Pennsylvania Primary Agent - October 2015

OCTOBER 2015 | PENNSYLVANIA

BRIGHT IDEAS

FOR THE STATE’S INSURANCE MARKET

An interview with Commissioner Miller

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IN THIS

ON THE COVER 12

BRIGHT IDEAS FOR THE STATE’S INSURANCE MARKET We sat down with Commissioner Miller in August to discuss her priorities and ask our burning questions.

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 HARRISBURG

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 Teresa Miller.

We asked our burning questions and gave her the opportunity to share her 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 Harrisburg 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/PaPAC.

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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

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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

MAKE-A-WISH CAMPAIGN CONTINUES THIS FALL Nationwide, Trusted Choice independent agents’ collective campaign to support Make-A-Wish continues. And here in Pennsylvania, we’re doing our part.

Join fellow independent agents by participating in the 5th Annual Walk for Wishes at the Philadelphia Zoo on Sunday, Oct. 11 or on Harrisburg’s City Island on Sunday, Oct. 18. Trusted Choice is a sponsor of both events.

ANOTHER INSURER OF TAXICABS IN TROUBLE As a result of alleged uncertainties regarding its ability to meet its financial obligations (defend insureds and pay claims), Pinelands Insurance Company Risk Retention Group Inc. (Pinelands), voluntarily suspended writing new and renewal business. Pinelands, which was issued its certificate of authority by the District of Columbia Department of Insurance, Securities and Banking (DISB), is authorized to insure taxicabs in Pennsylvania, Delaware, New Jersey and Washington, D.C. It has been reported that: • With the approval of the DISB, Pinelands voluntarily suspended writing new and renewal business, effective March 9, 2015.

The IA&B team will be in action at the Harrisburg fundraiser, and we’d love to have you join us on the Trusted Choice team!

Gather your staff and customers for one of the walks to support the charity and advance the Trusted Choice brand.

Then leverage your good deeds to demonstrate the vital role you play within the community.

Philasv.wish.org/walk

• The Philadelphia Parking Authority, which oversees and regulates taxicabs in Philadelphia, will no longer accept insurance renewals for taxicabs insured by Pinelands. As a result, affected taxicabs have been required to seek new coverage.

• The Pennsylvania Public Utility Commission, which regulates taxicabs outside of Philadelphia, began an investigation into Pinelands.

• The DISB is currently reviewing Pinelands’ financial condition.

As this issue of Primary Agent went to print, it was unknown whether the DISB would pursue either rehabilitation or liquidation of Pinelands. We’ll continue to monitor the issue and keep members posted.

This marks the second time in less than a year that an insurer of taxicabs has met with financial difficulty. In October 2014, First Keystone Risk Retention Group, Inc., a South Carolina insurer, was ordered into liquidation.

Our federal partners at the Big “I” continue to lobby against expansion of the Liability Risk Retention Act, which would allow risk retention groups – which adhere to lower regulatory standards that do not include many consumer-safety requirements – to offer commercial property coverage to certain non-profit organizations and education institutions.

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OCTOBER 2015

WELCOME NEW MEMBERS AMERISAFE Deridder, LA HORWATH INSURANCE Bethlehem, PA THOMPSON GUSIC INSURANCE GROUP INC. Pittsburgh, PA

NEW INSURANCE LAWS IN EFFECT Harrisburg wasn’t at a complete stalemate over the summer. Gov. Tom Wolf signed 39 bills into law by early August, including several of potential interest to the agent and broker community: Act 22 of 2015 – Vanpool/Rideshare Deregulation (formerly House Bill 140) This law allows private operators to provide ridesharing arrangements, commonly known as vanpools, to commuters and employers without being regulated as a public utility by the PUC. In addition, it exempts employers from liability for injuries as a result of the vehicle’s use when the vehicle is not owned by the employer.

It also clarifies that the Workers’ Compensation Act does not apply to passengers, but does apply to the driver of an employer-owned vehicle.

The law defines “ridesharing arrangements” as round-trip carpool or vanpool arrangements where the driver is also driving to the place of employment or educational institution and transporting no more than 14 passengers. The driver may not drive the vehicle as a business and may not transport school-aged children.

The law defines “ridesharing operator” as a person, entity or concerned party responsible for the administration of the ridesharing arrangement. The operator may or may not be the driver. The term includes the employer; employer’s agent; employer-organized association; state, regional or local agency; non-profit organization or an entity that owns, rents or leases a vehicle used in a ridesharing arrangement. Effective date: Saturday, Aug. 8.

Act 30 of 2015 – Electronic Delivery of Life Insurance Policies (formerly House Bill 972)

Act 39 of 2015 – Fairness in Multiple Copayments Act (formerly Senate Bill 487)

This law amends the Insurance Company Law of 1921 to provide for electronic delivery of insurance policies and annuities. Delivery of policies may be accomplished as follows, and the date of policy/annuity delivery will be determined by:

This law amends the Insurance Company Law adding a new article limiting copayments and coinsurances for chiropractic, occupational therapy, and physical therapy services.

1. the date of mailing of the policy or annuity by the insurer if the delivery is by the United States mail or other postal delivery system (The bill was amended in the Senate to remove the signed receipt requirement for establishing the date of delivery); 2. the date the policy or annuity is physically delivered to the owner by a representative of the insurer; or 3. the date of electronic transmission of the policy or annuity provided as long as the consumer has agreed to use that format.

The law prohibits a health insurance policy that is delivered, issued for delivery, renewed, extended or modified in Pennsylvania by a health care insurer from subjecting an insured person to more than one copayment per visit or from depleting more than one visit with any one provider for services provided by a licensed physical therapist, chiropractor or occupational therapist provider on a given date.

The law requires the Insurance Department to establish regulations to carry out the provisions of the article and further provides for penalties.

Effective date: Tuesday, Sept. 29.

In the event of a dispute with the owner of a policy or annuity, the burden of proof is on the insurer to establish that a policy or annuity was delivered. The insurer shall be deemed to have satisfied the burden of proof by showing to the Insurance Department’s satisfaction that it has sent the policy or annuity in the normal course of business. Effective date: Tuesday, Sept. 8.

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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

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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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As this sharing economy develops, my hope is that the insurance industry sees an opportunity to innovate and to develop products that meet the needs of consumers who want to use these services.

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OCTOBER 2015

BRIGHT IDEAS FOR THE STATE’S INSURANCE MARKET AN INTERVIEW WITH COMMISSIONER MILLER

In January 2015 Commissioner Teresa Miller came to the Pennsylvania Insurance Department from its Oregon counterpart, by way of the U.S. Department of Health and Human Services. Following several private meetings between her and our senior management and government affairs team during her first months on the job, we sat down with her in August to discuss her priorities and ask our burning questions – with the end goal of sharing her comments with our membership at large.

During our discussion, Miller’s passion for her roles as a consumer advocate and a champion of the Pennsylvania insurance market became clear. What’s more, so did her keen understanding of and respect for the independent agent distribution channel. Highlights of our conversation follow.

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BACKGROUND IA&B: You came to Harrisburg from Washington, D.C. and, before that, Oregon. What drew you to the post of Pennsylvania Insurance Commissioner?

Commissioner: I had the privilege of serving in this capacity in Oregon, and I then moved to Washington, D.C. to work and serve as a federal regulator. When the opportunity presented itself to be a state regulator again, I jumped at it. I’ve said this a lot since I’ve been here, but I’m a state regulator at heart. It’s my passion. It’s where I firmly believe the regulation of insurance belongs. I think state regulators are in the unique position to ensure a competitive insurance market that best serves consumers. And we’re in the best position to address issues facing our consumers. After spending a few years as a federal regulator, I can’t tell you how happy I am to be returning to my roots as a state regulator. I’m really happy to be here in Pennsylvania.

IA&B: How does the Pennsylvania insurance market compare to Oregon and what you’ve seen elsewhere?

Commissioner: If you look across the various lines of insurance, Pennsylvania has a competitive insurance market, which is a great thing for consumers. It gives them a lot of options.

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“I’m a state regulator at heart. It’s my passion.

It’s where I firmly believe the regulation of insurance belongs.

Pennsylvania has a very large and very diverse market. We have about 1,600 licensed insurance companies. We’re the fifth largest insurance market in the country, the fourteenth largest in the world. Pennsylvania is home to some very large insurance companies – we have a Fortune 500 company even – as well as a number of very small insurance companies. We have a number of mutual insurance companies in Pennsylvania for example, and many of those are very small companies.

OCTOBER 2015

For All That Matters

facebook.com/acuitywow

Unlike many states, if you look at our health insurance market, Pennsylvania has a relatively competitive health insurance market. In a lot of states, it’s not unusual for the health insurance market to be dominated by one or two carriers. Pennsylvania is lucky that that’s not the case here. One of the issues that is fairly unique to Pennsylvania is the number of integrated delivery networks, often referred to as IDNs, that we have in our health insurance market. As I’ve learned and as I’ve seen with the UPMC/ Highmark dynamic, that creates some interesting challenges from a regulator’s point of view. But I think it’s one of the things that makes our market unique, and it’s been an interesting challenge.

HEALTH INSURANCE IA&B: We saw your press release announcing that Gov. Wolf was no longer moving forward with his contingency plan to create a state exchange, but do you anticipate any other changes in the [health insurance] market?

Commissioner: Prior to the Supreme Court decision, my department worked very closely with Gov. Wolf, and we had drafted this blueprint to create a supported, state-based marketplace in the event that subsidies were struck down for people in states with a federally facilitated marketplace. The governor really wanted to ensure he had a contingency plan to protect the 380,000 citizens in Pennsylvania who purchased health insurance with the benefits of subsidies in the federal marketplace.

FLOOD INSURANCE IA&B: Something else that’s been on your radar – and we’ve seen you’re communication [letter to Pennsylvania’s Congressional delegation] about – is flood insurance. There have obviously been a lot of reforms in recent years.

What do you see as the future for the state’s [flood insurance] market?

accept private policies, but not all are willing to do so because there is currently a lack of clarity in the federal law surrounding the issue. So I’m hoping to continue to work with our Congressional delegation, as well as insurance companies in Pennsylvania, so we can provide a wide array of options that meet the diverse needs of our consumers.

Commissioner: I want to make sure that Pennsylvania consumers have access to as many options as possible in order to obtain the coverage they need.

Recently I sent a letter to Pennsylvania’s Congressional delegation, calling on their support for federal legislation that would define mandatory purchasing requirements in private flood insurance for these private policies to be recognized by mortgage lenders. Some lenders will

In the absence of congressional action, we’re exploring ways to encourage more private insurance options for flood insurance within Pennsylvania. We are seeing a number of surplus lines carriers offering flood insurance, and we’ve seen an increase in the sale of private flood insurance recently. And in some cases, this private coverage is substantially less expensive than coverage offered through the National Flood Insurance Program….

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When the Supreme Court upheld the subsidies, the governor withdrew our blueprint, and I anticipate that we will be remaining on the federal marketplace.

Particularly as it relates to the King v.

Burwell decision, I don’t anticipate further changes in our health insurance market as a result of that.

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OCTOBER 2015

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SHARING ECONOMY IA&B: On another hot topic of late, especially with ridesharing companies coming into the state … do you have thoughts on the role of the insurance industry in the sharing economy?

Commissioner: As this sharing economy develops, my hope is that the insurance industry sees an opportunity to innovate and to develop products that meet the needs of consumers who want to use these services. State regulators have had a lot of discussion about transportation network companies and about the potential gaps in insurance coverage that exist today for drivers and passengers who want to use these services.

The good news is that we’re starting to see companies file new products that address some of these gaps in coverage. So I’m excited that we’re seeing some movement to adjust to the sharing economy, but we do have a ways to go to ensure there are insurance products available for consumers who want to use these services so they’re adequately protected.

In the meantime, I think insurance agents can be very helpful in their advisory role to ensure that consumers are educated about potential gaps in their coverage that might exist today and expose them to an exposure they may face if they’re using these services.

UNDERWRITING IA&B: We’ve seen a lot about price optimization recently in the news media, and credit scoring is an issue that’s been around for some time. What are your thoughts about all of that in the insurance rating process?

Commissioner: Pennsylvania’s property and casualty insurance rating laws provide that rates cannot be excessive, inadequate or unfairly discriminatory in Pennsylvania. So policyholders and applicants with identical risk classification profiles must be charged the same premium, and rates that fail to reflect differences in expected losses and expenses with reasonable accuracy are unfairly discriminatory under our law.

There have been conversations recently, as you pointed out, about price optimization and the sophisticated pricing tools that allow insurers to charge more to consumers who may not shop around often. Which essentially penalizes consumers for their loyalty simply because a company knows the consumer is likely to remain a customer. And that practice is not allowed

by Pennsylvania law…. Any use of the big data or price optimization or any other sophisticated tool or computer model can’t result in policyholders who basically have the same loss risk for insurers being charged different premiums.

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I know on the credit scoring front there are legitimate concerns about the use of credit scoring in rating. But given that we do see that credit scores have been shown to have a correlation to the risk a policyholder presents to an insurer, the Department’s position on the use of credit scores in rating isn’t quite as cut and dry as the use of price optimization. As long as everyone with a given credit score is treated equally and the insurer can demonstrate a correlation between the characteristic and the likely cost the insurer will face, credit scores can be an underwriting factor in setting premium when a consumer initially purchases insurance.

However, credit scores can only be used to adjust premiums on renewal only if a person’s premium will be lowered as a result.

Consumers can’t face an increased premium at renewal as a result of their credit score in Pennsylvania.

INSURANCE REGULATION IA&B: You mentioned earlier that insurance regulation is best placed with the states. Do you have any other thoughts along those lines? How do you envision the role of the Federal Insurance Office?

Commissioner: There have been questions about the role of the Federal Insurance Office. That office was established of course in the Dodd-Frank law, and I think the role of that office is to provide expertise and advice about insurance matters to the federal government. It’s a resource to the federal government. But I think it’s important to note that it’s not a regulatory agency, and it doesn’t displace state regulators or state-based regulation.

As I mentioned earlier, I’m a big believer that the regulation of insurance belongs at the state level. I’ve worked at both the state and federal levels, and I think the states are in a better position to regulate our markets. We’re closer to our markets.

We understand the dynamics of our markets better, and we’re just a lot closer to our consumers, our producers. We have a better understanding of how to implement regulations to protect our consumers but also make sure we’re fostering a competitive market for insurers.

CONSUMER COMPLAINTS IA&B: What are the most common consumer complaints you receive?

Commissioner: Our Consumer Services Bureau most often gets complaints regarding rate increases, policy cancellations and issues of claim payments, which is probably not too surprising.

From my perspective, I’m really doing all I can to encourage consumers who have any insurance-related concerns to contact our department. We’re here to be a resource for them, to answer their questions, to provide helpful information.

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“Independent agents are often in the best position to understand an individual consumer’s needs and then can match them with the most appropriate product at the most affordable price.

Particularly in cases of rate increases or policy cancellations, it’s important that consumers remember that there are other options in the insurance marketplace. We have a competitive market.

That’s a good thing. I recommend that consumers always stay aware of additional options that they might have available for their home insurance, for their auto insurance, for their health coverage, especially as we approach the open enrollment period for health insurance in the federal marketplace. And obviously producers play a really important role here as well.

PRODUCER’S ROLE IA&B: Speaking of producers, how do you view the role of them in the insurance transaction?

Commissioner: I just mentioned how important it is for consumers to understand their various options in the insurance marketplace, and I also mentioned that we’re lucky in Pennsylvania to have a competitive insurance market. I think independent insurance producers play a really important role in helping consumers navigate the insurance marketplace and understand their options available in this competitive market, which results in consumers finding appropriate and affordable insurance products. Independent agents are often in the best position to understand an individual consumer’s needs and then can match them with the most appropriate product at the most affordable price.

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

Commissioner: Consumer protection. It’s really, really important that consumers get the benefits that they’re due from the products they purchase, and it’s my job to make sure that happens.

One of my top priorities is also trying to do all we can to improve our consumer outreach and education to make Pennsylvania insurance consumers as educated as possible.

That will help consumers also get the coverage they need but ensure that they don’t get the coverage they don’t need and that they’re getting their insurance at a fair price. I don’t think more educated consumers means everyone will be buying less insurance. I think some people will find they have more coverage than they need, but I think others may find they want to consider additional coverage. I’m a big believer that more educated consumers are good for the industry.

One of my other big priorities is to maintain and even improve Pennsylvania’s vibrant and competitive insurance market, which I think ultimately serves consumers well and provides a growing number of jobs that pay in a really important industry. 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 Pennsylvania Government Relations Committee* Robert A. Walbeck, CIC, chairman R. E. Walbeck Agency Inc. Homer City, Pa. William J. Griffin, Jr., CIC Griffin & Griffin Financial Services Inc. Fairview Village, Pa. George F. Komelasky Paist & Noe Insurance Inc. Richboro, Pa. Shannon Lipniskis Hutton-Blews Insurance Services Marion Center, Pa. Mark J. Monroe Griffith Insurance, LLP West Chester, Pa. Neal P. Robertson Avis Insurance Lititz, Pa. Scott C. Rogers, CPIA The Glatfelter Agency York, Pa. J. Marshall Wolff, CIC, CPCU Kressler Wolff & Miller Inc. Easton, Pa. * 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

27

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

28

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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!

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.

OCTOBER 2015

CLASSIFIED A DV E R TI S E M E N TS

My Events

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October & November 2015 DATE TOPIC

LOCATION

OCTOBER 6 6 6-8 7 7 8 8-9 13 13-15 14 14 20 20-22 21-24 27 27-28 27-29 28 28 28 29 29 29

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NOVEMBER CISR Elements of Risk Management 3 3 E&O Risk Mgmt.: Meeting the Challenge of Change 4 CISR Commercial Casualty II CISR Elements of Risk Management 5 Business vs. Personal Auto 10 William T. Hold: Writing Commercial Accounts 10 Life & Health Licensing Study Course 10-12 CIC Commercial Casualty Institute 11-14 James K. Ruble Graduate Seminar 16-17 Business vs. Personal Auto 17 CPIA Position for Success 17 CISR Personal Residential 17 CISR Commercial Property 17 Business vs. Personal Auto 18 CPIA Implement for Success 18 CISR Personal Lines Miscellaneous 18 CPIA Sustain Success 19 CISR Personal Residential 19

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