Maryland Primary Agent - October 2015

OCTOBER 2015 | MARYLAND

BRIGHT IDEAS

FOR THE STATE’S INSURANCE MARKET

An interview with Commissioner Redmer

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IN THIS

ON THE COVER 12

BRIGHT IDEAS FOR THE STATE’S INSURANCE MARKET When we caught up with Commissioner Redmer in late summer, he was seven months into his term. The commissioner spoke openly about his priorities and approach to regulation and made known his desire for feedback.

ALSO 22

INFLUENCING CHANGE Get to know our IA&B Government Relations Committee — a committee of volunteer member agents who help steer our advocacy efforts.

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HOW THE OVERTIME REGULATION COULD CHANGE The U.S. Department of Labor released proposed changes to the Fair Labor Standards Act in July. If they are approved as presented, the revisions will impact 11 million employees — including plenty of insurance agency staff.

IN EVERY ISSUE 2

Chairman of the Board’s Message

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Ask Our Experts

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Preventing Errors & Omissions

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Coverage Corner

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State News

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IA&B Partners

IBC My Events IBC Advertiser’s Index IBC Classified Ads Periodical postage paid at Mechanicsburg, Pa. and at additional mailing offices. Ride-along enclosed. Postmaster: Send address changes to Insurance Agents & Brokers, 5050 Ritter Road, Mechanicsburg, PA 17055.

Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2015-10, is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.

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Copyright 2015. 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 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. 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 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.

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CHAIRMAN OF THE BOARD’S MESSAGE

YOUR VOICE IN ANNAPOLIS

INSURANCE AGENTS & BROKERS 5050 Ritter Road | Mechanicsburg, PA 17055 800-998-9644 | IABforME.com

OFFICERS Chair of the Board

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Robert S. Klinger, LUTCF, CPIA Vice Chair of the Board

ime and again, when members rank the reasons they belong to their state agents’ association, advocacy – particularly regulatory and governmental representation – tops the list.

And it’s no wonder. As already stretched-too-thin businesspersons, the idea of us personally tracking departmental bulletins and bills and lobbying state officials and elected leaders is laughable. Yet we realize the impact that regulation and legislation have on us, our agencies and our customers.

Michael F. McGroarty Sr. Immediate Past Chair of the Board

Diana M. Hornung Hanby, ACSR

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

Enter IA&B.

Wilmington, Del.

This issue of Primary Agent magazine is dedicated to government relations.

On page 12, you’ll find an interview with Commissioner Al Redmer Jr. We asked our burning questions and gave him the opportunity to share his operational and regulatory goals.

Then I invite you to learn more about the role that member agents play in defining IA&B’s legislative priorities. Page 22 showcases the state association’s government affairs committee.

Finally, I would be remiss if not to encourage your contribution to AgentPAC, the political action committee of your state association. It’s thanks to agents’ generous support that our government relations staff can build relationships needed to open doors in Annapolis and beyond. n

Michael P. Ertel+ Columbia, Md.

John B. Hollister Milford, Pa.

Jocelyn R. Howard-Sinopoli, CIC, CISR Butler, Pa.

Douglas A. Loesel, CPCU Erie, Pa.

Crag S. Mader

Gambrills, Md.

Ann Gallen Moll, CIC Reading, Pa.

Mark J. Monroe

West Chester, Pa.

Joseph R. Pastor, CPCU, AAI Oil City, Pa.

Richard M. Rankin, CIC Lancaster, Pa.

Best,

April E. Ressler, CIC Altoona, Pa.

Scott C. Rogers, CPIA* York, Pa.

Glenn R. Strachan

Robert S. Klinger, LUTCF, CPIA Chairman of the Board

Ft. Washington, Md.

Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** New Castle, Del.

J. Marshall Wolff, CIC, CPCU Easton, Pa.

Editor’s note: Learn more about AgentPAC and contribute by visiting IABforME.com/MdPAC.

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OCTOBER 2015

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

Ask Our Experts This month’s answer was provided by Don Bankus, our legal affairs manager.

Question: What information should be included in the Description of Operations box on the ACORD 25?

Answer:

G

reat question. As you’re well aware, agents are often asked to add all kinds of information to certificates. It’s generally recommended the information an agent enters in the Description of Operations box be limited as per the ACORD instructions to include recording “... information necessary to identify the operations, locations and vehicles for which the certificate was issued.”

As long as the information you include, or are being asked to include, in the Description of Operations box isn’t illegal (meaning that it’s not a violation of an insurance or other law, regulations, etc.), and the information you include is not a misrepresentation of any policy terms or conditions, inclusion of such information is not expressly prohibited.

The ACORD 25 Instructions for the Description of Operations/Locations/ Vehicles box provide as follows:

As an added precaution, it may be prudent to include a statement thereafter that the information being provided is “to the extent provided in the attached/enclosed forms” and then provide copies of the applicable policy forms/endorsements. This will assist in limiting the agency’s exposure, while also placing the onus on the certificate requester to determine whether or not coverage, etc., afforded by such documents/ endorsements meets their requirements.

E nter text: The Certificate Of Liability Insurance general remarks.

The additional comments or special conditions that may exist upon the policy. ACORD 101, Additional Remarks Schedule, may be attached if more space is required. As used here, records information necessary to identify the operations, locations and vehicles for which the certificate was issued.

If the information you intend to reference/add to the certificate falls outside the four corners of the policy and/or applicable endorsements, you should refrain from including/adding it.

For more information on certificates of insurance, visit IABforME.com/ certificates. n

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.

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PREVENTING ERRORS & OMISSIONS

COMMON AGENT MISSTEPS E&O claim examples Penn National Insurance

L

earn from fellow agents’ mistakes.

In this article Penn National Insurance provides common scenarios that generate E&O claims against agencies.

MISSED ADDITIONAL NAMED INSURED An existing client informed his agent that he wanted to change the named insured on his policy to a corporation that he was in the process of forming. The agent failed to ask the client if he and his wife were retaining personal ownership of the building which housed the business

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after the change to the corporate entity. The agent also failed to name the client individually on the policy, thereby exposing the client to personal liability outside the exclusive remedy of worker’s compensation for an employee of the new corporation who suffered a premises-related injury. These failures created an agent E&O exposure when the client incurred liability which would have been covered by the policy had the agent included the individual client as an additional named insured.

OCTOBER 2015

MISREPRESENTATION ON THE APPLICATION An insured filed a first-party claim for damages suffered due to a break-in at his store. The insured’s carrier denied the claim based on misrepresentation in the application.

The carrier alleged that the insured had not disclosed previous theft losses from the business and filed suit to void the policy ab initio. The insured maintained that he had informed the agent of prior break-ins when he applied and therefore filed a thirdparty complaint against the agent.

Among other claims, the allegations against the agent included negligent misrepresentation, fraud, breach of implied contract and breach of fiduciary duty. The client also sought punitive damages and a declaration that the policy was valid at the time of the loss and provided coverage for the damages sustained.

FAILURE TO PROCURE INSURANCE An insured filed a first-party claim for damages suffered due to total loss in a house fire. The insured had signed the insurance application on June 26, but the agent did not forward the application to the carrier until Aug. 5 – the date of loss. The carrier refused to pay the loss and maintained that, if the application had been filed on a timely basis at the time of its execution, it would have been rejected. The insured filed an E&O claim against the agent for failure to procure insurance, seeking damages in the amount of the loss.

MISREPRESENTATION IN POLICY PROCUREMENT A contractor met with the agent to obtain a policy which covered all liability loss exposures arising out of his operations – primarily carpentry, remodeling and limited roofing. After policy issuance and a number of renewals, an employee of the contractor was injured on the job.

While the employee was covered under the worker’s compensation program, he also filed a claim against the contractor for intentional tort. The contractor alleged that the agent had represented that the insurance coverages would specifically protect him from all potential employee losses and that the policy would provide complete coverage for all employee and customer liability. The

agent faced E&O exposure for his alleged representations to the contractor in the course of policy procurement.

MISCALCULATION OF COSTS Agent wrote a homeowner’s policy through ABC Fire Insurance Company using cost guides from two other carriers in error. The agent then used room count instead of square footage in premium calculation, ultimately advising the insured that he could not obtain guaranteed replacement cost. Based upon this representation, the insured obtained dwelling coverage, related structures, personal property and loss of use. A subsequent house fire resulted in a total loss. The policyholder hired counsel who specialized in insurance bad faith, fire insurance, property insurance coverage and insurance law to bring claims against the agent due to the agent’s errors. n Penn National Insurance supplied this article. Our sales center offers agents’ umbrella coverage underwritten by Penn National. For questions regarding this article or how an umbrella policy could supplement your existing commercial coverage and E&O limits, contact IA&B at 800-998-9644 or IAB@IABforME.com.

BE IN THE KNOW ABOUT E&O BRUSH UP on your E&O prevention knowledge at one of our upcoming courses: E&O Risk Management: Meeting the Challenge of Change The ever-changing world of insurance includes new and evolving E&O exposures, as well as emerging new ways to protect your agency. Learn about the E&O exposures that exist today that were unimaginable 15 years ago, including those created by social media and data breaches.

Thursday, Oct. 8 – Mars, Pa. Tuesday, Nov. 3 – Bethlehem, Pa. Wednesday, Dec. 2 – Newark, Del. This seminar is approved for loss-control credit for Utica policyholders in Delaware, Maryland and Pennsylvania and for Westport policyholders in Delaware and Pennsylvania.

Ethical Behavior and E&O Jerry Milton, CIC, shows you how to stay out of hot water when it comes to errors and omissions. He explains how to reduce the risk of E&O claims by conquering “the L-Syndrome: lack of knowledge, lack of consistency, lack of communication or lack of documentation.”

Available on-demand and at your convenience for 30 days following registration.

This seminar is approved for loss-control credit for Utica policyholders in Delaware, Maryland and Pennsylvania.

IABforME.com/MyTraining

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COVERAGE CORNER

THE NEW CYBER THREATS Jerry M. Milton, CIC

B

efore late 2014, we thought the primary cyber threats were the loss of or theft of data. However, we now have discovered that cyber threats have become more dangerous and malicious as industrial control systems and supervisory control and data acquisition systems are being targeted.

In late 2014 the control systems of a German steel mill were remotely manipulated causing severe damage to the plant. Using sophisticated spear-phishing (use of emails that appear to come from within the organization or from a trusted source) and social media engineering techniques, the attackers gained access to

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the plant’s business network. They were able to compromise a number of systems, including various industrial components on the facility’s production network.

The manipulations of the plant’s systems caused a number of internal failures, and they were unable to properly shut down a blast furnace, which resulted in massive damage to the facility.

The Industrial Control Systems Cyber Emergency Response Team, which is part of the U.S. Department of Homeland Security, reported that U.S. industrial control systems were hit by cyber attacks at least 245 times in 2014. They reported that the energy and manufacturing

OCTOBER 2015

sectors were the most sought after targets.

Other targeted sectors included health care, communications, water supply and transportation. These attacks have raised significant concerns regarding property damage and resulting bodily injuries.

One major concern of the industry is their supply chains. Supply chains are often global and are extremely vulnerable to cyber threats. They are often extended and complex, and their very nature make them vulnerable and hard to protect.

The product a company purchases could already be loaded with malware or a malicious code.

The emergence of these cyber threats is not surprising as more and more control systems have become accessible from the Internet. By allowing employees to gain remote access to control systems networks, companies face an increased risk of cyber attacks gaining unauthorized access to their systems.

Recently several security experts teamed with Wired magazine to demonstrate the ability of anyone to wirelessly hack into and control an auto’s entertainment and control systems. An entertainment system is usually connected to numerous electronic control units throughout the auto. Today’s autos can contain up to as many as 200 electronic control units. The security experts showed how to wirelessly break into an auto’s control systems and electronically operate vital vehicle functions. They advised that they could easily hack the electronic control systems in hundreds of thousands of vulnerable autos.

Two United States senators, Edward Markey and Richard Blumenthal, reacted quickly to this threat and have introduced a bill in the Senate that would require automobile manufacturers to develop standards that protect drivers from cyber attacks. The Security and Privacy in Your Car Act of 2015 would require automakers to comply with cyber security standards and equip autos with software that would detect, report and stop attempts by hackers to intercept driving data or control the auto.

However, these measures would not be implemented for several years.

Damage to tangible property and physical injury arising from cyber attacks is an emerging risk. While exclusions have been added to our property and liability policies in regard to electronic data, the question is whether these exclusions would be applicable if a cyber attack resulted in bodily injury or property damage to tangible property. What about these new cyber policies being developed

by our insurers? Will cyber losses resulting in bodily injury or property damage to tangible property be covered under these policies? Probably not.

Will our industry develop new policies to address these new threats? I’m sure they will – only time will tell.

Y’all take care! n

Jerry M. Milton, CIC, teaches and consults on industry issues. The legal profession recognizes him as an expert on insurance coverages. He also serves as our education consultant, working with our CISR, CIC and continuing education programs.

Catch him at one of our upcoming seminars, including the new, six-credit “Cyber liability, e-data and equipment breakdown -- who needs ‘em?!?” coming to Ellicott City, Md. on Tuesday, Oct. 6.

Visit IABforME.com/MyTraining.

CIC CORNER Our four CIC education consultants boast a combined 170 years of insurance industry experience.

Here, one of our consultants – James “Jim” Harrison Jr., CIC, ChFC, CLU, CPCU – offers his advice to those beginning the program.

1. PREPARATION. Review the agenda and familiarize yourself with the various topics – ahead of time.

Don’t wait until the night before the class or until the class itself.

2. APPROACH. Sit in the front of the class (front row if available) to avoid distractions and focus on the instructor and material.

3. TOOLS. Bring your study tools of choice. Some students are successful making flashcards, while others create a consolidated outline. Some use highlighters. What works for you?

4. RESOURCES. At the end of day one, stay for the exam briefing. Review the introductory section of the notebook, and use the education consultant as a resource.

IABforME.com/CIC

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STATE NEWS

after the expiration of the policy or contract; and disclose to the small employer the following regarding the contract or policy: total costs, the effective and termination dates, renewal provisions, attachment points, and limitations on coverage.

This legislation drew the ire of small business and insurance industry stakeholders during the 2015 legislative session which ended in April. Although the original draft of the bill proposed a limit of $40,000 with an aggregated attachment of 125 percent, vocal opposition led to those thresholds being lowered to $22,500 and 120 percent.

MEDICAL STOP-LOSS LAW OPPONENTS OFFERED CHANCE TO WEIGH IN The contentious new medical stop-loss law is under review. The Maryland Insurance Administration (MIA) held a late-September public hearing on medical stop-loss insurance in self-funded employer health plans and will accept written comments until Tuesday, Oct. 13. This is part of the study mandated by the new law – Chapter 494 (formerly House Bill 552), which passed the General Assembly earlier this year and took effect June 1.

The law increased from $10,000 to $22,500 the minimum threshold employers who self-fund health insurance have to pay on individual employee claims (called the “specific attachment point”) before triggering stop-loss coverage. Additionally, it increased the minimum aggregate attachment point (the percentage of expected claims in a policy year above which the medical stop-loss insurer assumes liability for losses incurred by the insured) from 115 to 120 percent of expected claims. Policies and contracts issued prior to June 1 were grandfathered.

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The new law does provide several protections for small employers: • A medical stop-loss insurer may not impose higher cost sharing for a specific individual within a small employer’s health benefit plan than is required for other individuals within the plan; decrease or remove stop-loss coverage for a specific individual within a small employer’s health benefit plan; or exclude any employee or dependent from a policy or contract based on an actual or expected health status related factor or condition.

• A medical stop-loss insurer must guarantee rates for at least 12 months, unless there is a change in benefits, ownership and control of the small employer, or the number of covered lives by a significant percentage resulting from specified events; pay stop-loss claims incurred during the policy or contract period and submitted within 12 months

OCTOBER 2015

The issue won’t be going away soon.

Beyond the required study, the law includes a 2018 sunset on the new rates, meaning new legislation will need to be enacted.

CONTINUED PROBLEMS WITH STATE’S HEALTH EXCHANGE In a series of town hall meetings held around the state this summer, the Maryland Insurance Administration (MIA) received an earful from individuals, business owners and insurance producers on the state’s health insurance market. The common theme among the meetings? Continued frustrations and delays surrounding the Maryland Health Benefit Exchange, including customer service issues and late (or missing) commission payments.

We’ve attended all of the meetings, making public comments stressing the value of the independent agent community and requesting opportunities for greater involvement in working with the health exchange.

Commissioner Al Redmer scheduled these meetings as part of his commitment to gather information and opinions from various constituencies regarding the state’s insurance climate. Read more about his initiative – and his plans to respond to the feedback – in our interview with him on page 12.

COMP LOSS COST PROPOSAL Workers’ compensation loss costs could decrease in the new year. The National Council on Compensation Insurance (NCCI) over the summer submitted its workers’ compensation loss cost filing to the Maryland Insurance Administration (MIA). Its proposal, which would take effect on Jan. 1, 2016, calls for a -5.3 percent change in the voluntary market.

According to the NCCI filing summary, the following factors led to the proposed decrease: • Improved experience (PY 2013 better than PY 2011) • Lower development contributed to improved experience • No change in loss-ratio trends • Increase in indemnity benefits (due to an increase in statewide average weekly wage) • Increase in medical benefits (due to physician fee schedule change) Watch Agent Headlines for updates as the MIA reviews the filing.

MIA CLARIFIES COMMISSION SHARING The Maryland Insurance Administration (MIA) recently issued Bulletin 15-22 to clarify under what circumstances, and whether or not, a licensed and appointed producer would be permitted to pay a referral fee or split a commission with a licensed, but non-appointed producer. Per the bulletin, in exchange for a referral, an insurer or its appointed producer would be permitted to pay a referral fee or split a commission with a licensed producer who is not appointed by the applicable insurer.

MARYLAND AUTO MOVE PROMPTS (EVENTUAL) NOTICE UPDATES In response to carriers’ feedback, the Maryland Insurance Administration (MIA) will delay the date that certain notices include a revised mailing address for the Maryland Automobile Insurance Fund (MAIF), now known as Maryland Auto. Carriers now have until Thursday, Nov. 5 to update impacted notices*, including: • Cancellation, nonrenewal or reduction of coverage for private passenger automobile policies • Cancellation or nonrenewal of commercial automobile policies While Maryland Auto began relocating its offices to Baltimore over the summer, its staff agreed to make arrangements to receive mail from its Annapolis address until the new November date. * The Insurance Article requires these notices to include the Fund’s contact information.

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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.

FOCUSED ON RESULTS FEATURED PARTNER Donegal Insurance Group

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.

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 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.

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.

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CHIEF EXECUTIVE OFFICER Donald H. Nikolaus President and CEO

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

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 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 126 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. n

OCTOBER 2015

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

PARTNERS PROGRAM

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.

PLATINUM LEVEL

BRONZE LEVEL

ACUITY

Aegis Security Insurance Co

Berkley Mid-Atlantic Group

Agency Insurance Company

Donegal Insurance Group

AmWINS Program Underwriters Inc

Erie Insurance Group

ARI Insurance Companies

Harleysville Insurance

Auto-Owners Insurance Company

Insurance Agents & Brokers Service Group Inc

Bailey Special Risks Inc

Liberty Mutual Insurance

Briar Creek Mutual Insurance Company

MMG Insurance Company

Conemaugh Valley Mutual Insurance Co

Millers Mutual Group

Countryway Insurance Company

Mutual Benefit Group

Encompass Insurance

Penn National Insurance

Foremost Insurance Group

Swiss Re

GMI Insurance

The Main Street America Group

Goodville Mutual Casualty Company

United Fire Group

Guard Insurance Group

Utica National Insurance Group

HM Workers’ Compensation

Brethren Mutual Insurance Company

Insurance Alliance of Central PA Inc

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.

GOLD LEVEL

Amerisafe Progressive Westfield Insurance

Insurance House Insurance Placement Facility of PA Keystone Insurers Group Inc Lackawanna Insurance Group Lebanon Valley Insurance Company Merchants Insurance Group

SILVER LEVEL

Mercury Casualty

Access Insurance Company

Millville Mutual Insurance Co

American Mining Insurance Co

PennPRIME Municipal Insurance

Cumberland Insurance Group

Reamstown Mutual Insurance Company

Farmers Mutual Insurance Company of Western Pennsylvania

Rockwood Casualty Insurance

Frederick Mutual Insurance Co Juniata Mutual Insurance Co

State Auto Mutual Insurance Company TAPCO Underwriters Inc The Motorists Insurance Group

MAPFRE Insurance

The Mutual Service Office Inc

PSBA Insurance Trust

Travelers

Selective

Tuscarora Wayne Group of Companies

The Philadelphia Contributionship

Zenith Insurance

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BRIGHT IDEAS FOR THE STATE’S INSURANCE MARKET AN INTERVIEW WITH COMMISSIONER REDMER JR.

Al Redmer Jr. is no stranger to the Maryland Insurance Administration. The one-time independent insurance agent and former state legislator served as Maryland’s insurance commissioner from June 2003 until October 2005.

[Producers] need to know what they have sold, understand the claim process and be responsive to the folks who are good enough to give them their business.

When we caught up with Commissioner Redmer in late summer, he was seven months into his new term. The commissioner spoke openly about his priorities and approach to regulation and made known his desire for feedback – as is evident from his series of stakeholder meetings.

On the following pages, we highlights of our conversation.

share

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HEALTH INSURANCE IA&B: You’ve been holding a series of stakeholder meetings across the state. How have they been going, and what are your plans for the [health insurance] exchange?

Commissioner: They’ve been going exceptionally well. We’ve averaged 40 or 50 folks per session. We have – which is not surprising – received quite a bit of information. We’ve received feedback that is specific to the exchange, but we’ve also received information regarding the individual and group health insurance market. The issues have circled around affordability, which is always an issue, and also plenty of operational issues, specifically to the exchange’s wait times and poor communication.

During the tour, we’ve invited the folks from the exchange to join us. Carolyn Quattrocki, the director of the exchange, has been at five or six. And she’s had others represent her at the one or two she wasn’t able to make.

Obviously with the issues that come up, we’re in the process of prioritizing and working through them. It’s a work in progress.

One of the things we’re in the process of working on as a direct result of these meetings is as we complete an actuarial review

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OCTOBER 2015

We’ll be spending a lot of time trying to identify those markets that lack adequate competition.

As we do that, we’ll be encouraging carriers to take additional risk in Maryland and certainly trying to recruit other carriers to come in.

For All That Matters

facebook.com/acuitywow

of rates for 2016, our actuaries will then begin working on trying to create a methodology for composite rates for multiple plan options. So that’s a specific example of something we’re working on.

Also, for SHOP, we’ll be looking closely at allowing employers to select multiple plan options through the SHOP program. We have a lot of things on our to-do list.

It’s been helpful because there has been constant change in the health insurance market over the last couple of years. There’s more change to come.

There’s certainly a lot of uncertainty, so the insurance administration and the exchange will have to make very important decisions over the coming weeks, months and even years, and the last thing we want to do is make decisions in a vacuum. So getting around the state and getting feedback and observations from folks who are dealing with this on a daily basis is very helpful. And we’ve heard not just from producers but we’ve also had a number of business owners and just general individual consumers who have come out to these meetings.

You referenced Hurricane Isabel, and there were many sad stories of folks who were sold products incorrectly and more than a couple of examples of producers not being responsive to their customers during the claim process.

[Producers] need to know what they have sold, understand the claim process and be responsive to the folks who are good enough to give them their business.

IA&B: While we’re on the subject of hurricanes, let’s talk about percentage deductibles. We’re thinking back to Superstorm Sandy, when your predecessor announced that hurricane deductibles would not apply. Do you have any thoughts on the use of them?

But generally, I’m in favor of additional options for the consumer. Options in and of themselves are typically a good thing, and if those options are available to the consumer, then I certainly don’t have any problem with it.

You thought you sold a comprehensive homeowners policy. Does it include Equipment Breakdown coverage?

NATURAL DISASTERS IA&B: Another issue you’ve prioritized – no doubt from your experience being commissioner when [Hurricane] Isabel went through the state – is emergency preparedness. What are your expectations of producers in natural disasters?

Let Mutual Benefit Group provide this overlooked coverage for times when things run hot and cold, or unfortunately in the wrong order.

Commissioner: My expectations are that producers need to know the products they sell. They need to understand the claim process, particularly for things they don’t do every day, like flood-related claims. And, most importantly, they need to be responsive to their customers.

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Commissioner: At the end of the day, those kinds of decisions are for the legislature. Having been a legislator, I’m very sensitive to our role – to protect consumers, in part, by implementing and executing the law [Section 19-209 of the Insurance Article] that is given to us by the Maryland General Assembly. So I’m very conscious of what my role is as opposed to what their role is.

OCTOBER 2015

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COASTAL MARKET IA&B: Let’s talk availability and affordability – specifically in coastal areas. This was a hot topic in 2011 and 2012 with a task force and legislative hearings. What are your thoughts?

Commissioner: Certainly affordability is always an issue.

Insurance 101 is that insurance carriers need to collect enough premium to pay their claims, their administrative costs and to put additional cash aside for a rainy day.

The only way that we at the Insurance Administration can directly affect the cost of premiums is by managing our own expenses. Obviously these carriers have to pay our expenses. They pay us for the joy of being regulated is how I like to put it. So to the extent that we can run our operation more efficiently and moderate the amount of money that we spend, hopefully those are saved dollars that can be passed back to the consumer with reduced premiums.

Regarding access to products, we haven’t heard a lot from either consumers or producers about the lack of availability. However, that’s something I spent a lot of time on a decade ago and will be spending time on again.

As you know, we are in the process of finishing our road show dealing with health insurance issues. We will be scheduling the same kind of tour in an effort to collect feedback on the property and casualty side of the business. So we will be moving around.

I have chatted with Sen. Mathias, so we will specifically be doing something in Ocean City.

We’ll be spending a lot of time trying to identify those markets that lack adequate competition. As we do that, we’ll be encouraging carriers to take additional risk in Maryland and certainly trying to recruit other carriers to come in.

BUSINESS CLIMATE IA&B: You’ve made it a goal to attract insurers to do business in the state. Have you had any success so far?

Commissioner: We have. We probably have a dozen carriers doing business in Maryland today that were not doing business in Maryland in 2014. So we’ve had some initial success, and that’s something we’re going to spend a lot of time working on.

In addition, [we are] outside of the office and communicating with the industry a lot. Internally we have a process for whenever a carrier even inquires about the process of doing business in Maryland, our folks are trained to get the contact

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information, send it directly to me, and I make outgoing business development calls trying to encourage their interest in looking at Maryland.

UNDERWRITING IA&B: The use of credit in insurance rating – your thoughts?

Commissioner: Once again, that’s a prerogative of the legislature. There are statutes. When it relates to credit, to the extent that it’s allowed in Maryland, the carriers have to provide actuarial proof that they’re making the pricing decisions that they are. We have a very talented actuarial team that reviews those rates, and if it’s allowed by law, certainly [carriers] can do it.

REGULATION IA&B: When it comes to insurance regulation, can you draw any conclusions from your recent stakeholder meetings?

Commissioner: When Gov. Hogan announced that I was going to be the new commissioner – I’ve had the same cell phone number for about 15 years and there are a lot of people who have it – my phone rang off the hook about all of the perceived problems at the Maryland Insurance Administration. My message for the industry was that we’re willing to look at any issue you want us to look at. However, my first day on the job was the second week of the legislative session, so my request was, let us get through the legislative session, we’ll take a deep breath, and then we’ll look at any issue you want us to look at.

So we devoted three different days for the P&C industry to come in and tell us what they liked and didn’t like about doing business in Maryland. Day No. 1 was devoted to insurance statutes. We probably had 50 people come in and weigh in on different statutes: what they liked, what they didn’t like, and what their suggestions were. The follow up for that is being led by our director of government relations, Nancy Egan.

Day No. 2 was devoted to all the insurance regulations and prior bulletins promulgated by the insurance administration. There again, we had 40 or 50 people come in and weigh in on where their heartburn was. The follow up to that meeting is being led

by Cathy Grason, who is our director of regulatory affairs.

Finally, day No. 3 was devoted to our operational issues. We regulate the industry, we do rates and form filings and those kinds of things, so we invited comment on what they didn’t like about our processes, what are we doing that we shouldn’t be doing, what are we doing that doesn’t make sense, etc. And the

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follow up to that meeting is being led by Lynn Dickerson – he is our new associate commissioner of P&C.

... I’m very interested in adding competition to the state of Maryland. We want more carriers, and we want more products. Naturally, I think that helps consumers from the standpoint of creating options and managing pricing and even increasing customer service.

So we have a laundry list of issues raised in each of those three meetings. We are currently going through the process of prioritizing those and making a determination as to what changes we’re going to make. We will be preparing a legislative package to change some laws. We’ll be making changes to regulations and bulletins, and we will be adopting some new things operationally. We have a lot on our plate. We’re working through the process, and we’ll have some deliverables over the next couple of months.

PRIORITIES IA&B: What is your main priority to accomplish while serving as commissioner?

Commissioner: We need to regulate. Our role is to protect Maryland consumers, and that’s something we take very seriously. We do that by regulating the industry. We have a talented team here that takes that seriously and does a good job.

However, in addition to that, I’m very interested in adding competition to the state of Maryland. We want more carriers,

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and we want more products. Naturally, I think that helps consumers from the standpoint of creating options and managing pricing and even increasing customer service.

Lastly, Gov. Hogan and others have said that Maryland is over reliant on federal jobs and that we need to diversify our employment base, and I agree. And I think insurance jobs are a great opportunity to do that. So I will be working collaboratively with the Dept. of Business and Economic Development, trying to add insurance jobs to Maryland – whether it’s increasing the number of employees that are based in Maryland based on the two large healthcare acquisitions and mergers that are currently going on, whether it’s finding companies that are looking to relocate a regional office, or just organic growth based on success in Maryland.

We’re going to be engaged, looking for those opportunities and trying to get some wins. And I did that a decade ago. We worked collaboratively with DBED and the Economic Alliance. Chubb was looking to relocate a regional office, and we had about 300 jobs move into Montgomery Park here in Baltimore.

So those are things we’re going to spend a lot of time doing, in addition to the day-to-day blocking and tackling of insurance regulations. n

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INFLUENCING

CHANGE

GETTING TO KNOW THE IA&B GOVERNMENT RELATIONS COMMITTEE

Com-mit-tee (noun) – a body of persons delegated to consider, investigate, take action on, or report on some matter.

IA&B

, as an association, is very limited in the number of standing committees it maintains. We are constantly trying to stay ahead of the curve in the association world, and the longstanding committee model is now looked upon as dysfunctional and unproductive.

That being said, there is one key committee within our association, and that is our state Government Relations Committee (GRC). This committee serves a very important role in guiding our legislative work, and as a result serves a very important role in protecting members.

Our state-specific GRC is comprised of volunteer member agents. And don’t assume that these agents have strong political backgrounds or ties – for the most part, these agents simply have an interest in the legislative process in their state, and how it affects independent insurance agents.

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OCTOBER 2015

The reason the GRC is an important one is quite practical – in order for our advocacy staff to understand how proposed legislation and regulation impacts an independent agency, we must understand how an independent agency operates. Committee members are asked to consider various proposals that come to us and weigh in on what it means for an agency.

Take, for example, a recent measure regarding MVRs. As part of the state budget proposal, the cost of MVRs was to increase. It was the perception of our staff that member agents were still pulling numerous MVRs as part of the front-line underwriting process and that this fee increase would have a significant impact on agencies. However, through feedback from the GRC, we learned that MVRs are not used as heavily in agencies and come much later in the application process, if at all. As a result, our staff did not spend considerable time and resources opposing this measure, allowing us to focus in other areas.

The committee is both informal and formal in nature. The bulk of the work is conducted via group email discussions on particular issues and questions. When staff is presented a question or scenario at the state capitol, communication to the GRC is made to assist in answering.

The GRC is also kept in the loop on legislative updates – both our work at the capitol, as well as any new developments from the legislature or state regulators.

On the more formal side, each state GRC has several in-person meetings per year, where a full agenda is prepared and consensus is obtained from the group on our legislative strategy and direction.

“Serving on IA&B’s government relations committee is very rewarding,” says George Komelasky, an IA&B of Pennsylvania GRC member. “It allows me to provide input which helps steer our legislative direction. I feel it’s a way to contribute to my association and give back to my industry.”

Committee members serve two-year terms and are eligible to serve successive terms. While our committee has members who have volunteered multiple years to the GRC, our staff is constantly looking to bring in new GRC members in order to keep the perspective fresh.

Additionally, the GRC often serves as first step for members who want to become more involved in association, including consideration to serve as a director on the IA&B Board.

To learn more about the GRC and to express interest yourself, please visit IABforME.com/volunteer. n

Jason Ernest, deputy CEO and counsel for IA&B, provided this article.

Meet your IA&B of Maryland Government Relations Committee* Linda A. McCann, AAI, CPCU, CPIW, chairwoman Bay Shore Insurance Inc. Salisbury, Md. Vincent D. “Chip” Boylan, Jr., CPCU Willis of Maryland Inc. Potomac, Md. Bryan Hanes, JD Antietam Insurance Associates Inc. Hagerstown, Md. Robert S. Klinger, LUTCF, CPIA Klinger Insurance Group Germantown, Md. Craig S. Mader Craig S Mader Insurance Agency Inc. Crofton, Md. Charles McClenahan Landmark Insurance Inc. Princess Anne, Md. Jay A. Radov Gebco Insurance Associates Inc. Towson, Md. E. Larry Sanders, III, CIC, CPIA Edward L. Sanders Insurance Agency La Plata, Md. Bryson F. Popham, Esq., lobbyist Popham & Andryszak, P.A. Annapolis, Md.

* The list is current as this issue of Primary Agent went to print.

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OCTOBER 2015

COMING ATTRACTION:

FLSA OF TOMORROW HOW THE OVERTIME REGULATION COULD CHANGE

By Karen H. DiGioia

Suspense. Drama. The Fair Labor Standards Act and the Obama Administration’s proposed changes to it have all the characteristics of a cinematic success (except perhaps romance). On the following pages, our HR consultant, Karen DiGioia, offers the big picture: what could change and how to prepare.

I

f it’s good enough for Hollywood, it’s good enough for me – the “triquel”! What’s a triquel, you may ask? To the best of my knowledge, it’s not a real word but, for our purposes here, a triquel is the follow-up to a sequel, and that’s what this article is.

In this column, we’ve spent time talking about the Fair Labor Standards Act (FLSA), not once but twice before (the April and October 2014 issues of Primary Agent magazine; see box on page 27). Thanks to the proposed regulation changes released by the U. S. Department of Labor (DOL) in July of this year, we’re going to talk about it again.

For business owners and managers, it’s important to understand the changes that are proposed and the potential impact on your business. The purpose of this article is to allow you to plan for what is likely to occur in the near future. I will focus on the big picture in terms of changes, impact and planning.

Once the regulation changes are finalized, there’s always room for a “fourquel” to focus on all the details of the final regulation changes.

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WHAT’S THE FLSA? Just in case you missed the previous articles, let’s start with a quick review.

The FLSA was first enacted in 1938 and has been amended repeatedly over the years. Prior to the current proposed revisions, the most recent revision was in 2004. This act, administered and enforced by the Wage and Hour Division of the DOL, sets the standards for minimum wage and overtime and also sets child labor provisions. The FLSA includes very specific categories and definitions regarding which positions are exempt from overtime pay (exempt positions) and those for which overtime pay is required for time worked in excess of 40 hours in a work week (nonexempt positions).

Details about the FLSA as it exists today can be found by reviewing the April 2014 issue of Primary Agent (see box on page 27).

WHAT ARE THE PROPOSED CHANGES? In March 2014, a Presidential memorandum was released requiring the update and modernization of current overtime regulations. It stated that: Regulations regarding exemptions from the Act’s overtime requirement, particularly for executive, administrative,

26

and professional employees… have not kept up with our modern economy.

Following this Presidential call to action, it took until July 6 of this year for the proposed revisions to be published by the DOL. As I write this article, we are in the 60-day comment period which is scheduled to end on Friday, Sept. 4, 2015. (But, as things tend to go, by the time you are reading this article, this comment period may have been extended.)

The primary changes that are proposed are: 1. Increase in the salary threshold from $455 per week ($23,660 per year) to $970 per week ($50,440 per year).

This new threshold is based on the 40th percentile of weekly earnings for full-time salaried workers. For the first time ever, the DOL has proposed that this threshold be subject to revision on an annual basis – tied to either the 40th percentile calculation or to the CPI-U. Either way, the DOL would determine the new threshold each year. (In case you were concerned, you would have to calculate it.)

2. Increase in salary requirement for qualification as a “highly-compensated employee” from $100,000 to $122,148. As with the salary threshold, the proposal would allow for annual increase to this level as well.

OCTOBER 2015

3. Historically, bonus payments have not been included in the “compensation” total to which the weekly salary threshold is applied. The DOL is considering inclusion of nondiscretionary bonuses and incentive payments (but only those paid on a monthly or more frequent basis) as compensation applied to the salary threshold test.

Currently, no changes have been proposed to the duties tests which are utilized to determine qualification for exemption (as detailed in the April 2014 issue of Primary Agent), however, the DOL has requested feedback regarding the duties test, and it is possible that the final regulation will include changes to these. In asking for feedback, the DOL has included five questions related to the duties test, and these questions give us clues to additional changes that could be part of the final regulations.

1. Should any changes be made to the duties tests?

2. Should an employee have to spend a minimum amount of time on exempt duties to meet the exemption requirements?

as flexible as you currently may be with these employees. (No more “Sure, it’s no problem if you leave early for that doctor’s appointment.” or “It’s fine if you work from home that day.”)

The good news is that these regulations are not expected to be finalized until later this year, at the earliest, and will not go into effect until sometime in 2016. This means you have time to be proactive and plan.

WHAT IF ANYTHING SHOULD I DO NOW TO PREPARE? Do an analysis of any exempt employees who are paid a salary of less than the anticipated new threshold.

If you have exempt employees who will not meet the new salary threshold, begin looking at the number of hours that they are typically working each work week. If it’s in the neighborhood of 40, the impact of re-classification to non-exempt should be minor. However, if you have employees who are regularly

3. Should regulations parallel the California rule which requires an exempt employee to spend 50 percent or more of his/her time on the primary duty of the job?

4. Should the DOL consider returning to a short and long duties tests format, as it did before 2004, where a longer and more detailed set of requirements must be met for exemption when the employee’s salary does not meet the salary test?

5. Does the current executive exemption test that allows concurrent performance of exempt and nonexempt tasks adequately differentiate between exempt executives and employees who are not exempt executives?

WHAT IS THE POTENTIAL IMPACT OF THESE CHANGES? The changes, once finalized, will have a significant impact on all employers regardless of size, industry or geographic location.

According to the DOL’s estimate, 11 million employees will be impacted by these changes. Eleven million! (At least they don’t all work for you!)

Many employees who have been classified as exempt (and therefore not eligible for overtime compensation) will no longer qualify for the exemption. This can have an impact not only on your overtime expenses, but also on the way these employees can work. As non-exempt employees, they will need to record their work time. At best, it will become more challenging to be

FLSA FLASHBACK READ THE original Primary Agent magazine article (from April 2014) and its sequel (published in October 2014) that our HR consultant penned on the Fair Labor Standards Act (FLSA) by visiting our website.

Unravelling the exempt vs. non-exempt mystery IABforME.com/resource_center/ exempt_vs_nonexempt How the FLSA applies to agency staff IABforME.com/resource_center/ FLSA_agency_staff

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working well in excess of 40 hours, you will experience an impact. Your options here will be to:

ADDING STAFF

1. Prepare to pay a boatload (it’s a technical term) of overtime 2. Adjust the base salary to meet or exceed the new threshold 3. Reallocate responsibilities to fit into 40 hours a week 4. Add staff Admittedly, some of the above options are better than others.

Chances are, option 1 isn’t at the top of your list. Option 2 is reasonable only in those cases where the base salary is already close to the new threshold and an adjustment will involve a minor increase to expenses. In most cases, option 3 or 4 is your best bet.

With option 3, you’ll want to look at whether there are options for reallocating work that will decrease or eliminate all of those extra hours. I’m certainly not recommending that you pile another employee under loads of work just to avoid paying overtime to other employees, but this could be an opportunity to “equalize” workload.

In some cases, reallocation of work won’t be an option because everyone is already at their limit. In this case, option 4 may be your most cost-effective option. For example, if you currently have two employees who are working 60 hours per week (I hope you don’t, but if you do), it would be more cost effective to have three employees working 40 hours a week than to start paying those two employees 20 hours of overtime each week. Keep in mind: The numbers don’t have to be so extreme for a staffing increase to be appropriate. Addition of a part-time resource or two working 10 or 20 hours a week might be enough.

Be prepared for the potential need to reallocate work.

All employees do nonexempt work. However, if the final regulations include a quantitative percentage test that is applied to the duties test (such as a floor on “non-exempt” work or a 50 percent requirement for the primary-duties definition), you may need to ensure that exempt employees are not spending too much (however that ends up being defined) of their time doing non-exempt work or that the primary duty definitely takes up 50 percent or more of an exempt employee’s time. This may prove challenging for small businesses where there is often a need for everyone to pitch in and do whatever is needed. But, challenging or not, it may be necessary in the future to get more particular to “who does what.”

Know what to say to an employee who might approach you about his or her classification before the new regulations are finalized.

The proposed regulations, currently, are strictly that – proposals.

There is no need to make any change today. If you are in compliance with the current FLSA, you are fine. However, you

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may have employees approach you with concerns. The best thing to do at this time is to let them know that you are aware of the proposals and are watching to see what the final regulations require. Assure them that you will be compliant with the final regulations and will make any changes appropriate at that time.

Also, educate any other key employees in the agency about the proposed regulations and how to respond if an employee approaches them.

Of course, if the comment period is still open when you are reading this article, feel free to provide your feedback to the DOL. So, take the time now to plan for the future, as we think it will look, but don’t make any changes yet. If you have any questions or need clarification, there is a good bit of information on the DOL website and lots of articles on the Internet. And, as always, as an IA&B member benefit, reaching out to me is an option.

I’m just a phone call or email away: 610-779-3870 or karen@mostellerhr.com.

And make sure to pre-order your tickets now for the early 2016 release of FLSA – The “Fourquel”! See you there! n

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 conducting an HR audit 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 consultation and discounted professional services from Mosteller & Associates. Learn more at IABforME.com/emp_mgmt.

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