Primary Agent - October 2014 - MD Edition

IN THIS ISSUE: AgentPAC Federal legislative update Congressional advocacy

PASSIONATE PEOPLE. UNIQUE SOLUTIONS. IF THEY’RE INJECTING “ICOWONDER INTO THOSE OIL WELLS TO

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ENHANCE PRODUCTION AND REDUCE POLLUTION?

Pat Ashcraft Energy Insurance Expert On the job since he saw his first pumpjack.

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Contents PRIMARY AGENT MAGAZINE

Call to political action Like it or not, money talks in politics. Legislators are more likely to listen to the facts, arguments and opinions of their supporters, and only AgentPAC funds can be used to directly support candidates. And those AgentPAC funds come only from your contributions which are voluntary and independent of membership dues.

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Page 12 Terrorism insurance for tomorrow As the Dec. 31, 2014 deadline approaches to reauthorize the Terrorism Risk Insurance Act (TRIA), House and Senate bills are pending in Congress. Here, we offer a tutorial on TRIA and insight into how the latest legislation could change the program.

Page 16 Congressionally speaking

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Washington, D.C. is no Las Vegas: What happens there doesn’t stay there. Tax reforms, industry regulations, federal subsidies and programs … they impact our agencies’ daily operations. That is the impetus behind our association’s growing federal government affairs outreach and advocacy.

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

The elusive revenue multiple The urban legend that an insurance agency’s value is based on a multiple of revenue just won’t fade. Purchase price is often expressed as a multiple of revenue for ease of discussion, but we have seen that this conversation point often creates major misconceptions.

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In every issue 2 3 4 6 8 11

Chairwoman of the Board’s Message Ask Our Experts State News Preventing Errors & Omissions Coverage Corner IA&B Partners

21 26 IBC IBC IBC

My Events H.R. Headquarters Advertisers Index Classified Ads C’mon, get appy!

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 at additional mailing offices.

Postmaster: Send address changes to above address.

Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2014-10 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

Diana M. Hornung Hanby

Officers Diana M. Hornung Hanby, ACSR Chair of the Board Wilmington, Del. Robert S. Klinger, LUTCF, CPIA Vice Chair of the Board Germantown, Md. G. Greg Gunn, CIC Immediate Past Chair of the Board Lemoyne, 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. 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.

Chairwoman of the Board’s M

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We’re in this together Friend or foe? Ally or adversary? How do you view the independent agent across town?

In this dog-eat-dog world — with growing competition for market share, mounting pressures from carriers, and an arching technological-learning curve — it’s easy (understandable, even) to lose sight of the big picture and to focus on losing business to the next independent agent.

But join me in stepping back for a moment: Look at the bigger picture and the strength that we, as independent agents, possess when we band together. We share struggles and aspirations, challenges and strengths. And together, we can affect change — whether it’s pushing back against the commoditization of insurance or advocating regulators, lawmakers or carriers in the interests of our operations or our customers’ needs.

This issue of Primary Agent magazine focuses on IA&B’s government relations work – without doubt, an area where banding together serves our industry well and benefits us all. Whether it’s attending legislative meetings, joining a grassroots action campaign or supporting our political action committee, AgentPAC, we are infinitely stronger together.

Scott C. Rogers, CPIA* York, Pa.

As we close in on the November elections, I encourage you to pay particular attention to IA&B’s government affairs work and how you can join your fellow independent agents in asserting our shared needs and advocating for our common interests. (A contribution to AgentPAC is a great place to start.) Let’s not lose focus on the fact that we’re in this together and that, together, we can do great things.

David B. Wasson Sr., CIC State College, Pa.

Until next time,

Richard M. Rankin, CIC Lancaster, Pa. April E. Ressler, CIC Altoona, Pa.

Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** New Castle, Del. * Pa. IIABA National Director ** Del. IIABA National Director + Md. PIA National Director

Diana M. Hornung Hanby Editor’s note: To learn more about AgentPAC or make a contribution, visit IABforME.com/AgentPAC.

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Ask our Experts QUESTION: I was told I have to report an “administrative action” to all states where I hold a non-resident license. I thought all 50 states’ Insurance Commissioner’s offices could access the information directly, so why do I have to independently report an administrative action?

ANSWER: Yes, they can, but you still must report it.

Here’s why:

Duty to report — Under most producer licensing statutes (and certainly under the Delaware, Maryland and Pennsylvania statutes), producers are required to notify the regulator of any administrative action taken against them in another state. In our three states, the timeframe to report misconduct is 30 days. Failure to come forward and notify the regulator will generally lead to a new violation of the producer licensing law for “failure to report misconduct.”

Don’t expect this one to fall through the cracks: The regulator will find out through a national database (see below).

Note that failure to report misconduct: w Is one of the most common producer licensing violations

w The extent of the information available via RIRS may not be sufficient for the other states to fully appreciate the nature of the “indiscretion” that occurred, and how significant it was, or if it would have been an indiscretion at all in their jurisdiction.

Can producers get a copy of the report? Yes, they can.

The producer report is treated as a consumer report under the Fair Credit Reporting Act, and as such, you are eligible to request and receive a report annually, free of charge.

By ordering and reviewing a copy of your report, you can ensure that it doesn’t contain any errors and that the information is accurate and up-to-date. To request your report, simply go to http://www.nipr.com/licensing/index.html, scroll down to “Request a copy of my personal PDB report,” and mail or email the completed form to the National Insurance Producer Registry.

w Is one of the easiest to enforce by the states w Includes the duty to report criminal charges in addition to administrative actions How do state regulators gain access to the information?

As mentioned above, whether you independently report them or not, administrative actions are fed into the Regulatory Information Retrieval System (RIRS), a database created by the National Association of Insurance Commissioners (NAIC) and listing actions taken by regulators against insurance producers. The database is accessible to all state regulators. However: w The fact that states now have the ability to use RIRS to access information promptly and easily does not exonerate producers from their duty to report as dictated by law.

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HAVE A QUESTION? ASK OUR EXPERTS! Rely on our experts to answer your most perplexing questions. Visit the Ask Our Experts section of IABforME.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.

Primary Agent | October 2014

State News On the books Taking inventory of new, amended insurance laws Wednesday, Oct. 1 marks the effective date of numerous insurance-related bills signed into law this year. Read on for a synopsis of what’s new in insurance law and regulation.

Read more online For a complete summary of recent insurance legislation, review the Maryland Insurance Administration’s bulletin online. It includes all life and health and property and casualty bills and provides a summary and effective date for each. www.mdinsurance. state.md.us/sa/ news-center/ bulletins.html

The Maryland General Assembly convened this year in Annapolis between Wednesday, Jan. 8 and Monday, April 7 for its 90-day legislative session. During that time, legislators acted on more than 2,500 pieces of legislation, including the state’s annual capital and operating budgets. Following the November election, the General Assembly will convene next on Wednesday, Jan. 14, 2015.

Following is a rundown of some of the insurance-related bills signed into law this year which have Oct. 1 effective dates.

Clarifying title insurance commitments H.B. 679 (Chapter 319) / S.B. (Chapter 318) – Insurance – Title Insurers – Title Insurance Commitment and Binders Specifies that a title insurance commitment or sample policy form: 1. Is a statement of the terms and conditions under which the title insurer is willing to issue its policy if it accepts a premium for the policy 2. Is not a representation as to the state of title 3. Does not constitute an abstract of title

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This information must be included in the written notice delivered to a buyer or the buyer’s agent or attorney when a title insurer first accepts a premium. The bill applies only prospectively and may not be applied or interpreted to have any effect on or application to any abstract of title or title insurance commitment completed before its Oct. 1 effective date.

Authorizing travel insurance limited-lines licenses S.B. 79 (Chapter 15) – Limited Lines – Travel Insurance Provides for limited lines insurance licenses for travel insurance and authorizes the Maryland Insurance Commissioner to issue a limited lines license to an individual or a business entity to sell travel insurance. Requires a limited lines travel insurance producer to require travel retailer employees or authorized representatives to receive specified instruction or training with specified required content.

Note: We successfully lobbied for the inclusion of consumer-disclosure language stating that the offered coverage may duplicate coverage provided by the purchaser’s other insurance already in force.

Reviewing insurers’ administrative expenses S.B. 100 (Chapter 27) – Insurance – Premiums and Charges – Review of Administrative Expenses

Clarifies insurers’ mailing methods S.B. 977 (Chapter 364) – Property and Casualty Insurance – Notices – Use of First-Class Mail Tracking Methods

Addresses Chesapeake Employers’ board S.B. 479 (Chapter 172) – Chesapeake Employers’ Insurance Company – Board Structure

Requires the Maryland Insurance Commissioner, when reviewing specified administrative expenses submitted by an authorized insurer that are associated with late payments, to include in the review the cost incurred by an authorized insurer or a vendor of the authorized insurer to accept late payments or installment payments by credit card, debit card, electronic funds transfer or electronic check payment.

Defines “first class mail tracking method” as a mail tracking method that provides evidence of the date that a piece of first-class mail was accepted for mailing by the United States Postal Service (USPS). This definition includes a certificate of mail and an electronic mail tracking system used by the USPS, but it does not include a certificate of bulk mailing. Insurers’ notices that are currently required to be sent by certificate of mail, under this new law now are required to be sent using a “first class mail tracking method” as defined above.

Requires, to the extent practicable, that board membership of Chesapeake reflect the geographic and demographic, including race and gender, diversity of the State.

Requires that of the nine members of the board:

Expanding “premium” definition S.B. 456 (Chapter 169) – Insurance – Definition of Premium – Inclusion of Motor Vehicle Driving Record Report and Accident History Report Fees Expands the definition of “premium” to include: 1. A driving record report fee 2. An accident history report fee

Monitors public adjusters S.B. 97 (Chapter 24) – Insurance – Public Adjusters – Prohibited Inducements Prohibits any person from offering or providing any valuable consideration to an insured as an inducement to utilize the services of a public adjuster.

1. At least two members must have substantial experience as officers or employees of an insurer, but they may not be employed by an insurer that is in direct competition with Chesapeake while serving on the board 2. At least two members must be policyholders of Chesapeake

Increases jurisdictions for fraud charges S.B. 99 (Chapter 26) – Insurance – Fraud Violations – Civil and Criminal Actions Expands the basis for establishing jurisdiction and venue in criminal and administrative actions for acts of insurance fraud violations to include: 1. The county in which an element of the insurance fraud was committed 2. Where the purported insured loss occurred 3. The county in which the insurance policy in question provides coverage 4. The county in which the insurer or an agent of the insurer received a false or misleading statement or document 5. The county in which the defendant or respondent resides 6. The county in which money or other benefit was received as a result of the insurance fraud [5]

3. At least one member must have significant experience in the investment business 4. At least one member must have significant experience in the accounting or auditing field 5. At least one member must have significant experience as a representative, employee or member of a labor union

Primary Agent | October 2014

Preventing ERRORS AND OMISSIONS

WHICH POSITION WOULD YOU RATHER TAKE?

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.

When an errors-andomissions claim against an insurance agency develops, an objective of the E&O carrier and the attorney it assigns to handle the matter is to review the file in question and determine the degree of liability, if any.

Numerous defenses can be applied based on the facts of the specific case.

Defenses include, but are not limited to:

was not made aware of, say, umbrella coverage, including what it does and how it works? To what degree would this hurt the agency’s defense?

Some positive E&O initiatives Let’s take the following scenario and look at the various positions. Imagine you are the jury and will be asked to render a verdict. The agency writes a homeowners’ policy for a customer in 2000. The agency includes a cover letter with the policy requesting that the customer read the policy and contact the agency if there are any questions.

The cover letter includes a statement noting that the agency is a full-service agency and encourages the customer to contact the agency if there is any change in the customer’s exposure.

w Plaintiff failed to give accurate information to the agent w Plaintiff misrepresented certain facts to agent w Plaintiff failed to read his or her policy w Plaintiff signed a policy application containing incorrect information w Lack of duty If the agency’s customer had been made aware of a specific coverage but rejected it, generally, one would hope this would position the agency in a positive light. But what if the agency’s customer

These are some positive E&O initiatives from the agency … so far.

However, for the next 10 years, the agency simply sends the policy with no cover letter. In essence, [6]

the agency has a customer for whom it writes one line of business, homeowners’. The agency never reached out to the customer inquiring about where the customer’s auto insurance is placed, whether the customer has an umbrella policy, if the customer has any new exposures, etc.

In that 10-year period, the customer purchases a dog for his or her kids.

The dog later bites the neighbor’s child, resulting in a lawsuit requesting damages in excess of the liability portion of the homeowners’ policy. The agency is sued due to the lack of sufficient coverage.

While E&O cases will typically be very fact sensitive and not totally cut and dry, consider the following defense positions.

In the agency’s favor In most, but not all, states, the agent is often referred to as an order taker. In other words, it is up to the customer

to specifically request coverage.

Generally, an insured must make a specific request for a particular type of insurance coverage to impose a duty on the agent to procure that particular coverage. In addition, an insurance agent is not required to: w Provide an insurance policy that would cover all possible contingencies w Advise an insured with respect to coverage options w Advise the insured as to every exclusion contained in the policy In defense of the agency, it secured the coverage the client requested. The customer never contacted the agency for additional coverages or to let the agency know about the change in the exposure. Bottom line, the agency fulfilled its duty. A special relationship will be difficult to prove because the agency only wrote one line of business.

Therefore, is there a good chance the agency will prevail on this legal matter?

The odds are in the agency’s favor.

Not in the agency’s favor The customer probably will contend that he or she is not insurance savvy and relied on the agency’s knowledge and expertise. The customer was not aware of umbrella coverage, but because of the purchase of the dog, had an umbrella been suggested, the customer definitely would have purchased it. (This is always what the customer will say after the loss.)

indicated the average number of policies an agency has for each personal lines customer is in the 1.6 area. When considering all potential selling opportunities, it certainly seems like some missed opportunities exist.

So, even if the agency does prevail, this scenario is resulting in significant defense dollars to defend the agency, which are obviously factored into the price of the E&O product.

What to do differently What could or should the agency have done differently? One initiative that could have easily helped avoid the type of E&O claim above involves the agency actively undertaking a cross-selling campaign. Some approaches to consider: w Use your agency management system to identify scenarios like the one above – with homeowners’, but no auto (or vice versa) or you have the auto and homeowners’, but no umbrella. Develop a letter bringing the specific subject/ issue to the customer’s attention.

The letter should be educational and include information on why securing the additional coverage is important. Claim examples are a great way to make the point. w When a customer calls in, make it easy for the CSR to identify what coverages the customer does and doesn’t have. This is a great time to

bring these additional coverages to the customer’s attention. w In both of these scenarios, if a customer rejects the coverage you are discussing, you must document, document and document. This documentation should not only be in the file/system, but also in an email back the customer officially noting his or her decision. w Make it a point to touch base with your customer to determine whether there has been any change in his or her exposures, and then act on what you are advised.

Now, take the E&O claim scenario above and add the following to the letter the agency sent: Ask the customer for an update on his or her exposures and/or bring umbrella coverage (what it does and how it works) to the customer’s attention.

Now, imagine if this communication was ignored by the customer. There is the strong possibility the E&O claim would have never even developed.

Another benefit of these additional “touches” involves the chance that you may just sell some insurance along the way. So, if you want to grow your agency, enhance your E&O commitment. Doing this will truly give your business the best of both worlds.

In addition, that the agency simply renewed the account as is, with a slight increase in coverage A for 10 years, and never contacted the customer to discuss other coverage options or changes in exposure, does not position the agency well.

While the agency may prevail, these are exactly the types of situations E&O carriers are seeing with significant frequency. A recent industry study

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www.coastalagentsalliance.com

Primary Agent | October 2014

Coverage COR N E R

PLEADING THE FIFTH DOESN’T BAR WORKERS’ COMPENSATION BENEFITS IN PENNSYLVANIA

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.

David Cruz worked as a truck driver for Kennett Square Specialties, which operated a mushroom farm in Chester County, Pa. He hurt his back in July 2008 while lifting barrels that weighed 15 to 20 pounds into his truck.

A medical exam showed that Mr. Cruz suffered a herniated disk in his back and the doctor restricted him from lifting more than 15 pounds at work.

In a workers’ compensation hearing in October 2008, Mr. Cruz testified that he came to the United States from Ecuador in 1998.

Attorneys for Kennett Square asked Mr. Cruz during the hearing if he was a naturalized U.S. citizen, if he was an undocumented worker, or if he possessed a green card. On the advice of his attorney, Mr. Cruz invoked his Fifth Amendment right against self-incrimination when asked about his immigration status. He also invoked the Fifth Amendment when he was later asked if he improperly used his wife’s Social Security number when receiving medical treatment for his back injury.

Kennett Square told Mr. Cruz that it did not have any positions that were compatible with his work restrictions, and Mr. Cruz did not report to work after August 2008. Kennett Square began paying temporary workers’ compensation benefits to Mr. Cruz as of his last day of work, but issued a formal denial of benefits a month later. Mr. Cruz then filed a claim seeking workers’ compensation benefits for lost wages and medical bills.

A Pennsylvania workers’ compensation judge ruled that Mr. Cruz’s back injury was work-related and ordered Kennett Square to pay Mr. Cruz’s reasonable and necessary medical [8]

expenses. However, the judge suspended Mr. Cruz’s disability compensation benefits, finding that Kennett Square met the burden of proof to show that Mr. Cruz was not authorized to work in the United States.

Mr. Cruz appealed, and the Pennsylvania Workers’ Compensation Appeal Board (WCAB) found that Mr. Cruz’s refusal to testify about his immigration status did not constitute proof of whether he was legally working in the United Sates. The WCAB ordered Kennett Square to pay both medical and disability compensation benefits. A Pennsylvania Commonwealth Court unanimously affirmed that decision in 2011. Kennett Square appealed.

On July 21, 2014, in a 5-2 ruling, the Pennsylvania Supreme Court upheld the lower court ruling. The court found that Kennett

Square held the burden of proof to show that Mr. Cruz was working illegally in the United States, and therefore Mr. Cruz was not responsible for proving his immigration status.

Mr. Cruz’s refusal to testify about his work status under his Fifth Amendment right did not meet the burden of proof required of Kennett Square.

The majority opinion of the Supreme Court reads 3281Pennsylvania Summit Ad in part: 7.25X4.625

assertion of his Fifth Amendment right in response to questions on this topic was too speculative, standing alone, to constitute substantial evidence to establish that Claimant’s loss of earning power was not related to his work-related injury and due, instead, to his status as an undocumented worker.

What’s next?

Y’all take care!

The 411 on Form I-9 The employer’s failure to provide the claimant’s I-9 form and supporting documents may have been a nail in the coffin for this workers’ compensation case.

Let it serve as a reminder that work eligibility status must be verified for all employees, U.S. citizens or not, at the time of hire, not at the time of injury.

For more information on the I-9 and record-keeping requirements, access our HR Solution© and select Administrative Tools.

PropMan Merely because Claimant was born

in a foreign country and arrived here over a decade ago does not ipso facto establish that he is not a U.S. citizen, or not otherwise eligible to work in this country. As Employer presented no other evidence of record regarding Claimant’s employment eligibility status, any inference drawn from Claimant’s

IABforMe.com/ resource center/HR_Solution

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Platinum Profile Insurance Agents & Brokers proudly recognizes Donegal Insurance Group as one of its Platinum Partners.

IA&B Platinum Partners dedicate the highest level of sponsorship to our organization.

FEATURED PARTNER Donegal Insurance Group CHIEF EXECUTIVE OFFICER Donald H. Nikolaus President and CEO CORPORATE HEADQUARTERS Marietta, Pennsylvania DONEGAL INSURANCE GROUP Donegal Mutual Insurance Company Atlantic States Insurance Company Southern Insurance Company of Virginia Le Mars Insurance Company Peninsula Insurance Group Sheboygan Falls Insurance Company Michigan Insurance Company Southern Mutual Insurance Company A.M. BEST RATING A (Excellent) WEBSITE www.donegalgroup.com

W

e have been providing quality property and casualty insurance protection since Donegal Mutual Insurance Company began doing business in 1889.

Over the years, the Donegal Insurance Group has grown significantly to now include nine property and casualty insurance companies.

The Donegal Insurance Group enjoys an A (Excellent) rating by the A.M. Best Company.

larger commercial accounts. We work very hard to provide exceptional products and service in lines of business and markets that we know and understand well.

As our operations have grown, we have expanded our ability to provide our independent insurance agents with a comprehensive suite of products. In addition to providing a full line of personal insurance products, we have developed competitive commercial products that allow our agents to serve a broad spectrum of small, mid-market and

Donegal has invested millions of dollars developing advanced technology that greatly enhances our agents’ and policyholders’ experience in doing business with us.

At Donegal, we focus on providing superior technology and outstanding service to our agents and customers.

We know that “ease of doing business” has become increasingly important to independent agents.

Donegal has long recognized the value of an independent agent in assisting individual and business consumers navigate the insurance-buying process.

Every day, we prove our commitment [ 10 ]

to the independent agency system by distributing our products exclusively through independent agents. We are constantly looking for ways to deliver increased value to our agents and solidify company-agency relationships.

We have benefited greatly from the feedback we receive from our regional agency forums, which helps us enhance our products and operations.

Much has changed since we started in the insurance business over 125 years ago, but one thing remains the same — Donegal remains firmly committed to delivering a better value to our agents and policyholders. We look forward to mutual success as we work together with our independent insurance agents in serving the insurance needs of our customers.

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 Conemaugh Valley Mutual Insurance Co Countryway Insurance Company Encompass Insurance Foremost Insurance Group GMI Insurance Goodville Mutual Casualty Company Guard Insurance Group Insurance Alliance of Central PA Inc Insurance Placement Facility of PA Keystone Insurers Group Inc Lebanon Valley Insurance Company

GOLD LEVEL

MAPFRE Insurance Merchants Insurance Group

Progressive Westfield Insurance

Mercury Casualty Penn PRIME Municipal Insurance

SILVER LEVEL

Reamstown Mutual Insurance Company

Access Insurance Company American Mining Insurance Co Cumberland Insurance Group Farmers Mutual Insurance Company of Western Pennsylvania Frederick Mutual Insurance Co Juniata Mutual Insurance Co PSBA Insurance Trust Selective The Philadelphia Contributionship [ 11 ]

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 United Fire Group Zenith Insurance

Primary Agent October 2014

GOVERNMENT AFFAIRS

Call to political action

Like it or not, money talks in politics. Legislators are more likely to listen to the facts, arguments and opinions of their supporters, and only AgentPAC funds can be used to directly support candidates.

And those AgentPAC funds come only from your contributions which are voluntary and independent of membership dues.

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Primary Agent | October 2014

M

any people these days, IA&B members included, are reluctant to engage directly in the political process, preferring to keep a safe distance and a “spectator sport” mentality regarding political involvement. This is understandable, especially in today’s highly divisive legislative environment. After all, you’ve paid your IA&B membership dues for the year; doesn’t that fund the association’s advocacy work on behalf of the agent community? Isn’t that enough?

AgentPAC of Maryland

IA&B advocates for its members in numerous ways, whether it’s appealing to agents about aspects of their own behavior as insurance professionals; ensuring the agent perspective is represented in the media; or speaking on behalf of the agent community to insurance carriers and regulators regarding their rules and regulations. IA&B’s lobbying effort, however, refers specifically to those advocacy efforts that are made in an attempt to influence legislation before it becomes law – and, for better or worse, it’s necessarily a group effort. Although IA&B lobbyists are constantly on the Hill, monitoring legislation and lobbying for the interests of the agent community, the reality is that in today’s political climate, it’s not enough.

Governor’s Club Bob Klinger Stephen Spencer Senate Level Tony Bennet Vincent Boylan Craig Mader Larry Sanders

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Legislators are more likely to listen to the facts, arguments and opinions of their supporters.

————————————————————————————————

While your membership dues pay for a staff who advocates on your behalf on all manner of issues, including a lobbying effort that is respected and effective, laws prohibit the use of membership dues for contributions to political candidates. Only AgentPAC funds can be used to directly support candidates. And those AgentPAC funds come only from your contributions which are voluntary and independent of membership dues.

During my tenure at IA&B, I’ve talked to numerous agents who eschew political contributions. They (maybe you) feel put off by the idea of “buying your way into the game.” You should be able to vote for your legislator and trust that they will make the right decisions regarding the numerous pieces of legislation that cross their desks.

The fact of the matter is that that’s not the case. The “right decision” on any given issue depends entirely on whom you’re talking to. Very simply, legislators are more likely to listen to the facts, arguments, and opinions of their supporters.

It might not make you happy, but it makes sense. Each member of the state House and Senate got there by being elected; and if they’d like to stay there, they need to be re-elected on a regular basis.

Election campaigns cost money (air time, ad space, mailings, etc.)

Those supporters who make contributions to candidates’ campaign committees enable them to continue their careers, so it makes sense [ 13 ]

We offer sincere thanks to our 2014 supporters*:

House Level Brian Creamer Reese Cropper Barbara Harders Arthur Lambert Kimberley Matney Blair Mattheiss Peter Moscker William Reagle Rick Russell Julie Statland Barry Winstead Additional contributor Barbara Burk

* This list reflected contributions received by July 31. An up-to-date list is maintained at IABforME.com/AgentPAC.

GOVERNMENT AFFAIRS

that they are given consideration on the legislative issues that matter to them.

Contributions to a political action committee, AgentPAC to be exact, are the only way you, as an IA&B member, can demonstrate support for the legislators who help the agent community. If we want to have an impact in future legislative sessions, AgentPAC is the only method we have to join with the other professional associations across the state that are making their members’ voices heard in the political process.

Supporting AgentPAC expands your political influence beyond your own district, because

AgentPAC supports candidates across the state who will vote on all the critical issues facing the insurance industry. Though the interests and specialties of IA&B members are not always the same, we must continue to find ways to come together and support the interests of the agent and broker community as a whole.

While IA&B is your advocate, we need your contributions to enable our efforts. Please visit IABforME.com/AgentPAC to learn more.

Lauren Brinjac, government affairs director for IA&B, contributed this article.

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Why choose MBG?

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“Mutual Benefit’s updated PRO online rating tool for personal lines is wonderful. With the new upgrades agents like me had been asking for, I can now do a quote in less than five minutes...faster than some national carrier systems. Mutual Benefit listened to what we wanted and followed through with making that happen. The speed is blazing fast and now passes the ‘Mike’ test. Good job!”

- Mike Mowery, Account Executive Central Insurers Group T/A H. C. Kerstetter Company Lewistown, PA

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[ 14 ]

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30

For All That Matters

facebook.com/acuitywow

GOVERNMENT AFFAIRS

Terrorism insurance for tomorrow Prospects for reauthorizing TRIA

As the Dec. 31, 2014 deadline approaches to reauthorize the Terrorism Risk Insurance Act (TRIA), House and Senate bills are pending in Congress. Read on for a tutorial on TRIA and insight into how the latest legislation could change the program.

[ 16 ]

Primary Agent | October 2014

T

he insurance industry is built upon risk management, upon the idea of anticipating and preparing for the unexpected. Yet no one fully expected or prepared for the events of Sept. 11, 2001.

The insurance industry suffered an estimated $40 billion loss from the 9/11 attacks, proving to be one of the largest insured losses in history. Although insurers and reinsurers were able to cover the costs associated with the day’s events, many became reluctant to offer terrorism coverage. While the threat of a terrorist attack didn’t disappear, the commercial insurers willing to underwrite the risks did.

Small and large business alike were left without protection until the federal government entered the scene. On Nov. 26, 2002 George W. Bush signed into law the Terrorism Risk Insurance Act (TRIA).

Program mechanics Designed to act as a federal reinsurance backstop, TRIA is a public-private partnership between the federal government and private sector. In the event of a large-scale terrorist attack, the government will step in with financial assistance.

Before TRIA kicks into effect, the Secretary of Treasury must certify and declare an “act of terrorism.” Insured losses must exceed $5 million, and total losses for the insurance industry must exceed $100 million. In addition, an individual insurer must meet a deductible of 20 percent of its annual commercial property-casualty premiums.

If these requirements are not met, then the government will not share in the losses incurred.

Should TRIA be triggered, the government will cover 85 percent of insured losses, leaving insurers responsible for a 15 percent copayment on top of their 20 percent deductible. If total insured losses equal less than $27.5 billion, the Secretary of Treasury is obligated to recoup 133 percent of government expenditures through mandatory surcharges. Any commercial property-casualty policy would be subject to the 3 percent surcharge, making it an industry-wide recoupment. If insured losses eclipse $27.5 billion, the secretary has the power to issue surcharges but is no longer required to.

The TRIA program has an annual cap of $100 billion, and once that money is spent, there is no further assistance from the federal government, and insurers no longer have to provide coverage.

Uncertain future Since its initial enactment, the TRIA program has undergone two additional extensions, in 2005 and 2007. The program is set to expire next on Dec. 31, 2014 if Congress fails to reauthorize it.

Currently there are two bills — one in the House and one in the Senate — that would provide for an extension. Chairman of the Subcommittee on Housing and Insurance Rep. Randy Neugebauer (R-TX) introduced the TRIA Reform Act of 2014 (H.R. 4871) into the House on June 17.

[ 17 ]

TRIA is a public-private partnership between the federal government and private sector.

In the event of a large-scale terrorist attack, the government will step in with financial assistance.

GOVERNMENT AFFAIRS

Multi-state producer licensing: on the coattails of TRIA In a major win for the insurance agency, an amendment (known as NARAB II) was added to H.R. 4871 that would create and establish the National Association of Registered Agents and Brokers – an effort to streamline multi-state producer licensing.

Currently producers must acquire and maintain a license in every state where they conduct business – a burdensome, timeconsuming and often duplicative process. NARAB II would provide for a more simplistic, streamlined approach for agents who wish to operate on a multi-state basis. Policyholders would also benefit from the increased competition among agents and brokers.

The operation of NARAB would be simple: A non-profit entity would be established and managed by a 13 member board, consisting of eight appointed insurance commissioners, three appointed P&C experts and two appointed L&H experts. To become a member of NARAB, a producer would need to pass a criminal background check and hold a license in good standing with his or her home state. The producer then could operate in any state for any line of insurance that is covered under his or her home state license.

(Any agent who did not wish to join NARAB would remain licensed in the traditional manner.)

The federal government would gain no regulatory power, so states would retain their authority over consumer protection and marketplace activity. Agents would, therefore, be expected to follow the laws and regulations in each state where they conduct business.

Similar to the House bill, the Senate’s TRIA-extension bill (S. 2244) also includes NARAB II as an amendment. However, the language includes a sunset provision which would cease all NARAB operations two years after its first issuance of membership. Unless Congress chooses to extend the program, it would no longer exist.

Just three days later, the bill passed in the Housing Financial Services Committee in a 32-27 vote. It currently awaits further consideration by the full House of Representatives. H.R. 4871 would extend TRIA for an additional five years, but differs from the current program in several ways: w There would be separate treatment for Nuclear, Chemical, Biological, and Radiological (NCBR) attacks. w For all non-NCBR attacks, the program trigger would gradually increase from $100 million to $500 million. w The insurers’ copayment would increase from 15 to 20 percent. w The federal government would cover 80 percent of losses instead of 85 percent. w The mandatory recoupment amount would increase from 133 to 150 percent.

While the House’s bill to reauthorize TRIA is promising, legislation introduced in the Senate could prove more successful. Sponsored by Sen. Charles Schumer (D-NY) and introduced in the Senate on April 10, the Terrorism Risk Insurance Program Reauthorization Act of 2014 (S. 2244) would allow for a seven-year extension. In a 22-0 vote, the bill was reported out of the Senate Committee on Banking and was passed by the Senate in a 93-4 vote on July 17.

With that passage, the full House now has two TRIA bills awaiting consideration. continued on page 20

[ 18 ]

Good people Make great partners!

Quote a middle market account with Harleysville, and watch your circle of trusted advisors grow in a hurry. First, there’s your field underwriter, who’ll understand your client’s business and recommend the right coverage. Next, your risk services specialist, who’ll assess the hazards of your client’s operation and propose solutions to address the challenges.

And finally, when the account is especially large or complex, our claims business consultant can meet with your client initially, then later to discuss specific losses and trends. For contractors, manufacturers, wholesalers and more, team with our middle market professionals once and you’ll call us again and again. To learn more about this and other benefits of a Harleysville appointment, call 800-523-6344, ext. 5016, or visit our website.

Scan this tag to be sent directly to the agency recruitment section of our corporate website.

Busines s | In land Marine | Person al | Life/Employee Ben efits | Flood | Human S er vices | www. harleys villegroup.com

GOVERNMENT AFFAIRS continued from page 18 $27.5 billion, to avoid mandatory recoupment.

Changes to the current TRIA program would not be as significant if the Senate version were passed and signed into law. Modifications resulting from S. 2244 would include:

Our take The need for reauthorization of TRIA is critical. The risks associated with a terrorist attack are not exclusive to metropolitan areas like New York, Boston and Washington D.C. Nearly everywhere has a facility in need of terrorism coverage, and insurers of all sizes are able and willing to offer coverage because they know cost-sharing mechanisms are in place.

w The federal loss sharing would decrease from 85 to 80 percent. w The insurers’ copayment would gradually increase from 15 to 20 percent. w The amount to be recouped would increase from 133 to 135.5 percent.

TRIA maximizes private-sector involvement while limiting the exposure of the federal government and protecting

w Insured losses would have to exceed $37.5 billion, instead of the current

taxpayers. Without it, the marketplace likely would suffer a significant decrease in insurers willing to underwrite the risks.

Kate Ellison, government affairs assistant for IA&B, contributed this article.

Editor’s note: The details provided in this article were up to date as we pulled together the October issue of Primary Agent magazine.

However, Congress (at times!) can move more quickly than our production schedule.

Please monitor Agent Headlines (IABforME.com/news) for legislative updates.

Retention Strategy

#12

LIFE INSURANCE SALES

“ A life insurance sale can make a customer for life.”

Lora Buske, EMC National Life Life Sales Representative The more coverages clients have with you, the less likely they are to switch agents. EMC National Life is committed to making life sales simple with easy-to-understand products and online services to speed the sales process. It’s just one of the many reasons policyholders Count on EMC®.

Valley Forge Service Branch: 800.333.3622

|

www.emcins.com

Home Office: Des Moines, IA

© Copyright Employers Mutual Casualty Company 2013. All rights reserved.

[ 20 ]

My Events O C T O B E R

2 0 1 4

Date

Topic

Location

2

CISR Commercial Casualty II

Philadelphia, Pa.

7

William T. Hold: Dealing with Disasters

Altoona, Pa.

8-11

CIC Personal Lines Institute

Pittsburgh, Pa.

14-16

P&C Licensing Study Course

Philadelphia, Pa.

15

CISR Agency Operations

Mechanicsburg, Pa.

16

CISR Personal Auto

Lehigh Valley, Pa.

21

William T. Hold: Dealing with Disasters

Wilkes-Barre, Pa.

21-23

L&H Licensing Study Course

Philadelphia, Pa.

22

CISR Miscellaneous Personal Lines

Pittsburgh, Pa.

22-25

CIC Personal Lines Institute

Hunt Valley, Md.

23

E&O Risk Mgmt.â&#x20AC;&#x201D;Meeting the Challenge of Change

Lehigh Valley, Pa.

William T. Hold: Dealing with Disasters

Erie, Pa.

28

CISR Commercial Property

Mechanicsburg, Pa.

28-29

Executive Management Conference

Gettysburg, Pa.

29

William T. Hold: 3 Csâ&#x20AC;&#x201D;Comp, Crime & Cyber

Annapolis, Md.

[ 21 ]

GOVERNMENT AFFAIRS

Congressionally speaking Agents, association build rapport with U.S. Rep. Van Hollen

W

ashington, D.C. is no Las Vegas: What happens there doesn’t stay there. Tax reforms, industry regulations, federal subsidies and programs … they impact our agencies’ daily operations.

That is the impetus behind our association’s growing federal government affairs outreach and advocacy.

As independent agents, we inherently know the value of building relationships — with

customers, prospects, carrier and vendor reps, sometimes even with competitors. The world of politics is no different.

The rapport we build with elected officials today will pay dividends for years to come. And while our federal lawmakers may seem farther removed than those on a state level, they still count on our insight into the insurance industry and smallbusiness community to make informed decisions (and they rely on our votes).

[ 22 ]

Our federal advocacy has blossomed in recent years to a concerted effort to bolster agents’ relationships with their congressman and congresswomen. This year we hosted a small, in-district meeting with Congressman Chris Van Hollen (D-8th).

While discussion centered around the need to reauthorize TRIA and the impacts of recent NFIP and health insurance reforms, agents took the opportunity to talk about the small-business climate in general — and to hear about the congressman’s other legislative priorities and perspectives.

Van Hollen and our members emerged from the meeting with a sense of accomplishment: Ideas were exchanged.

Relationships were built. And the building blocks for future advocacy were placed.

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Some risks are

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We make sure they’re never out of mind.

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.

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Why take the risk without PennPRIME? 800.848.2040 717.236.9469 www.pennprime.com A service program of the Pennsylvania Municipal League.

[ 23 ]

AGENCY MANAGEMENT

The elusive revenue multiple The urban legend that an insurance agency’s value is based on a multiple of revenue just won’t fade. Purchase price is often expressed as a multiple of revenue for ease of discussion, but we have seen that this conversation point often creates major misconceptions.

T

he value of an agency is calculated from the profitability or cash flow generated by the firm.

This reality can throw a kink in the plans of agency owners who believe that all $15 million firms are worth the same value in the open market. This, unfortunately, is just not true.

Agency transactions that closed during 2013 had purchase prices ranging from approximately 1.25x – 3.5x revenue.1 For a $15 million revenue agency, that could mean a difference of $33,750,000 in purchase price.

How is that possible? The profitability of the agencies is wildly different, which contributes to or is the primary cause of the valuation difference.

There are many components to the value of a firm, including the Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA) multiple and influencers like growth rates, location, specialty, leadership talent, and items of strategic value to the buyer. However, in our experience, the difference in [[ 24 24 ]]

value between similar agencies is often driven by the difference in the sustainable profit margin.

For example, at a multiple of 7x EBITDA, a $15 million revenue agency that operates at a 30 percent EBITDA margin would expect to sell at double the purchase price and double the revenue multiple of the same agency operating at a 15 percent EBITDA margin (Figure 1).

Primary Agent | October 2014

2014 EXECUT IV

MY EEMMCANAGEMENT CO October

Value Differential Produced by Increased Profit Margin

Revenue EBITDA Margin EBITDA EBITDA Multiple Purchase Price Purchase Price as a Multiple of Revenue

NFEREN

28

-29 WYNDH GETTYS AM GETTYSBU BURG, PA RG

CE

The topics YOU want: •

15% Margin

30% Margin

$15,000,000

$15,000,000

15%

30%

$2,250,000

$4,500,000

7.0x

7.0x

$15,750,000

$31,500,000

1.05

2.10

•

For me,

• • •

EMC offe rs rele for insuran vant topics ce agencie s.

Joe Gast , CPCU,

Salisbury

Choosing and managing your AMS for maximum productivity Perpetuation planning and merger/acquisition strategies Understanding and selling cyber liability

ChFC

, Maryland

Producer agreements Social media

Register at IABforME.com/EMC2014.

For me,

I always pick up valuable info for strateg rmation I use ic plannin g.

Sarah Brow Shrewsbu

n, CIC, CRM

ry, Penn

Source: MarshBerry. For illustration purposes only. Individual results may vary.

This is not intended to represent any specific client experience.

Figure 1

It is not uncommon to have similar agencies operating at profoundly different profit margins. The margin difference is typically the result of varying producer compensation plans. As the industry has changed and agencies have added services, capabilities, and a higher level of technical employees, agency expenses have increased. Yet, in our experience, the average agency has not changed its producer compensation plan.

There is not a one-size fits all producer compensation plan, but we believe an agency should evaluate its cost structure, location, staffing needs, and long-term growth and profitability goals, and then develop an appropriate plan that delivers a sustainable return on investment to the risk takers (the shareholders/partners).

In other words, an agency owner can largely control the value of the agency by managing it to an attractive and sustainable profit margin.

If the goal is to sell stock internally to perpetuate ownership, then consider making the hard decisions now so you can demonstrate to the next generation that the agency can deliver a strong level of profitability which will help fund the debt service and provide a strong return on investment (to current and future owners). Or, if you wish to sell externally consider making the changes, living your pro forma to demonstrate its sustainability, and based on our experience you will reap the rewards of a higher purchase price. Don’t stand by the side line, continuing with weak profitability, and wait for an external buyer to make the changes. Your value will likely suffer.

Sarah Lucas, CPA, CVA, vice president at MarshBerry, authored this article.

Securities offered through MarshBerry Capital, Inc., Member FINRA and SIPC, and an affiliate of Marsh, Berry & Company, Inc. 4420 Sherwin Road, Willoughby, Ohio 44094. Except where otherwise indicated, the information provided is based on matters as they exist as of the date of preparation. Past performance is not necessarily indicative of future results. MarshBerry Capital, Inc. does not provide tax or legal advice and these professionals should be consulted separately. [ 25 ]

sylvania

Perpetuation planning in person Preparing to perpetuate your agency? Then join us for our 2014 Executive Management Conference, Oct. 28-29 in Gettysburg, Pa. Management-level training will cover: w Perpetuation strategies to add value to your agency w Selecting an agency management system (AMS) w Managing your AMS for greater productivity w Tech tools to help producers make more sales w Managing social media strategy to drive sales w Merger/acquisition strategies for growing your agency w Selling cyber liability coverage to customers IABforME.com/EMC2014

H.R.

Primary Agent | October 2014

H E AD Q U ART E R S

HOW THE FAIR LABOR STANDARDS ACT APPLIES TO AGENCY STAFF

KAREN H. DIGIOIA Karen H. DiGioia provided this article on behalf of Mosteller & Associates, IA&B’s contracted human resources consulting firm. Reach out to Karen for more information on job descriptions or with other human resources questions.

IA&B’s HR Solution© is a compilation of products and services – available exclusively for our member agencies – that simplifies establishing or improving your human resources program. It includes base-level c onsultation and discounted professional services from Mosteller & Associates.

IABforME.com/emp_mgmt

My article in the April 2014 Primary Agent magazine addressed the Fair Labor Standards Act (FLSA) and outlined the details regarding this complex regulation.

This month, we’ll revisit the topic and look at how it applies to a typical agency staff. We’ll look at each exemption and discuss typical agency positions – agency owner, department manager, CSR, account manager, receptionist, accounting clerk/bookkeeper (or

other clerical worker) and producer/salesperson – that might qualify for this exemption.

As was discussed in April, with the exception of the outside sales exemption, each of the exemptions discussed below begins with a salary-basis test.

This test requires that the employee be paid a salary not less than $455 a week. This salary cannot be reduced when the employee works less than 40 hours a week.

Executive: To qualify for the executive exemption, the salary-basis test and all of the following must be met: w Employee’s primary duty is managing the enterprise or managing a recognized department or subdivision of the enterprise w Employee must “regularly and customarily” direct the work of at least

Primary Agent | October 2014

two or more other full-time employees (or full-time equivalents) w Employee must have the authority to hire and fire other employees, either directly or by making suggestions to hire, fire, promote or change status of other employees which are given serious consideration What positions at an agency qualify for the executive exemption? Typically, the agency owner and any true managers. Remember, it’s not enough to call an employee a manager – he or she must actually meet the three prongs listed above to qualify for this exemption.

Administrative: To qualify for this exemption, the salary-basis test and all of the following must apply: w Employee’s primary duty is the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers w Employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance What positions at an agency qualify for the administrative exemption? Typically, very few or no employees at an agency will qualify for this exemption.

Professional: To qualify for the professional exemption, the salarybasis test and all of the following must apply: w Employee’s primary duty must be the performance of work requiring

advanced knowledge, defined as work which is predominantly intellectual in nature and which includes work requiring the consistent exercise of discretion and judgment w The advanced knowledge must be in a field of science or learning w The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction What positions at an agency qualify for the professional exemption?

Typically, few or none. The most common jobs which qualify for the professional exemption are in the areas of medicine, law, architecture, engineering, teaching and accounting.

It’s possible that an agency may employ a degreed accountant, but that’s about it.

Outside sales: To qualify for the outside sales exemption, all of the following must be met: w Primary duty must be making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer w Employee must “customarily and regularly” be engaged away from the employer’s place or places of business What positions at an agency qualify for the outside sales exemption?

Typically, producers or salespeople may qualify for this exemption.

However, before making a final determination, make certain that your producers are away from the place of business on a regular and customary

[ 27 ]

basis. This doesn’t mean occasionally or now and then but regularly over the course of each work week. Also, keep in mind that away from the place of work does not mean at a home office or even at the coffeehouse down the street with Wi-Fi and some reasonable level of quiet to send emails and make calls. Away means at the customer’s place of business or, if selling door-to-door, at the customer’s home. Outside sales does not include sales made by mail, telephone or the Internet; however, such customer contact can be made in addition to personal calls.

Skilled computer professionals: To qualify for the skilled computer professional exemption, the salarybasis test and all of the following must be met: w Employee is employed as a computer systems analyst, computer programmer, software engineer or other similarly skilled worker in the computer field performing the primary duties described below: w Application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications w Design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications w Design, documentation, testing, creation or modifications of computer programs related to machine operating systems or

H. R. HEADQUARTERS

w A combination of these duties, the performance of which requires the same level of skills What positions at an agency are likely to qualify for the computer exemption? Typically, none.

Highly compensated employees: Highly compensated employees performing office or non-manual work and paid total annual compensation of $100,000 or more (which includes at least $455 per week paid on a salary or fee basis) are exempt from the FLSA if they customarily and regularly perform at least one of the duties of an exempt executive, administrative or professional employee as listed above.

What positions at an agency are likely to qualify for the highly compensated employee exemption? Typically, only the agency owner.

Remaining positions: So what positions haven’t we talked about yet?

CSR, account manager, receptionist, clerk, bookkeeper/accounting clerk.

These positions should be classified as non-exempt. These employees must report hours worked and must be paid time and a half for overtime worked.

Make certain to have employees carefully and accurately record their hours. If the hours worked ever come into question, the burden of proof is on the employer.

Related FAQs What should you do if you have incorrectly classified an employee in the past?

You want to immediately inform the employee that it has been determined that his position is classified as nonexempt and that, from that point forward, he needs to report hours worked and will receive overtime payment equal to one and half times the regular hourly rate of pay for all hours worked over 40 in a work week.

It is also advisable to provide back pay for the past two years by: 1. Estimating the amount overtime work for which the employee was not compensated 2. Verifying the time calculation with the employee and giving him an opportunity to inform you if he doesn’t feel that your estimate is accurate and 3. Paying the employee the overtime amount owed.

Have the employee sign off on a document that details the amount of back pay and the manner in which it was calculated. This will provide verification that you have compensated them for overtime worked over the previous two years.

What if any employee works overtime that hasn’t been authorized?

You must pay the employee time and a half anyway. Working overtime

[ 28 ]

without approval can be handled as a performance issue, but the time must still be paid.

What risk am I taking if I don’t classify an employee correctly?

As was stated in the April 2014 article, over the past several years, the Department of Labor has added over 300 new field investigators to the Wage and Hour Division with the purpose of looking into cases of noncompliance related to wage-and-hour issues and compliance with the FLSA. Litigation of wage-and-hour disputes is time-consuming and costly.

Employees who make a claim can go back two years – and if you don’t have time records, the court will take the employee’s word for the amount of overtime they say that they have worked. The bottom line? You want to be in compliance with the FLSA. Remember, it’s never a problem to treat an employee as non-exempt, so if you’re in doubt, classify the position as non-exempt and pay overtime. It’s also important to remember that it doesn’t matter what you call an employee or position.

What matters is what they are doing in the course of carrying out their job.

More detailed information can be found on the Wage and Hour Division’s website: http://www.wagehour.dol.gov.

Wage and Hour also has a toll-free hotline available between 8 a.m. and 5 p.m.: 1-866-4USWAGE.

Classified ADVE RTI S E M E N T S

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 215-357-8600, Ext. 119.

SALES AGENT/PRODUCER Community Insurance, a thriving independent insurance agency in Lancaster, Pa. is seeking a motivated sales agent. Ideal for a newly licensed agent looking to take that next step or a seasoned producer seeking the most competitive markets in the industry.

Bring your P&C and/or Life & Health talents to a proven industry leader.

Forward resume and cover letter to: Tom@CommunitySure.com 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.

Ad Index AAA Mid Atlantic . . . . . . . . . . . . . . . 23 ACUITY . . . . . . . . . . . . . . . . . . . . . . . 15 Atlantic Specialty Lines Inc . . . . . . . 14 Coastal Agents Alliance . . . . . . . . . . . 7 EMC Insurance Companies . . . . . . . 20 Guard Insurance Group . . . . . . . . . . 23 Harleysville Insurance . . . . . . . . . . . 19 Heinrich/Towerstone . . . . . . . . . . . IFC IA&B Partners Program . . . . . . . . . . 11 Interstate Insurance Mngmnt. . . . OBC Mutual Benefit Group . . . . . . . . . . . 14 Penn PRIME Municipal Insurance . . 23 Preferred Property Program . . . . . . . 9

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The app allows you to read any business card within a second by taking a photo of it. Then edit, group, search, sort or export the business cards you’ve collected. Make phone calls and send emails and text messages directly from within your CamCard Card Holder.

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The “C’mon, get appy” column aims to uncover apps that can benefit you at the office and, in some cases, at home as well.

Submit suggestions to IAB@IABforME.com, subject line: Primary Agent submission.

Ripe For the Picking Let Interstate help you reap the abundance of summer opportunities.

Your clients with outdoor businesses need extra protection for the unique risks that the summer season brings. Interstate can cover: • Amusement Parks, Batting Cages, Kiddie Rides, Go-Karts & Bumper Boats • Festivals, Special Events, Parades and Carnivals • Hole-in-One and Fishing Contests and Bowling Tournaments • Sports Camps and Instructors • Horse Clubs, Boarding, Shows and Races • Pet Groomers, Kennels and Trainers • Outdoor Guides and Outfitters Interstate also offers coverages for a variety of other seasonal and non-seasonal businesses with special coverage needs including: • Flea Markets and Vendors • Driving Ranges • Beauty and Barber Shops • Health and Fitness Clubs • Bars, Taverns and Restaurants • Lawn Care and Landscaping Contractors • Janitorial and Window Cleaning Services • Power Washers • Garbage and Refuse Haulers

Call Interstate for the best coverages for all your hard-to-place risks.

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Pennsylvania, Delaware, Maryland, Ohio, Virginia & West Virginia 2307 Menoher Boulevard • Johnstown, PA 15905 814-255-7878 • 1-800-452-0297 • Fax: 814-255-6010 www.interstate-insurance.com