Maryland Primary Agent - October 2016

OCTOBER 2016 | MARYLAND

EXPLOSIVE GROWTH OF 3D PRINTING IGNITES RISKS IGNITES RISKS

5 REASONS TO LEVERAGE GOOGLE ANALYTICS EMPLOYEE VS. INDEPENDENT CONTRACTOR MERGERS & ACQUISITIONS: E&O EXPOSURE

more NIMBLE APPROACH more CREATIVE SOLUTIONS more FLEXIBLE UNDERWRITING more ATTENTIVE SERVICE more SPECIALIZED EXPERTISE This is what we mean by “There’s more for you at Millers.”

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800.745.4555 millersinsurance.com Rated A- (Excellent) by A.M. Best Rated A Prime (Unsurpassed) with Demotech ©2016, Millers Mutual Group, Harrisburg, PA

It’s what we know and do best, have the most experience with and greatest expertise in. This enhances our breadth and depth of expertise and helps provide you with the greatest underwriting solutions.

If interested in learning more about Millers Mutual, contact Caroline Raneri, Sales and Relationship Leader, at 717-963-8557.

IN THIS

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THE PROMISE AND PERILS OF 3D PRINTING As 3D printing spurs exciting inventions, it also brings the potential for new risks and exposures to healthcare, food production, construction and more.

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WHY EVERY AGENCY WEBSITE NEEDS GOOGLE ANALYTICS Are you maximizing this marketing and prospecting tool?

Learn five reasons to leverage Google Analytics.

IN EVERY ISSUE 2 3 4 6 8 10 11 IBC IBC IBC

Chairman of the Board’s Message Ask Our Experts Preventing Errors & Omissions Coverage Corner State News Platinum Profile IA&B Partners Advertiser’s Index My Events Classified Ads

Periodical postage paid at Mechanicsburg, Pa. and at additional mailing offices.

Postmaster: Send address changes to Insurance Agents & Brokers, 5050 Ritter Road, Mechanicsburg, PA 17055.

Primary Agent (ISSN 1543-3110), Permit # 638-620, Issue # 2016-10, is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.

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Copyright 2016. 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

INSURANCE AGENTS & BROKERS

NO MATTER WHAT TOMORROW HOLDS

5050 Ritter Road | Mechanicsburg, PA 17055 800-998-9644 | IABforME.com

OFFICERS Chair of the Board

A

Michael F. McGroarty Sr

sk agents why they entered the insurance industry, and – unless they were born into the business – you’ll probably hear that it wasn’t intentional.

“It just happened” “It was an accident of sorts.” But ask agents why they stay, and the responses are a bit more flattering. “I enjoy helping others.” “No two days are the same.” “There’s always something new to learn.”

Isn’t that last one the truth? The game is always changing. There’s always a new industry to understand, a new exposure to uncover, a new risk to insure. (Look no further than this month’s feature article on 3D printing ….) There’s always a new court decision to interpret, a new ISO form to consider, a new technology to comprehend. Staying on top of it all is exciting and, at times, daunting.

Long before I became active on the IA&B Board of Directors, I came to rely on the association to help me and my staff stay on top of it all. Whether it was by attending special topic seminars, or reading Jerry Milton’s column on the latest court case ramifications, or calling the IA&B office to bounce a question off of Claire or Don, my IA&B membership has consistently delivered for my agency.

It gave us the tools and information we needed to stay on top of our game. I’m confident that your membership will continue to provide the same confidence to you and your agency that it has for me. Remember how you never know what tomorrow may bring? Well, IA&B is there for you. n

Vice Chair of the Board

John B. Hollister

Immediate Past Chair of the Board

Robert S. Klinger, LUTCF, CPIA

MEMBERS Emory Stephen Burnett, CIC, ARM Wilmington, Del.

Richard F. Corroon, CPCU Wilmington, Del.

Michael P. Ertel Sr.+ Columbia, Md.

G. Greg Gunn, CIC* Lemoyne, Pa.

Bryan C. Hanes, JD Hagerstown, Md.

David C. King Lancaster, Pa.

Lisa A. Leach Goth, CIC New Bethlehem , Pa.

Douglas A. Loesel, CPCU Erie, Pa.

Crag S. Mader Crofton, Md.

Elizabeth H. Martin, CIC Millersville, Pa.

Mark J. Monroe

West Chester, Pa.

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

Sincerely,

Richard M. Rankin, CIC Lancaster, Pa.

April E. Ressler, CIC Altoona, Pa.

Scott C. Rogers, CPIA

Michael “Mike” F. McGroarty Sr. Chairman of the Board

York, Pa.

Glenn R. Strachan

Ft. Washington, Md.

Bryan S. Willey Dover, Del.

Lawrence A. Wilson, CIC, CPIA, CPCU, ARM** Newark, Del.

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

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

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OCTOBER 2016

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

Question: I have a prospective employee with lots of potential and positive traits. I’d like to hire and get him licensed, but he was convicted of a misdemeanor driving under the influence (DUI) when he was in his late teens. Will having a DUI conviction prohibit him from obtaining a producer license?

Answer: Great question, and one which comes across our desks somewhat regularly.

The Violent Crimes Control and Law Enforcement Act (VCCLEA) is a federal law which prohibits anyone who’s been convicted of a felony for dishonesty or breach of trust from working in insurance – without first securing written consent from the state’s insurance department. This is probably the law which gave you pause.

The VCCLEA also prohibits you, as an employer, from willfully employing someone who has been convicted of a felony for dishonesty or breach of trust without ensuring such consent was obtained. In addition to the VCCLEA, each state’s producer licensing statute addresses eligibility and suitability of applicants, and it lists prohibited acts which may preclude licensure.

While your prospect’s DUI was classified as a misdemeanor offense, a DUI can be classified as a felony if the drunk driver: • Causes serious injury or death to someone,

• Is arrested with a high blood alcohol content, or • Has multiple convictions.

Fortunately for you and your prospect, neither the VCCLEA nor the state’s producer licensing statutes contain provisions or criteria which appear to exclude eligibility for licensing simply because he has a misdemeanor DUI on his record.

Remember: A prospective licensee should never intentionally misrepresent or conceal a material fact in the application for a license. Besides the fact that you’d have a dishonest employee in the fold, the department of insurance will run applicable background checks. Failing to include the DUI could demonstrate dishonesty and untrustworthiness on the part of the prospect. Such acts are prohibited under the producer licensing statute and could preclude licensure. Bottom line – always tell the truth.

If you or the prospect has any questions, contact the licensing bureau of your respective state’s insurance department: Delaware: (302) 674-7390 or licensing@state.de.us Maryland: (410) 468-2411 or producerlicensing. mia@maryland.gov Pennsylvania: (717) 787-3840 or ra-in-producer@pa.gov 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

HARNESSING THE MOVING PARTS OF MERGERS & ACQUISITIONS

By Curt Pearsall

I

recently read a National Underwriter article dealing with mergers and acquisitions. The primary focus of the story dealt with the record year for M&A activity of insurance agencies. In fact, the new record broke the old record (just set the prior year), so it certainly appears that M&A activity is extremely active.

While there are many issues related to mergers and acquisitions to consider, there is one that doesn’t seem to get the attention it deserves: How does the typical E&O policy address potential liability issues that can turn a good deal

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into a “nightmare” without the proper attention? While this is not an overly complex matter, it is also not all that simple. Proper planning and appropriate attention to detail are extremely important.

Both the buyer and the seller should allow sufficient time for the development and providing of additional paperwork, copies of the proposed transaction documents, applications, etc. that the E&O carriers may require.

A good time to become educated on some of the significant coverage issues is as soon as you start thinking about buying or selling. Any good E&O carrier “worth its weight” can provide guidance and direction based on your specific scenario. They should be contacted.

When you’re the buyer, it is best to consider “asset-only” purchases and not purchases of any liabilities of the agency going out of business. This is one of the many areas where an attorney is needed to ensure the buyer is fully protected. The traditional approach is to have your E&O policy endorsed to

OCTOBER 2016

provide coverage for the “new” agency for errors made by the “new” agency starting with the effective date of the acquisition.

If you are selling your agency, contact your E&O carrier and advise them of your plans. Don’t hesitate to ask questions regarding cost, options, timeframes, etc. This is an important decision and should be carefully planned.

One of the many important issues is to understand the “known loss provision” in the E&O policy. If you are selling your agency and are aware of any actual unreported claims or situations that could lead to a claim, it is vital these are reported to your E&O carrier to lock in coverage. Failure to report these real or potential claims has significant potential to result in a lack of coverage.

The seller should secure an optional extended-reporting-period endorsement (a.k.a. “tail”). Even after a sale, the now-defunct agency is still at risk of being sued. The purpose of this optional tail is to provide an additional period of time after the expiration of the policy for which valid claims will continue to be accepted, provided the wrongful act occurred before the end of the policy period. Be aware there is a tremendous lack of consistency as to the available options. Some carriers only allow an additional one-year tail, while others offer options much longer. The charge for this additional coverage comes with a hefty premium charge, so plan for this expense. You also only have one time to make the decision.

Thinking about buying an agency or selling yours? Now is the time to start understanding the E&O issues. n

Curtis M. Pearsall is a consultant and national expert on errors and omissions for insurance agencies. He is president of Pearsall Associates Inc., which specializes in E&O risk management and loss control, and provides expert witness services for E&O claims and litigation. Read more from Curtis on his blog, Agents E&O Tips (agentsEOtips.com).

THE AGENTS’ AGENCY IF YOU’RE in the market to buy or sell an agency and your E&O is with us, reach out to the IA&B Sales Center.

Our licensed E&O experts can discuss what you should consider and walk you through your options.

IABforME.com/MyAgency

Partners.

You and your clients. You and Harford Mutual. We’re committed to protecting their business and building yours.

That’s what mutual success is all about.

Explore P&C insurance opportunities at www.HarfordMutual.com 410.838.4000 / 800.638.3669

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COVERAGE CORNER

EMPLOYEE OR INDEPENDENT CONTRACTOR?

By Jerry M. Milton, CIC

A

ll employers doing business in Pennsylvania must understand that under the Pennsylvania Unemployment Compensation Law, or UC Law, for benefit and tax purposes, the term “employee” is presumed to apply to every individual who performs services for which he or she is paid.

Unless specifically excluded from coverage, all work for which payment is made under any contract of hire, express or implied, written or oral, including work performed in interstate commerce or as an officer of a corporation, is covered by the UC Law. Services performed by a worker will be exempt under the benefit and

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taxing provisions of the UC Law if the individual is an “independent contractor.” To be excluded from coverage, the individual who performs the services must meet two conditions pursuant to Section 4(l)(2)(B): 1. The individual has been and will continue to be free from control or direction over the performance of the services involved, both under his or her contract of service and in fact, and 2. As to these services, the individual is customarily engaged in an independently established trade, occupation, profession or business.

OCTOBER 2016

Only if both of these conditions are met to the satisfaction of the department will the individual be regarded as an “independent contractor.” Unless and until those criteria are met, the services will be "employment” subject to the coverage of UC Law. If an individual performs services in the construction industry, the individual will be designated as an independent contractor only if he or she (1) has a written contract to perform such services, (2) is free from direction or control over performance of the services both under the contract of service and in fact, and (3) is customarily engaged in an independently established trade,

occupation, profession or business. To be customarily engaged in an independently established trade, occupation, profession or business, the individual must:

the worker is an independent contractor.

Whether the services are performed on a full-time or part-time basis is immaterial to an individual’s employment status.

soliciting business, articles of incorporation and leases on business properties.

The department will use all available information to determine a worker’s status.

• Possess the essential tools, equipment and other assets necessary to perform the services independent of the person for whom the services are performed

An investigation into an individual's employment status may occur in connection with a UC claim filed by an individual who asserts that he or she was an employee rather than an “independent contractor.” Also, the Office of Unemployment Compensation Tax Services randomly selects employers for audit to verify compliance with UC Law.

Any questions concerning employer/ employee relationships should be directed to the nearest Field Accounting Service Office in your area. A list of these offices can be found at www.DLI.pa.gov.

• Realize a profit or suffer a loss as a result of performing the services • Perform the services through a business in which the individual has a proprietary interest • Maintain a business location that is separate from the location of the person for whom the services are being performed • Have previously performed the same or similar services for another person while free from direction or control over performance of the services both under the contract of service and in fact, or the individual holds himself out to another person as available and able, and in fact is available and able, to perform the same or similar services while free from direction or control over performance of the services • Maintain liability insurance during the contract term of at least $50,000 The following factors are not conclusive in determining “independent contractor” status: • Employer designation, either verbally or in writing, that an individual is an “independent contractor” • Statement by an individual that he or she is an “independent contractor” • Issuance of a Federal Form 1099 A written agreement between a worker and the worker’s employer does not control the worker's status.

Pennsylvania’s UC Law requires an examination of the facts to determine if

Employers should maintain sufficient documentation to support the reasons for classifying any individual as an “independent contractor.” Examples of relevant documentation include: copies of the individual's preprinted invoices, business forms and stationery, federal and state tax ID numbers, business telephone directory listings, public advertisements

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: IABforME.com/MyTraining.

MARYLAND WORKPLACE FRAUD ACT IN MARYLAND, the applicable law is the Maryland Workplace Fraud Act, which was passed in 2009 and amended in 2012. Specific to the construction and landscaping industries, the law provides a presumption that work performed by an individual paid by an employer creates an employer-employee relationship. The 2012 amendment enables employers to rebut that presumption with certain documentation.

IABforME.com/coverage_issues/WC

FEDS CHIME IN ON MISCLASSIFICATION IN THE summer of 2015, the U.S. Department of Labor released a lengthy interpretation of the Fair Labor Standards Act “suffer or permit to work” standard – and alleged rampant misclassification of employees as independent contractors … beyond the construction industry. As such, characterizing a producer as an independent contractor is becoming more difficult. Look to our online resources for help with compliance.

IABforME.com/producer_agreement_toolkit/employee_contractor

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STATE NEWS

MIA SEEKS TO SIMPLIFY HOMEOWNERS’ NOTICE REQUIREMENTS The Maryland Insurance Administration (MIA) over the summer took on the task of reviewing the current list of homeowners’ disclosures with the goal of determining whether the various HO notice requirements can be consolidated into a single notice. Your IA&B government affairs team attended workgroup meetings to give the agent perspective on the subject.

We proposed introductory language for the updated notice which would: • Explain the purpose of the notice and its limitations

AUTO INSURANCE ID LAW IN EFFECT Effective Oct. 1, all Maryland drivers must carry proof of insurance while operating a vehicle. Per a recent Maryland Insurance Administration (MIA) bulletin, the insurance ID card must include: • First named insured on the motor vehicle liability insurance policy • Vehicle covered under the motor vehicle liability insurance policy • Period for which coverage under the motor vehicle liability insurance policy is in effect In addition, the MIA noted that the ID cards must be of a size that allows for the text to be easily read, i.e. at least the size of a Maryland driver's license and in 10-point font.

The bulletin also confirmed that electronic ID cards are permissible under the new law and that the law applies to personal and commercial policies.

The new requirement, which stems from the passage of House Bill 720/Senate Bill 544, is part of a group of bills passed by the legislature this year to address the state’s uninsured motorist rate. A person who violates the requirement is subject to a fine of $50, which may be waived but, if collected, must be deposited into the Uninsured Motorist Education and Enforcement Fund (UMEEF) established by the law.

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OCTOBER 2016

• Direct the insured to additional sources of information about the coverage being provided, namely their licensed agent or broker We have long asserted to both the MIA and lawmakers interested in this issue that, while we do not oppose a singlenotice requirement, the language of the notice should not restate the language of the underlying policy. We continue to advocate for the creation of one, uniform notice, including a statement that insureds should contact their carrier or agent for additional information.

NCCI FILES WORKERS’ COMP LOSS COST PROPOSAL Workers’ compensation costs in Maryland could be poised for an overall average decrease as of Jan. 1, 2017. The National Council on Compensation Insurance (NCCI) in early August submitted its loss cost filing to the Maryland Insurance Administration (MIA). (At the time of this writing, the MIA had yet to respond.) The proposal is for an overall average workers’ compensation voluntary market loss cost level change of -9.9 percent.

The NCCI cited four primary drivers for the proposed changes: • Lower development contributed to improved experience • Loss ratio trends decreased for indemnity and medical • Indemnity benefits increased (due to increase in state average weekly wage) • Medical benefits increased (due to physician fee schedule change)

P&C TOWN HALL MEETINGS CONTINUE Since taking office in 2015, Insurance Commissioner Al Redmer Jr. has not shied away from meeting face to face with insurance industry stakeholders. Two stops remain in his latest series of town hall meetings, which seek to address the property and casualty insurance climate.

Redmer is soliciting opinions on homeowner’s insurance, auto insurance, business insurance and the property and casualty market in general, as well as potential legislative proposals for the upcoming legislative session.

RSVP to Nick Cavey (nick.cavey@maryland.gov) to attend the remaining meetings: Tuesday, Oct. 4, 10 a.m. – noon College of Southern MD, La Plata Room BI113E 8730 Mitchell Rd., La Plata Thursday, Oct. 25, 10 a.m. – noon Talbot County Community Center Wye Oak Room 10028 Ocean Gateway, Easton

Watch Agent Headlines for updates as the MIA reviews the filing.

OUTSTANDING CSR OF THE YEAR Congratulations go out to Bethany Miller, of Atlantic Smith Cropper & Deeley in Willards, the 2016 Maryland Outstanding Customer Service Representative of the Year.

Sponsored by the National Alliance, the award is presented annually to individuals who have distinguished themselves through excellent customer service and contributions to their industry and profession.

WELCOME NEW MEMBERS

HOSTING UNDERAGE DRINKERS COULD OPEN DOOR TO CIVIL SUIT Break out the umbrellas – the personal umbrella policies, not the cocktail umbrellas. Lawsuits could be on the rise for accidents related to underage drinking.

Marylanders who “knowingly and willingly” allow underage drinking in their homes now could be held civilly liable for the consequences. The Maryland Court of Appeals, the state’s highest court, in July issued the opinion, creating a legal precedent in the state.

While the court typically has ruled in favor of personal accountability in alcohol-related concerns (most recently deciding that bar owners generally cannot be held liable for drunken customers’ actions), Judge Adkins wrote for the court that “underage persons are … not competent to handle the effects of this potentially dangerous substance.”

The state already has a two-decades-old criminal law that forbids homeowners to permit underage drinking. And the Maryland General Assembly this spring passed legislation to stiffen fines and penalties for providing alcohol to those under age 21.

The Court of Appeals decision stems from Manal Kiriakos v. Brandon Phillips and Nancy Dankos, et al. v. Linda Stapf – two cases involving liability for underage drinking-related car accidents that, following the July ruling, returned to circuit courts for new proceedings.

SIMPSON OLDE TOWNE INSURANCE LLC LaPlata, Md.

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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 127 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 2016

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

Agency Insurance Company

Amerisafe

AmWINS Program Underwriters Inc

Berkley Mid-Atlantic Group

Auto-Owners Insurance Company

Donegal Insurance Group

Bailey Special Risks Inc

Erie Insurance Group

Brethren Mutual Insurance Company

Insurance Agents & Brokers Service Group Inc

Briar Creek Mutual Insurance Company

Liberty Mutual Insurance

Countryway Insurance Company

MAPFRE Insurance

Encompass Insurance

MMG Insurance Company

GMI Insurance

Millers Mutual Group

Goodville Mutual Casualty Company

Mutual Benefit Group

Grinnell Mutual Reins Company

Nationwide

Guard Insurance Group

Penn National Insurance

HM Workers’ Compensation

Swiss Re

Insurance Alliance of Central PA Inc

The Main Street America Group

DO YOU SEE YOUR NAME?

United Fire Group

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.

Progressive

Utica National Insurance Group

Conemaugh Valley Mutual Insurance Co

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

GOLD LEVEL

Westfield Insurance

Mercury Casualty Millville Mutual Insurance Co PennPRIME Municipal Insurance Reamstown Mutual Insurance Company

SILVER LEVEL

Rockwood Casualty Insurance

Cumberland Insurance Group

State Auto Mutual Insurance Company

Farmers Mutual Insurance Company of Western Pennsylvania

Strategic Comp

Frederick Mutual Insurance Co

The Motorists Insurance Group

Juniata Mutual Insurance Co

The Mutual Service Office Inc

Keystone Insurers Group Inc

Travelers

PSBA Insurance Trust

Tuscarora Wayne Group of Companies

Selective

Zenith Insurance

TAPCO Underwriters Inc

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THE

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PROMISE

OCTOBER 2016

AND

PERILS OF

3D PRINTING

By Insurance Services Office

The introduction of 3D printing to the consumer market has brought innovation and manufacturing to the masses, with people building objects as varied as guns, artificial limbs, and pizza from their homes and offices. The 3D printing process, also known as “additive manufacturing,� produces objects by adding layers of polymers, powdered metals, or ceramics based on digital blueprints.

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While 3D printing has led to exciting inventions, it has also brought the potential for new risks and exposures to various markets and industries — including healthcare, food production, and construction. Here, we’ll highlight some of the potential insurance risks and exposures that 3D printing could have on the insurance industry and global markets. We’ll also discuss the potential social, legislative, and health effects that 3D printing could have both in the United States and around the world.

METHODS OF 3D PRINTING: MATERIALS AND CAPABILITIES1 There are many different methods of 3D printing, some branded by specific 3D manufacturers and some used industrywide for commercial and personal use. The three most common methods are stereolithography (SLA), fused deposition modeling (FDM), and selective laser sintering (SLS).

Stereolithography focuses ultraviolet light onto the surface of liquid photocurable resin. SLA produces the most detail and highest quality of the three methods. Therefore, the price of an SLA printer is considerably more than the other two methods, ranging from about $100,000 to $900,000.

Fused deposition modeling uses melted thermoplastic material to form layers and is commonly used in industrial printing as a form of rapid prototyping and manufacturing. These printers can be purchased for under $10,000.

Lastly, selective laser sintering uses powdered materials such as plastics, ceramics, glass, nylon, and metals (including steel,

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OCTOBER 2016

Structures not only could be built more quickly, but certain construction materials could be printed faster than typical building materials are delivered and at a lower cost.

titanium, aluminum, and silver). SLS, like FDM, is suitable for producing concept models, prototypes, and end-use parts (for dentistry, aerospace, and other industries). SLS printers are also often used for personal do-it-yourself purposes. The price of these printers varies depending on the size of objects they produce and the printer’s capacity to mass manufacture.

Even though those are currently the most commonly used types of 3D printers, other methods have quickly emerged. For example, syringe extrusion is a method that uses material with a creamy consistency such as clay, cheese, or chocolate — the most widely used 3D printing method in food production.

If 3D printing continues to grow in popularity for commercial and personal use, prices may decrease and new technology for alternative methods of 3D printing may continue to arise.

POTENTIAL EFFECTS BY INDUSTRY Healthcare The healthcare industry has quickly adopted the benefits of 3D printing because of its ability to customize products, cut costs, and improve treatment. Anatomical and biological

aids have been developed to replace body parts and tissues, including prosthetic hands and limbs, shunts, and medicalgrade titanium for facial reconstruction surgery. The results have been impressive, and patients often benefit from custom-made medical devices that are less expensive and easier to produce.2 But as with any new technology, the quality and safety of 3D-printed medical products is still uncertain. Medical device manufacturers could face increased product liability with 3D-printed products, and healthcare professionals who use those products could see new professional liability exposures.

Companies that sell digital blueprint software and manufacture 3D printers could also face potential liability exposures.

The do-it-yourself person could use 3D printing to manufacture products that one would traditionally get from a licensed healthcare provider, such as a cast for a broken arm or prescription medications. This scenario could negatively affect the healthcare industry and be potentially dangerous to individuals.

Construction Contractors have already begun using 3D-printed materials to construct homes, and it won’t be long before the technology is used for commercial buildings.3 It’s conceivable that structures not only could be built more quickly but certain construction materials could be printed faster than typical building materials are delivered and at a lower cost. One of the most beneficial applications might involve property loss and disaster recovery, when construction materials created quickly would help people get back on their feet faster.

3D printing for dwellings and commercial properties is likely to raise various concerns for insurers. Will the structure be as durable as a structure built by conventional means? Will a building made with 3D-printed parts comply with municipal building codes and safety regulations?

As with other new products, construction materials can often bring new exposures and uncertainties. Take Exterior Insulation and Finish System (EIFS), for example. In the early 1990s, EIFS was applied to provide weather protection to the exteriors of many commercial and personal properties in the United States that used an architectural style similar to that of stucco. In 1995, several homes treated with EIFS were found to have moisture behind the cladding, resulting in unseen water damage in wall cavities. Several class action lawsuits were filed, generally alleging poor construction practices and violation of construction standards.

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The ability to print items that are less expensive and more customized … could have a significant effect on business strategy and risk management.

Users can also download blueprints easily, leading to copyright and other intellectual property issues as well as related liability exposures. An article on Digitaltrends.com outlined some of the risks: The presumed fear [of 3D printing] is that people will eventually be able to download CAD [computer-aided design] files, or create their own with advanced 3D scanners, of anything in the world: shoes, televisions, guitars, iPhones, and on and on. So, just as the movie and music industries have gone after bit-torrent files and the sites that share them in their war against piracy, so too will manufacturers attack CAD files and CAD file sharing.4 In addition, if loss or damage occurs as a direct result of printing an object using a CAD file, there could potentially be some arguments put forth in terms of liability for both the creator of the CAD file and the person printing the object.

Hacking of business 3D printing data and copyright infringement are also possible exposures for business owners and commercial insurers. We can expect to see future litigation surrounding intellectual property rights regarding the 3D printing process. According to the article on Digitaltrends. com, as companies begin to see small-scale 3D printing as a threat, they’ll try to restrict it by expanding intellectual property protections and “in doing so, they will point to easily understood injuries to existing business model[s] (caused by 3D printing or not) such as lost sales, lower profits, and reduced employment.”5 Food Hobbyists, food production companies, and NASA have produced 3D-printed food by layering cartridges of powder and oils. In January 2014, 3D Systems (DDD) announced an agreement with Hershey to explore opportunities for using 3D printing in creating edible candies. NASA contracted Systems & Materials Research to create 3D-printed pizza. An article in Businessweek outlined the steps: The prototype uses shelf-stable powdered food and oils, offering nutrition while minimizing garbage on board a space

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vehicle. It first prints a layer of dough onto a heated plate that bakes the dough and then lays down a tomato base that has been stored in powdered form and mixed with water and oil.6 In addition to potential public health concerns, such as foodborne illness, the ability to use fairly new and untested food processing methods and produce food by unidentifiable means may create an increased liability risk for commercial food production companies. For example, the materials used during the processing of 3D-printed food, such as printer plastics or metals, could potentially seep into the food and cause unforeseen

NAVIGATING UNCHARTED WATERS UNDERSTANDING THE exposures of businesses in various industries can be overwhelming. Just look at the ways that 3D printing can impact healthcare, food production, construction and more.

Consider arming your agency with the Rough Notes Producer Online. The online risk-analysis system helps producers and CSRs understand exposures and recommended minimum coverages for businesses in over 650 different industries. It also assists with preparing proposals, explaining complicated insurance terms and documenting client files.

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health risks and exposures. The food production industry may begin to see an overlap with genetic engineering issues and Food and Drug Administration labeling regulations (that is, labels indicating 3D-printed food processing methods). The number of complaints about “food fraud” — the deliberate substitution, tampering, or misrepresentation of food or food packaging for economic gain — may also evolve with respect to 3D-printed food.

Aerospace and Transportation The aerospace and automotive industries are taking advantage of additive manufacturing. Some lightweight aircraft engine parts can be created more quickly and at a lower cost than by traditional means. General Electric has announced that it will begin using 3D printing to manufacture specific engine components.7 Hobbyists have already begun to create entire vehicles that can reportedly travel long distances.8

On the other hand, companies could begin to shift the focus of their business output from tangible products to digital blueprints that accommodate the rising popularity of 3D printers.

By using 3D printing, businesses may also more efficiently mitigate business interruption losses resulting from damaged or defective equipment. A business using traditional means of ordering supplies or equipment can wait several days, weeks, or months to receive the materials needed to continue normal business operations. With 3D printing, the same object that would usually take a long period of time to order and receive from a manufacturer could possibly be printed on-site and significantly reduce the length of business interruption periods.

With the ability for individuals or businesses to create motor vehicle parts, a safety exposure potentially arises on both the property and liability fronts. Suppose automobile owners believe they can save money on purchasing a new car engine by printing and installing one themselves. If the engine is faulty or improperly installed, does the risk of property and liability damages increase? The insurance industry would likely be challenged to develop new strategies to mitigate or otherwise address that kind of exposure.

Related vicarious liability exposures may become a bigger concern for insurers and homeowners. For example, greater opportunity for children to create illegal or dangerous materials might increase the potential liability exposure for parents who own or otherwise bring 3D printers into the home.

POTENTIAL EFFECTS ON THE BUSINESS ENVIRONMENT

Legislation and Government Regulation Legislation has already begun to address the potential concerns associated with 3D printing. The Department of Homeland Security issued an intelligence bulletin on May 21, 2013, to law enforcement agencies warning them of the public’s ability to use 3D printing to manufacture undetectable firearms.11 California State Senator Kevin de León proposed Senate Bill 808, which would require any person who assembles a 3D-printed gun or purchases parts of a gun to assemble at home to apply to the state Department of Justice for a weapon serial number and undergo a background check.12

Operational and Strategic The ability to print items that are less expensive and more customized is already changing the fashion landscape and could have a significant effect on business strategy and risk management.

We’re seeing new market segments arise that specifically respond to the consumer need or desire to customize products.

For example, Continuum, a San Francisco–based start-up company, develops “fashion for the digital age.”9 The company’s product gives people the ability to “manipulate online images of clothing, adapt the virtual blueprints to his or her body, and purchase them as tangible objects.”10 Other companies, such as Nike, have also begun exploring the business possibilities related to 3D printing.

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Increased self-sufficiency could have a significant effect on large-scale companies. Companies that generally make the bulk of their revenue from product production may begin to see a decline in production and sales.

In the future, we may see insurers considering the use of 3D printers as a factor for underwriting personal or commercial risks.

Investigation by the FDA of 3D-printed healthcare products may lead to the introduction of government regulations on 3D-printed materials. The FDA’s Laboratory for Solid Mechanics is investigating how different 3D print techniques and processes affect the strength and durability of the materials used in medical devices.13 In turn, we may see increased regulation on 3D printing methods and procedures.

Expect big things in worker’ compensation. Expect to save a third of your clients 30% or more. Most classes approved, nationwide.

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Š2016 Applied Underwriters, Inc., a Berkshire Hathaway company. Rated A+ (Superior) by A.M. Best.

Insurance plans protected U.S. Patent No. 7,908,157.

As companies begin to experience the threat of 3D printing on their intellectual property rights, related lawsuits and regulations could develop that address 3D printing and blueprints.

Health The ulfrafine particles (UFPs) emitted during 3D printing may also be dangerous, according to researchers at Illinois Institute of Technology. Researchers have linked UFPs to lung cancer, strokes, and asthma. Because of their tiny size, they are easily absorbed into the lungs and bloodstream. That risk is exacerbated by poor ventilation. Since many 3D printers are sold without exhaust or filtration accessories, the researchers noted that their results suggest using caution when operating such devices.14 The risk associated with UFP emissions might be greater for individuals using 3D printers at home (with limited ventilation resources) than for workers at commercial businesses more likely to have appropriate ventilation. However, commercial properties using 3D printers should consider their use in relation to building regulations, workers compensation laws, and Occupational Safety and Health Administration (OSHA) guidelines. 3D printer manufacturers may also need to revise printer designs to incorporate proper ventilation systems specifically for use in private homes.

Security 3D-printed guns have gained media attention because they can be made without metal and are undetectable at airports.

However, 3D printing may have broader implications regarding homeland security. Will terrorists and rogue governments be able to more easily manufacture weapons for nuclear or biological warfare? If 3D-printed guns are virtually undetectable, will 3D materials for nuclear weapons be more difficult for intelligence agencies to trace and nuclear war more difficult to predict?

CONCLUSION 3D printing is more than just a new technology. It has the potential to change how we work and live and influence the risks we face every day. With 3D printing come health exposures, security risks, intellectual property concerns, and fears of potential market dislocation. No one can say what emerging issues the future holds. But when it comes to 3D printing, one thing is certain: The story has only begun. n

References 1. “What is 3D Printing? An Overview.” www.3dprinter.net.

Web. 02 May. 2014.

2. “The 3D Printing Market for Healthcare Will Reach $4043m in 2018, predicts new study.” Visiongain Press Release. www.visiongain.com. 17 Jan. 2014. Web. 20 Mar. 2014.

3. Russon, Mary-Ann. “World’s First 3D Printed House Under Construction in Amsterdam.” 14 Mar. 2014. www.international businesstimes.co.uk.

4. Andrew Couts. “Is The 3D Printing Industry About To Start Turning Out Lawsuits.” www.digitaltrends.com.

1 Oct. 2012. Web. 12 Mar. 2014.

5. Ibid.

6. Vanessa Wong. “A Guide to All the Food That’s Fit to 3D Print (So Far).” www.businessweek.com. 28 Jan. 2014.

Web. 13 Mar. 2014.

7. “NASA Tests 3D-Printed Rocket Engine Fuel Injector.” www.bbc.com. 15 Jul. 2013. Web. 21 Mar. 2014.

8. B argmann, Joe. “Urbee 2, The 3D Printed Car That Will Drive Across The Country.” www.autos.yahoo.com.

4 Nov. 2013.

9. Nate C. Hindman. “Continuum’s 3-D Printed Clothing Offers Future Of Fashion.” www.huffingtonpost.com.

15 Apr. 2013. Web. 13 Mar. 2014.

10. Ibid.

11. Jana Winter. “Homeland Security Bulletin Warns 3-D Printed Guns May Be ‘Impossible’ To Stop.” www. foxnews.com. 23 May 2013. Web. 17 Mar. 2014.

12. Rebeka Silva. “California Lawmaker Proposes Bill To Regulate 3D Printed Guns.” www.hngn.com.

13 Jan. 2014. Web. 17 Mar. 2014.

13. Tanya Lewis. “3D Printed Medical Devices Spark FDA Evaluation.” www.livescience.com. 30 Aug. 2013. Web. 21 Mar. 2014.

14. Brent Stephens, Parham Azimi, Zeineb El Orch, & Tiffanie Ramos. “Ultrafine Particle Emissions From Desktop Printers.” Atmospheric Environment.

26 June, 2013: 79. Print.

© Insurance Services Office, Inc., 2014. Reprinted with Permission.

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OCTOBER 2016

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www.emcins.com © Copyright Employers Mutual Casualty Company 2016. All rights reserved.

TECHNOLOGY UPDATE

5

reasons why every agency website needs Google Analytics

By Steve Anderson, CIC

Your agency website is your portal to the online and digital customer. Are you maximizing this marketing and prospecting tool? Learn five reasons to leverage Google Analytics.

Y

our agency website is your portal to the online and digital consumer. More people than ever are starting their search for insurance information online. Your website is an essential part of your strategy to be visible to the person searching.

Are you maximizing this marketing and prospecting tool? Do you know who is coming to your site? Do you know what type of device they are using to view your site? Do you know what search terms they used to click to your site?

All of this and more is information you can use to understand your online presence; this information will help you refine your digital marketing strategy. You need to be able to measure your site’s ROI and performance.

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OCTOBER 2016

The best way to monitor your website’s performance is making sure Google Analytics is installed and tracking your site. This useful data-assessment platform is installed on more than 10 million websites worldwide.

Google Analytics offers robust digital analytics for any organization with a web presence, both big and small. Google Analytics makes website management simpler for anyone who wants to monitor and examine their website traffic data. It is a great, free tool that provides you with a wealth of actionable information.

The five main reasons why you should make sure Google Analytics is a part of your website include: 1. Google Analytics helps keep track of how people are finding your site. Information about the geographic location of visitors is tracked. You can also tell what pages they are visiting on your site such as the about us page, homepage, contact us page, specific articles, etc. This data helps you understand what content people are reading. This allows you to generate more traffic by optimizing your content. For instance, you could measure the success of social media or an advertising campaign in drawing visitors to your site and enable them to ask for more information or schedule a phone call with you.

2. Google Analytics gives pointers on where your website requires improvement. Every website page should lead to your primary objective, which is to get new customers. Analytics shows you how each page helps (or hurts) your lead acquisition and the pages that require additional optimization.

Google Analytics helps you see the path visitors take through your site. Where do they go first? Where do they stop? Where do they leave your site? All of this information helps you develop better content that will keep people on your site longer.

Analytics provides information on how long visitors stay on your page. If your visitors are spending only a few seconds or minutes on a particular page, this may indicate that you have to work on the copy, add better or different images, or design your page in a customized way, which creates a greater visual impact.

Analytics also tells you the amount of traffic an individual page receives. If one of the relevant website pages is receiving less traffic, you can draw increased traffic by putting a call to action in your sidebar or header that directs you to this particular page.

By tracking your site’s activities using these important data points, which lead you to the bottom line, you can enable better results and generate increased business.

3. Google Analytics helps you keep up with the changes in Google’s search engine algorithms. Google continually updates and modifies how it displays search results. Google’s primary goal is to provide its search users the best search results possible.

Google’s updates are commonly named after animals such as Penguin, Hummingbird, Panda, etc. These updates punish websites that attempt to get high search rankings via cheap or black hat methods.

Analytics permits you to track both increase and decrease in website traffic acquired from all search engines (including Bing and Yahoo) and other related information that display the effects a Google search algorithmic update may have on your website.

TIP: An excellent supplementary tool you can use for such updates is Google Webmaster Tools (google.com/webmasters/tools).

4. Google Analytics shows the number of your visitors using mobile devices. The trend to using mobile devices to access website information is undeniable. People generally prefer to use their cell phones. Having a responsive website that can be optimized for all formats such as tablets, desktops, and mobile devices is vital. By utilizing your analytics, you can know the amount of traffic your site is getting via mobile devices. You can even understand when your website requires a responsive upgrade when needed.

5. Google Analytics is free. Google Analytics is free to use. If you are unable to install it yourself, your webmaster will be able to do that for you – if they have not already. Your job is to learn how to understand and use the information it provides.

Google Analytics is the current standard when it comes to web analytics and is vital for website optimization and management.

Incorporating this tool into your marketing process will help increase return on your website investment. n

Steve Anderson, CIC, authored this article. Steve is an authority on insurance agency technology, productivity and profitability – and the facilitator of our “Agency Management System Options for Agencies” webinar series (IABforME.com/AMSwebinars). Check out his free weekly newsletter, “TechTips,” and other resources for the insurance industry at steveanderson.com.

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OCTOBER 2016

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

My Events

SOUTHEAST PA PRODUCERS & AGENCIES

October & November 2016 DATE TOPIC

LOCATION

OCTOBER 2016 7 William T. Hold: Choices for Commercial Coverages 12-15 CIC Commercial Property Institute 13 William T. Hold: Choices for Commercial Coverages 13 Who, What, When, Where & Why of Workers’ Comp Property & Casualty Licensing Study Course 13-15 Who, What, When, Where & Why of Workers’ Comp 14 15 Understanding Flood Insurance Futures Conference 15-16 20 E&O Risk Management: Meeting the Challenge of Change 20 *CPIA: Position for Success Contracts & Leases Seminar 21 21 *CPIA: Implement for Success 22 *CPIA: Sustain Success 26-29 CIC Commercial Casualty Institute CISR Commercial Casualty II 27 Mistakes that Lead to E&O 27 28 CISR Commercial Casualty I Who, What, When, Where & Why of Workers’ Comp 28

Pittsburgh, PA Harrisburg, PA Altoona, PA Mechanicsburg, PA Pittsburgh, PA Philadelphia, PA Baltimore, MD Philadelphia, PA Pittsburgh, PA Philadelphia, PA Mechanicsburg, PA Philadelphia, PA Philadelphia, PA Erie, PA Philadelphia, PA Baltimore, MD Mechanicsburg, PA Allentown, PA

NOVEMBER 2016 CISR Personal Residential 2 2 Directors & Officers and Professional Liability CISR Agency Operations 3 Directors & Officers and Professional Liability 3 8 CISR Agency Operations E&O Risk Mgmt: Meeting the Challenge of Change 8 8-10 Life & Health Licensing Study Course 9-12 CIC Commercial Property Institute 9 CISR Personal Residential 9 E&O Risk Mgmt: Meeting the Challenge of Change 9 E&O Risk Mgmt: Meeting the Challenge of Change 10 CISR Personal Residential James K. Ruble Graduate Seminar 14-15 15 CISR Personal Auto *CPIA 1: Position for Success 15 16 William T. Hold: Commercial Coverages 16 Directors & Officers and Professional Liability 16 *CPIA 2: Implement for Success 17 *CPIA 3: Sustain Success 29 William T. Hold: Condo Concepts& Coverage 30 CISR Commercial Casualty II

Philadelphia, PA Mechanicsburg, PA Wilkes-Barre, PA Baltimore, MD Frederick, MD Bethlehem, PA Mechanicsburg, PA Hunt Valley, MD Pittsburgh, PA Newark, DE Philadelphia, PA Altoona, PA Lancaster, PA Waldorf, MD Pittsburgh, PA Mechanicsburg, PA Bethlehem, PA Pittsburgh, PA Pittsburgh, PA Lancaster, PA Salisbury, MD

*Attend all three CPIA seminars to earn the CPIA designation.

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

Contact Ray Reinard at 215-357-8600, Ext. 119.

If you would like to place a classified advertisement, please contact Laura Gaenzle at Laura.gaenzle@theygsgroup.com or (717) 430-2351.

AD INDEX ACUITY..................................................................................17 Applied Underwriters..................................................19 Berkshire Hathaway Guard Ins Cos .............24 EMC Insurance Companies..................................21 Harford Mutual Ins Co...................................................5 IA&B Partners Program............................................11 Interstate Insurance Mngmnt Inc.................OBC Millers Mutual Group.................................................IFC Preferred Property Program.................................24

New Truckers Workers Comp Program

Exclusive to Agents of Interstate Insurance • The existing automobile coverage must be written with Interstate.

• Coverage will be placed with an A.M. Best rated A+ XV rated carrier • Program available in Maryland, Virginia, Pennsylvania, Delaware and North Carolina.

• 5-50 power units but larger exceptional high quality accounts may be considered.

• Target account will be regional for hire trucker (some long haul exposure acceptable).

• $25,000 minimum premium. * Since we will loss control every account we prefer to receive submissions at least 60 days in advance.

- Smaller accounts that underwrite well will be quoted ‘subject to inspection’

* Accounts we will not consider: • Accounts with owner operators • Gasoline/fuel haulers • Moving and storage companies • Trash/refuse haulers with any residential collection • Any operation with extreme loading/unloading exposures

* Very attractive and flexible payment plans available: • Monthly Payroll Reporting • Electronic Pay-As-You-Go • Installment Plans • We will be especially flexible on large accounts

For more information contact Jeff Thomas: jeff@interstate-insurance.com Email all submissions to: submissions@interstate-insurance.com

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