” Then pray they don’t run out of money or days before they reach their pre-loss level.

Y’all take care!

COVERAGES

The ins and outs of Claims-Made Policies

Navigating the intricacies of Claims-Made Policies is no easy feat. One missed turn in recognizing and reporting a claim can lead to a dead end — and no coverage. The following pages shed light on the complexities and explain how agents can lead their clients to a satisfactory finish.

Primary Agent | March 2013

C

laims-Made Policy states that a claim must be made during the policy period or the extended reporting period (ERP), if applicable. Because no two policies are exactly the same, a basic knowledge of the Claims-Made Policy, including the definition of a claim, the definition of a wrongful act and the claim reporting provisions, is essential to understanding this type of coverage.

However, this is not as simple as it sounds because there are two distinct types of Claims-Made Forms. One is the Claims-Made & Reported Form and the other is the pure Claims-Made Form.

Claims-Made & Reported Form The first and most widely used claims-made form today is the Claims-Made & Reported Form. This policy requires that the claim be made during the policy period or ERP, and reported during this same period of the policy currently in force at the time. A typical policy declaration page of this type may read: “This is a Claims-Made Policy. This Policy covers only those Claims first made and reported against the Insured during the Policy Period or ‘ERP,’ if applicable.”

Agency E&O and Claims-Made Policies Beyond clients’ professional liability needs, your agency’s E&O protection can be impacted positively by choosing a Claims-Made Policy.

The IA&B Sales Center — which operates as an independent insurance agency to offer E&O and umbrella policies in Pennsylvania, Maryland and Delaware — works with several carriers who offer coverage on a claims-made basis.

To learn more, and for a complete review of your insurance program, contact the IA&B Sales Center at 800-998-9644, option 2.

It is critical that the insured fully understands the definition of a “claim.” Thus, when a claim is triggered by a covered wrongful act, the insured can report the claim to the carrier appropriately and ensure more complete coverage.

The key words to look for are “… and Reported.” This is significant because it stipulates that it must be reported within a designated time frame.

[ 11 ]

COVERAGES

Pure Claims-Made Form In contrast, the less commonly used pure Claims-Made Form still requires that a claim be made during the policy period or the ERP. However, the major distinction between this form and the Claims-Made & Reported Form is that insured needs only report the claim “as soon as practicable,” or promptly, and not necessarily during the policy term which, in essence, can be anytime in the future. This form is more frequently used with directors and officers liability policy type policies.

A sample of this wording may read: “This is a Claims-Made Policy which applies to ‘claims’ first made during the policy period or any extended reporting period.”

The difference between Claims Made & Reported vs. pure Claims Made While the differences of the policies seem subtle, not knowing those differences can have a dramatic impact on the coverage. Also, the answers may vary depending on the insurance company issuing the policy. In the professional liability insurance community, “claimsmade” terminology is generically used whether it is a Claims-Made & Reported Form or a pure Claims-Made Form. Don’t be misled! Many policies declare they are Claims-Made, when in reality, they are the Claims-Made & Reported. Some policy forms incorporate either bold wording on the declaration page or a

statement within the insuring agreement proclaiming the policy is a Claims-Made & Reported Policy.

Be careful: If this wording is absent, do not assume that the form is a “pure” Claims-Made Form. You need to dig deeper into the policy and examine the “Notice of Claim” reporting

Before an insured can report a claim, he or she needs to know what constitutes a claim. provisions of the policy. This is where you will find additional reporting conditions and restrictions. If it is a Claims-Made & Reported Form, it will generally state that the claim must be reported within the policy period or another specific time frame, which can be as many as 60 days after the policy expiration. It is also important to point out that the pure Claims-Made Form has no such restrictions.

The wording may read something like this: “The Insured shall, as a condition precedent to the obligations of the Company under this Policy, give written notice to the Company of any Claim made against the Insured as soon as practicable during the Policy Period. There shall be no coverage for any Claim reported to the Company later than 60 days after the expiration of

[ 12 ]

this Policy or after the expiration of any applicable Extension Period.”

The wrongful act The “wrongful act” starts the sequence of events that ultimately leads to a claim. A wrongful act is any actual or alleged error, omission or negligence committed by the named insured. However, the definition of wrongful act varies depending on the type of professional liability policy purchased. For example, the most common definition of wrongful act in an EPL policy includes “sexual harassment, discrimination or wrongful termination.”

Conversely, the definition of wrongful act in a D&O policy can be “any actual or alleged breach of duty, misstatements or misleading statements committed by the insured.”

Therefore, the wrongful act serves as the “claim trigger” under a Claims-Made Policy.

What is a claim?

Before an insured can report a claim, he or she needs to know what constitutes a claim. In many instances a claim may be defined as “an oral or written demand for monetary or nonmonetary damages, including any judicial or administrative proceeding.” (It should be noted that not all policies utilize this exact wording.)

To gain a deeper understanding, we will look at a couple of examples relating to Employment Practices Liability claims.

Primary Agent | March 2013

Case No. 1: During the policy period, the insured received a notice from the Equal Employment Opportunity Commission alleging “discrimination” (i.e. “a wrongful act”) by a former employee, and the insured does not report it to the carrier. By the policy definition, that notice (i.e. an administrative proceeding) would be considered a claim.

Unfortunately, the insured may not realize that this would be deemed a claim because an actual lawsuit or demand was not filed against him or her.

Therefore, the insured may not be compelled to report this to the carrier.

In that situation, if a lawsuit were filed against the insured after the policy expiration, after the ERP, if applicable, or even against a subsequent policy term, no coverage would be afforded because the notice by the EEOC served as the actual notice of claim, not the lawsuit recently filed. Conversely, if the insured reports the EEOC complaint during the policy period on the 60 day ERP in this case, coverage would apply. (See Figure 1.)

Case No. 2: An employee of a furniture manufacturer was being sexually harassed by another employee.

The harassed employee informed the supervisor of this incident via email and asked for intervention (i.e. “non-monetary demand”).

The supervisor took an internal report, but did not report the claim to the insurance company

during the policy period or 60 day ERP. Seventy-five days after the policy expired, the harassed employee filed a lawsuit against the company, and then the claim was reported to the carrier.

Coverage was subsequently denied because the claim was not reported during the policy or ERP. In this case, the insured did not realize that the notice to the supervisor of the harassment actually served as notice of a claim under the definition of the policy because that was the claim trigger. (See Figure 2.)

A claim can only occur if a wrongful acts triggers coverage.

In analyzing the previous scenarios, the allegations of discrimination and harassment were the wrongful acts that triggered the claims. Moreover, those wrongful acts could have occurred at any time in the past, even years before, provided it was not before any retroactive date imposed by the carrier and/or prior to the policy expiration.

Therefore, it is critical that the insured fully understands the definition of a “claim.” Thus, when a claim is triggered by a covered wrongful act, the insured can report the claim to the carrier appropriately and ensure more complete coverage.

Reporting a claim Because of the stringent reporting requirements of Claims-Made Policies, not knowing when or what to do when a claim arises can spell disaster for an insured.

[ 13 ]

Unlike other types of policies, professional liability polices are very explicit on how and where to report a claim.

It is the insured’s obligation to report a claim or a potential circumstance that could give rise to a claim to the carrier. While many insureds might be inclined initially to try to handle claims internally to avoid reporting to the carrier, the delay in reporting can easily be detrimental to the insured and put the coverage in jeopardy. Unlike other types of policies, professional liability polices are very explicit on how and where to report a claim. The reporting requirements cannot be stressed enough because failure to comply with the policy provisions can bar coverage for an insured. We encourage clients to report everything to protect their rights and allow us to handle the renewal negotiations.

In contrast, the pure ClaimsMade Form requires that the claim be reported promptly or as soon as practical. That, of course, is very subjective and, in theory, can be reported at any time in the future even after policy expiration.

However, this is certainly not an advisable approach.

COVERAGES

In addition to the Claims-Made issue, many policies provide an awareness provision that allows the insured the ability to report any incidents or circumstance the insured may become aware of that may lead to a future claim.

That also has a window that states such notice must be given during the policy period.

When a circumstance is reported, it will be considered to have been reported during that policy period should it result in litigation after the policy has expired. Because each policy has a different reporting provision, it is important that the insured knows and understands his or her reporting requirement.

In the last hard market, at least one carrier introduced a Claims-Sustained policy.

Although unique and rare, during the past 15 years, a number of both D&O and E&O underwriters have used Claims-Sustained policies.

Those types of policies prohibit any notice of a claim other than actual litigation.

Each policy specifically outlines when and how claims need to be reported. While numerous carriers provide an automatic reporting period after the policy has expired, that period is normally limited to no more than 30 to 60 days.

It is also important to bear in mind that any extended reported period provided by the policy only extends the period in which a claim may be reported. The wrongful act must have occurred

[ 14 ]

prior to the expiration of the policy. The insured needs to know that a claim should always be reported to the existing carrier providing the coverage at the time, not the carrier who was on risk when the wrongful acts were alleged to have occurred.

The only exception to this may be where a potential incident or circumstance was previously reported to a previous carrier.

It is also important to bear in mind that any extended reported period provided by the policy only extends the period in which a claim may be reported.

Simply renewing with the incumbent carrier does not circumvent the need to report the claim within the policy term or applicable ERP. It is often assumed that if an insured renews with the same carrier, the reporting requirement continues into the next term.

This is a common misconception that should be addressed as part of any comprehensive renewal process. Keep in mind, unless the carrier has changed its form on the renewal (as some carriers had done during the hard market by replacing the Claims-Made Form with more restrictive Claims-Made & Reported

language), the policy wording will not usually change.

Therefore, the reporting requirements will most likely remain the same unless notified by endorsement at the time of renewal.

While the pure Claims-Made Policy is certainly the most advantageous Claims-Made form that provides the broadest reporting allowance, it is rarely used. Thus it is imperative that the insured becomes familiar with the Claims-Made & Reported Form, because it is more likely that this will be the policy he or she will need to know when a claim comes down the road. _________________________________

Wayne E. Bernstein is director of professional lines for Monarch E & S Insurance Services, a managing general agent and wholesale broker. Phone: (805) 577-6800, Ext. 223. Email: wayneb@monarchexcess.com.

Reprinted with permission from Insurance Journal, October 2005.

On the Web at www.insurancejournal.com Š Wells Publishing, Inc. All Rights Reserved.

Foster Printing Service: 866-8799144, www.marketingreprints.com

Producer Peak Performance April 15-18

IA&B Headquarters

Mechanicsburg, Pa.

Read more and register at iabgroup.com/performance

Drive Insurance

Sales Led by an accomplished independent agent with real-world experience as a top producer, this extended program is a new, unique and affordable opportunity to give producers the skills and knowledge to shift sales into high gear.

IA&B Marketing Center Consumer education pieces Position yourself as a trusted insurance expert

Stay visible to consumers (current customers and prospects) by communicating regularly on proper coverage, not about price.

IA&B saves you the time and effort with a library of insurance information that you can use to respond to questions — or to proactively educate your target market.

Vetted by insurance and legal experts and reviewed by independent agents, the content is truly turnkey, available as raw text for copying and pasting into an email, newsletter or other communication vehicle and as fully designed, customizable marketing flyers.

Consumer content topics: Collision Damage Waiver (for rentals) Condo Insurance Basics Cyber Liability Employment Practices Liability Insurance Flood Insurance & Water/Sewer Backup Homeowners' Insurance Insurance for College Students Limited-Tort vs. Full-Tort Personal Umbrellas Why Choose an Independent Insurance Agent Look for additional consumer content in the coming months.

Visit the Marketing Center: www.iabgroup.com/pa/marketing

Marketing Center tip!

Want to send the consumer education pieces via email or newsletter? Then take advantage of IA&B’s partnerships with Strategic Agencies newsletter service and GetResponse email blasts for discounted access to print and electronic communications. Read more in the Marketing Center.

Glance at Events MARCH CALENDAR

Date 5

Topic

Location

CISR Personal Auto

Hagerstown, Md.

Commercial Changes: Property & CGL Revisions

Pittsburgh, Pa.

5-7

L&H Licensing Study Course

Philadelphia, Pa.

6

CISR Agency Operations

Lehigh Valley, Pa.

7

CISR Agency Operations

York, Pa.

11

CISR Personal Residential

Philadelphia, Pa.*

11-14

CIC Personal Lines

Erie, Pa.

12

William T. Hold: Learning From Losses

Lancaster, Pa.

CISR Personal Auto

Philadelphia, Pa.*

Commercial Changes: Property & CGL Revisions

Mechanicsburg, Pa.

CISR Agency Operations

Philadelphia, Pa.*

13-14

James K. Ruble

Ellicott City, Md.

14

CISR Commercial Property

Philadelphia, Pa.*

15

CISR Commercial Casualty II

Philadelphia, Pa.*

19

CISR Agency Operations

Pittsburgh, Pa.

20-23

CIC Commercial Casualty

Newark, Del.

20

William T. Hold: Learning From Losses

Mechanicsburg, Pa.

CISR Personal Auto

Pittsburgh, Pa.

21

William T. Hold: Learning From Losses

Baltimore, Md.

26

Commercial Changes: Property & CGL Revisions

Philadelphia, Pa.

CISR Commercial Casualty I

Wilkes-Barre, Pa.

CISR Personal Auto

Lancaster, Pa.

Commercial Changes: Property & CGL Revisions

Lehigh Valley, Pa.

13

27

* = CISR Marathon Week

[ 17 ]

Platinum Profile Company profile compliments of the magazine in appreciation of Harleysville’s Platinum level support of the Insurance Agents & Brokers Service Group (serving agents in DE, MD & PA) FEATURED PARTNER Harleysville Insurance CHIEF OPERATING OFFICER Michael L. Browne President and COO COMPANY LOCATIONS Home office in Harleysville, Pa., with four regional and 16 branch offices A.M. BEST RATING A (Excellent) Positive outlook WEBSITE www.harleysvillegroup.com

F

ounded in 1917, Harleysville Insurance is a leading regional provider of insurance products and services for small and mid-sized businesses, as well as for individuals— ranking among the top 60 U.S. property/casualty insurance groups based on net written premiums.

Harleysville also is ranked nationally among the largest commercial multiperil insurers and “Write Your Own” flood insurance carriers.

In May of 2012, Harleysville became a member of the Nationwide family of companies within their property and casualty independent agency operations. Under the Harleysville brand, the company partners with Allied Insurance to operate a national independent agency distribution network, with Allied operating primarily in the Midwestern and Western portions of the country, and Harleysville operating primarily in the Northeast and Mid-Atlantic regions.

Harleysville’s headquarters in Harleysville, Pa., serves as an integral part of Nationwide’s independent agency-based platform.

Harleysville offers a diversified insurance portfolio, including personal insurance, business insurance, inland marine, flood, human services, and life and employee benefits. Agents also have access to a growing number of products from certain other Nationwide-affiliated companies, such as Nationwide Financial, Nationwide Surety & Fidelity, and Titan Insurance.

Commercial lines account for more than 75 percent of Harleysville’s property and casualty premiums.

At the heart of Harleysville’s success are the lasting partnerships the company has developed with its more than 1,300 independent agencies. Harleysville distributes its products exclusively through independent insurance agencies and demonstrates that commitment to its agency force by being a Trusted Choice® company partner. To perpetuate its longstanding agency relationships, Harleysville provides decision-makers close to the point of sale—field underwriters dedicated to specific business segments and customer service representatives licensed to assist agents with their account management responsibilities.

Having “Good people to know” at all levels of the organization serves to define Harleysville in the marketplace by delivering on its brand promise every day—making it easy for agents and policyholders to do business with the company through advanced technology and superior customer support services.

“As a member of the Nationwide organization, Harleysville’s commitment to the independent agent grows even stronger. Our support of the IA&B Partners Program is just one of the many ways our company will continue to invest in the future of our sole distribution outlet.”

—Michael L. Browne, President and COO

BUSINESS | HUMAN SERVICES | INLAND MARINE | PERSONAL | LIFE/EMPLOYEE BENEFITS | FLOOD

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.

FEATURED PARTNER: Millers Mutual Group CHIEF EXECUTIVE OFFICER: Robert L. Lyon, President/CEO COMPANY LOCATION: Harrisburg, Pennsylvania A.M. BEST RATING: A- (Excellent)

“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.”

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.

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.

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.

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

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

PLATINUM LEVEL

BRONZE LEVEL

ACUITY Berkley Mid-Atlantic Group Donegal Insurance Group Erie Insurance Group Harleysville Insurance HM Insurance Group Insurance Agents & Brokers Service Group Inc

Aegis Security Insurance Co

Liberty Mutual Insurance

Encompass Insurance

MMG Insurance Company Millers Mutual Group Millville Mutual Insurance Co Mutual Benefit Group Penn National Insurance Selective Swiss Re The Main Street America Group Utica National Insurance Group

GOLD LEVEL Progressive Westfield Insurance

Center at 800-998-9644, 717-795-9100 or visit us online at www.iabgroup.com to get started.

AmWINS Program Underwriters Inc Auto-Owners Insurance Company Briar Creek Mutual Insurance Company Builders Insurance Group Chubb Group of Insurance Companies Countryway Insurance Company First General Services Foremost Insurance Group Goodville Mutual Casualty Company Guard Insurance Group Harford Mutual Insurance Co Hanover Fire & Casualty Insurance Company Insurance Alliance of Central PA Inc Insurance House Insurance Placement Facility of PA Keystone Insurers Group Inc Lebanon Valley Insurance Company Mercer Insurance Group Merchants Insurance Group Mercury Casualty Penn PRIME Municipal Insurance

commitment of support.

Contact the Member Sales

Agency Insurance Company

SILVER LEVEL

Reamstown Mutual Insurance Company

Access Insurance Company Allied Insurance American Mining Insurance Co Cumberland Insurance Group Frederick Mutual Insurance Co Juniata Mutual Insurance Co PSBA Insurance Trust The Philadelphia Contributionship

State Auto Mutual Insurance Company

Rockwood Casualty Insurance TAPCO Underwriters Inc The Brethren Mutual Insurance Company The Motorists Insurance Group The Mutual Service Office Inc Travelers Tuscarora Wayne Insurance Company Zenith Insurance Primary Agent March 2013

MARKETS

Workers’ comp reclassifications How to appeal the rating system

A workers’ compensation reclassification — and resulting rate increase — can take a client from smooth sailing to all-hands-on-deck-crisis mode. Here, IA&B member Frank Pastuck shares his lessons learned for how an agent can successfully steer a client through an appeal.

Primary Agent | March 2013

Calm before the storm The current workers’ compensation (WC) market is a buyer’s market. Many carriers offer well above what was once a 3-5 percent commission. (At the time of this writing, one carrier was offering 17 percent commission for mono-line WC business.) Days when carriers only entertained accounts with credit experience modification factors seem like a distant memory.

No longer do frequency and severity issues present themselves as major cost factors that require the attention and time of your client’s top people.

What was at one time an administrative matter — a matter of meeting legal requirements for coverage — became a corporate priority in recent years as clients realized that their WC costs were indeed in their control. Industrial hygiene efforts, cumulative trauma disorders, repetitive motion disorders, permissible exposure levels, workplace design and ergonomics all became part of managing costs associated with WC coverage. Accident prevention and return-to-work programs became the buzzwords as clients learned to mitigate costs of compensation insurance and thus preserve competitiveness and profitability.

Given the corporate initiative and priority, clients achieved their results, and the upward trend to costs and premiums slowed, halted and may have even started to decline.

Congratulations to everyone involved. Next crisis, please.

The tide turns One day, however, your client receives a letter from the Pennsylvania Compensation Rating Bureau (PCRB), and the message sends a collective shudder through your client’s organization. Due to a WC audit or a recent Bureau field survey report, the formerly authorized class or classes are now being changed to a different class code — at substantially higher rate(s). In some cases, the resulting premium differential doubles or triples the premium, and the dilemma now becomes how the insured client affords this new unexpected, unanticipated increase in insurance expense.

Along with the letter informing your client and you of this change, there are two pages from the PCRB Manual — “PCRB rules of procedure for appeals of the rating system.”

In short order, you feel a certain connection to the term “aggrieved party.” In rather complex and difficult language, your client is informed of certain time limits and dates by which to make its case.

A PCRB primer What the PCRB is: The PCRB is a non-profit, nongovernmental corporation.

Formed in 1915, the bureau proposes the classification of employers, underwriting rules, policy forms, loss cost values and rating plans for workers’ compensation within the state.

The PCRB is subject to supervision and examination by the Pennsylvania Insurance Commissioner. The PCRB membership is comprised of all insurance carriers, including the State Workers’ Insurance Fund (SWIF), authorized to sell workers’ compensation insurance in Pennsylvania.

What the PCRB is not: The PCRB is separate from the Bureau of Workers’ Compensation, a state agency responsible for hearings in contested cases involving workers’ compensation claims and the enforcement of employers’ workers’ compensation benefit requirements.

Source: PCRB, www.pcrb.com

[ 23 ]

MARKETS

Of course, in some circumstances, the change in classification might be totally appropriate. In other cases, the client might consider the new classification(s) completely arbitrary – defying belief and sensibility. If that is the case, there is much work to be done.

Learning the ropes of the appeal process Paragraph F. review First, the aggrieved party must notify the PCRB, in writing, of the desire to be granted a Paragraph F. review — the Bureau’s preliminary process of reviewing an insured’s grievance. Your client is required to submit all information in support of its appeal. At this point, the aggrieved party and the PCRB attempt to agree upon the facts of the appeal. The Bureau also may make written inquiries to the appellant, as well as make a physical visit in order to make a determination of fact or condition as may exist.

If sufficient information is provided and if the Bureau is so inclined, the PCRB will notify the appellant, in writing, that the staff Paragraph F. review is complete and that the decision is “final.” The appellant may remain at odds with the final decision, and it is then incumbent upon the aggrieved party to present its appeal to the Appeals Subcommittee of the Bureau’s Classification and Rating Committee. The only remaining relief is to prevail upon the Insurance Commissioner

pursuant to Section 654 of the Law and Section 717 of the Act. Appeals Subcommittee Any party in dispute with the final decision pursuant to Paragraph F. then will have the opportunity to bring the issue to the Appeals Subcommittee. The Appeals Subcommittee is comprised of an equal number (although no number is specified) of public and insurer members.

Whether it is the Paragraph F. review or the appeal of a final decision, the opportunity for success rests largely on the quality of your documentation.

Firms should be able to provide copies of the following in order to make their appeal a success: 1. Policy copies for years in question or dispute 2. PCRB field survey reports 3. WC audit summaries 4. Correspondence/emails to/from PCRB 5. Correspondence/emails to/from carrier(s) 6. Correspondence/emails between PCRB and carrier(s) 7. Correspondence/emails between you and the insured 8. Application(s) for coverage — new and renewal Undertaking an appeal is no insignificant matter, as the outcome can have a severe impact to the insured’s bottom line. Many agents understand the

[ 24 ]

position of being the advocate for a client yet may not be prepared to tackle this task.

Hours are required to catalog, read and review the documents listed above with the goal of determining consistency in policy underwriting and issuance in the field survey reports and all other related documents and policy information.

In one particular case, four PCRB field survey reports were obtained. Three of the reports documented identical findings and confirmed the classifications.

The fourth, and last, report contained nearly identical language, described identical conditions and operations, but produced a new and different interpretation — and a much higher rate for the newly and erroneously determined classification.

Ultimately, the potential for success is determined by how closely the aggrieved party can rely upon the PCRB Manual and definitions to argue the case. It should also be understood that while you are constructing, essentially, a legal argument, it has to recognize the nature and the function of the PCRB, which is a nongovernmental organization of private insurers.

Therefore, the closer the appeal follows the language, the rules and regulations of the Manual, the better your chances of the appeal going in your favor.

Primary Agent | March 2013

Tips for navigating the appeals process Making an appeal for a client presents a several concerns.

First, you and your firm may never have made a successful appeal to the PCRB — or any appeal, for that matter. Second, as the agent/broker, you may find yourself at odds with your client as a result of some fault they found in your performance — either real or imagined. Third, the need to rectify this matter may take on added significance in relation to the premium/dollar amount involved. Any time you look at doubling or tripling the 7 current premium, or the amount(s) approach $100,000,

you may find yourself under intense scrutiny. In any case, the part you play in resolving this matter will be a significant factor in your ongoing relationship.

Here are tips to consider: 1. Commit to knowing the Manual. Spend the time necessary to understand and apply the rules, regulations and definitions.

2. Or, work with someone who has experience in making appeals to the PCRB. If the appeal is successful, you take credit where it is due. And if it fails, you can lay it at the feet of the expert.

3. Thoroughly review your WC application(s) for new and/or renewal coverage.

4. Never allow your application for WC coverage to contain classifications which are not currently approved or authorized.

5. Be meticulous in your record keeping (e.g., items 1-7 above). _________________________________

Henry F. Pastuck, senior risk advisor for Consumers Insurance Agency, Inc., supplied this article. He can be reached at 800-338-9392 or frank.pastuck@consumersinsurance.com.

We See a Bright Future More options await you with Preferred Property Program’s umbrella policies Our umbrella programs are designed to offer the most comprehensive coverage so the future is never in doubt. Our umbrella liability policies are written

by XL Insurance, with Chubb Insurance Group for the excess layer, featuring flexible, broad coverage that includes: • $5 to $25 Million in umbrella coverage with up to $50 Million in total limits.

• Hi-Rise apartments up to 35 stories eligible, with higher eligible by referral.

• Excess of D&O, General Liability, Auto, Employers Liability, Employee Benefits and more.

• Developer-sponsored boards eligible.

Contact us for a quote:

888.548.2465 A subsidiary of

info@umbrellaprogram.com www.umbrellaprogram.com

JGS

®

Service is our specialty; protecting you is our mission ®

960 Holmdel Road, Holmdel, NJ 07733

INSURANCE

XL Insurance is the global brand used by XL Group plc's insurance companies.

Preferred Property Program’s XL policies are underwritten by Greenwich Insurance Company.

[ 25 ]

Primary Agent | March 2013

Technology U P DATE

WHAT’S YOUR COMPANY’S CASH COW?

DANIEL BURRUS Daniel Burrus is considered one of the worlds leading technology forecasters and business strategists, and is the founder and CEO of Burrus Research (http://www.burrus.com/), a research and consulting firm that monitors global advancements in technology driven trends to help clients understand how technological, social and business forces are converging to create enormous untapped opportunities.

He is the author of Flash Foresight (available at www.amazon.com).

Most companies begin with a flash of innovation. They come out with a new product or service customers can’t live without and make their mark with their “cash cow.” Of course, a cash cow is a company’s major source of money. They then “milk” the cash cow for all it’s worth. If they’re smart, they create some additional cash cows, but that isn’t always the case.

We saw much of this scenario play out with Google, a company that was very focused on innovation. Their initial cash cow was the advertising dollars around search. And one of the great things that Google did was to keep the pipeline of innovation going by [ 26 ]

encouraging the Google engineers to spend 20% of their time coming up with new ideas.

They even provided resources for the engineers to be creative. The result? It yielded lots of great stuff from Google, including Gmail, Chrome, and many other advances.

Where has the innovation gone?

Predictably, based on hard trends, we can see that the main computer people use has been shifting from a laptop/desktop to a smart phone or tablet. And even though that shift started happening just two short years ago, the reality is that it was very predictable.

Primary Agent | March 2013

So what did Google do? They innovated and copied to a degree and came out with the Android. Unfortunately, it was more copying than innovating.

Don’t get me wrong…there was some innovation, but it wasn’t as high-level of innovation as we had seen in the past.

Where Google was falling behind, of course, was in social media.

Facebook had cornered that market.

And this was where it looks like some mistakes started to occur, because Google shifted their focus from “innovation” to “beating the competition.”

One of the problems of focusing on the competition is that you end up competing with them. In contrast, when you focus on innovation, you become the competition. That’s a big difference.

Realize that when you try to copy someone, you can never really catch up, because the leader is constantly innovating. Unless you manage to jump ahead in a big way, you’re always behind. And that’s what happened when Google released Google+, their counter to Facebook.

It’s too much copying and trying to catch up with Facebook and not enough innovating.

Unfortunately, the company was so focused on social media that all of the engineers were told to put their innovation around social. In other words, they were told to spend 20% of their time focused on innovation, so long as that innovation was aimed at social media. This mandate, of course, diluted the innovation engine. A better approach would have been to jump ahead—to look where social media is going and

innovate there to create a new bouncing baby cash cow.

The future of the Web Where is the web and social media going? Well, it started with search, what I call Web 1.0. Of course, Yahoo started that long before Google, giving us access to information. Then Web 2.0 came along with the key focus being content sharing and social media.

So let’s turn this around to Google.

What innovation is waiting for them to seize? How about a 3D web browser?

That would be innovative. That would be a cash cow!

Back in 1993 I wrote about this shift in my book Technotrends, and I said that when our devices (phones and computers) become true communication age devices, so that we can use them for informing and communicating (think smart phone), then we’d have another revolution. And, of course, that’s exactly what Apple helped to spur when they came out with the iPhone and gave us a true communication/ information age device. They combined the information age and communication age.

[ 27 ]

What’s next? If you look ahead, which is what I’d like Google to do, you’ll see that we’re embarking on Web 3.0, which is all about immersion. It’s the 3D experience.

But I’m not talking about 3D as we’ve known it for years, where you have to put on fancy glasses. That’s too cumbersome.

I’m talking about using our main computers, tablets, smart phones, and games and having a fullyimmersed 3D experience where you go into environments (think X-Box gaming), as well as having things sticking out at you, like when you wear the 3D glasses. As it turns out, you can have that experience on smart devices right now, without having to wear glasses. It’s already happening in the gaming world.

So let’s turn this around to Google.

What innovation is waiting for them to seize? How about a 3D web browser? That would be innovative.

That would be a cash cow!

Why? Because web pages right now are like a flat piece of paper, except they have a hyperlink and perhaps an embedded video. So we can watch a video, but it’s a flat video— it’s not 3D. But what if we had a 3D browser and didn’t just look at a web page, but actually went into it and experienced it? Now that changes the game.

Let’s then look ahead even more.

After Web 3.0 is Web 4.0, which is all about intelligence—the personal assistant. Apple has already started this with Siri, where you can talk to your smart phone and get answers.

And, of course, Siri will get smarter over the years.

TECHNOLOGY UPDATE

Could Google have done what Apple did? Yes. In fact, they already had the ability to do so with their mapping feature, where you could type in “Where is a restaurant in Del Mar, California?â€? and then Google would send you to a website. Imagine if they would have made it something you talk to‌and that responds to you in voice.

The point is that Apple innovated outside of their core. Because they were focused not just on one thing—not just on smart phones or tablets—but rather on innovation, they were able to jump ahead.

They were looking in front of them

rather than at what everyone else was doing.

By the way, Google did come out with their e-personal assistant.

So what are they doing?

They’re playing the catch-up game‌yet again.

Crank up the innovation engine What I’d like to see Google and all companies do is to get back on the innovation bandwagon. Everything isn’t social. Yes, social is big, but there’s far more to it than that.

success comes when you create some new bouncing baby cash cows, and you do that by keeping your focus on innovation. We’re in a new world of exponential transformational change. The playing field has been leveled, and the game is changing. It’s time to stop playing the old game and start defining the new one.

So here’s the moral to all this: Don’t just milk your cash cow. True

,QVXUDQFH &OXE RI 3LWWVEXUJK , 'D\

ÂŽ

WK $QQXDO , 'D\ WK $QQXDO , 'D\ 7KXUVGD\ $SULO 7KXUVGD\ $SULO

a Berkshire Hathaway company

Tradition, Community, caring 0DUN 8KDOLN 0DUN 8KDOLN &KDLU /LEHUW\ ,QVXUDQFH $JHQF\ &KDLU /LEHUW\ ,QVXUDQFH $JHQF\

A strong company just got stronger!

3LWWVEXUJK :\QGKDP *UDQG +RWHO 'RZQWRZQ 3LWWVEXUJK :\QGKDP *UDQG +RWHO 'RZQWRZQ 'RRUV 2SHQ DP 'RRUV 2SHQ DP &( &UHGLWV ([KLELWRUV 3UL]HV &RFNWDLO 5HFHSWLRQ &( &UHGLWV ([KLELWRUV 3UL]HV &RFNWDLO 5HFHSWLRQ )RU PRUH LQIRUPDWLRQ RU WR UHJLVWHU )RU PRUH LQIRUPDWLRQ RU WR UHJLVWHU ,QVXUDQFH &OXE RI 3LWWVEXUJK ,QVXUDQFH &OXE RI 3LWWVEXUJK

ZZZ LQVFOXESJK FRP LFS#LQVFOXESJK FRP LFS#LQVFOXESJK FRP

We are proud to have joined the Berkshire Hathaway Group – and give you one more reason to consider requesting a GUARD agency appointment.

Visit www.guard.com/apply or call 800-673-2465, ext. 4567!

<28 0867 5(*,67(5 72 $77(1'

Property and casualty insurance for small- to mid-sized employers â&#x20AC;&#x201C; workersâ&#x20AC;&#x2122; compensation coverage is our traditional specialty.

[ 28 ]

Classified ADVE RTI S E M E NTS

SOUTHEAST PA PRODUCERS & AGENCIES Professional agency since 1926 located in Feasterville, Bucks County, Pa. Call for confidential information and a review of our services.

Contact Ray Reinard at 215-375-8600, Ext. 119.

If you would like to place a Classified Advertisement, simply fax your ad on company letterhead to 717-795-8347, and we will take care of the rest.

When MVRs and life insurance collide

Ad Index Coastal Agents Alliance . . . . . . . . . . . . . . . . . . . .7

Motor vehicle records (MVRs) and life insurance underwriters could be a match make in heaven. (Admittedly bad pun.)

According to a recent study, risky driving history forecasts a shorter lifespan.

Insurance Club of Pittsburgh . . . . . . . . . . . . . .28

The research, conducted by LexisNexis® and RGA Reinsurance Company, determined MVRs are predictive of “all-cause mortality” — general likelihood of dying, not specific to car crashes. The study found that drivers with major violations (i.e. driving under the influence, speeding excessively) had 70 percent higher all-cause mortality rates than drivers who did not. And those with six or more driving violations had an 80 percent higher rate.

Interstate Insurance Mngmnt. . . . . . . . . . . . .OBC

Source: www.lexisnexis.com

Guard Insurance Group . . . . . . . . . . . . . . . . . .28 Harleysville . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 IA&B Partners Program . . . . . . . . . . . . . . . . . . .21 IA&B Producer Peak Performance . . . . . . . . . .15

Millers Mutual . . . . . . . . . . . . . . . . . . . . . . . . .IFC PennPRIME Municipal Insurance . . . . . . . . . . . .9 Preferred Property Program . . . . . . . . . . . . . . .25

----------------------------------------------------------------———————------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@iabgroup.com, subject line: Last & Least. The editor will happily protect sources’ anonymity upon request.

Interstate Territory TRUCKERS • • • •

Liability Cargo Property Garage

• • • •

Physical Damage General Liability Workers Comp Umbrella/Excess

Targeting 1-100 Units • Most Non-Hazardous Commodities • Great NTL - Physical Damage Program for Owner-Operator Fleets • Non-Standard Programs for Hard-To-Place Accounts

Strong, Stable Markets A+ XV

A+ XV

Specialty Insurance Group

A- VII Use our strength to your advantage.

Serving Pennsylvania, Maryland, New Jersey, Delaware, West Virginia, Ohio, Virginia, Indiana & Kentucky 2307 Menoher Blvd • Johnstown, PA 15905 814.255.6010 • 800.452.0297 • FAX: 814.255.6010 www.interstate-insurance.com

A XV

A X