Maryland Primary Agent - October 2018

OCTOBER 2018 | MARYLAND

ANOTHER ROUND IN THE

LEGISLATIVE FIGHT OVER RATING FACTORS

AGENTPAC CONTRIBUTORS RESERVATION OF RIGHTS TECHNOLOGY SPENDS

IN THIS

10 AUTOMOBILE INSURANCE RATING: PAST, PRESENT, AND FUTURE

Hear from IA&B Lobbyist Bryson Popham about how consumer groups are pushing back against auto insurance companies’ underwriting practices – and how the insurance industry is responding.

16 2018 AGENTPAC CONTRIBUTORS

These IA&B members’ financial support of AgentPAC helps make sure independent agents’ voices are heard during the legislative process.

18 HOW MUCH DO I NEED TO SPEND TO KEEP MY TECHNOLOGY HUMMING? Learn what healthy, operationally mature agencies should plan to spend to get the most out of their technology.

IN EVERY ISSUE 2 3 4 6 7 8 23 24 24 24

Chair of the Board’s Message Don’s Discussion Coverage Corner Message from Jason Ernest State News IA&B Partners Pics & Posts Education Classified Ads Advertiser’s Index

JOIN US ON SOCIAL MEDIA: Facebook.com/IABforME LinkedIn.com/company/IA_and_B Twitter.com/IA_and_B About IA&B IA&B is the premier resource and champion for independent insurance agents in Pennsylvania, Maryland, and Delaware.

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 # 2018-10, is published monthly by IA&B Service Group Inc., a subsidiary of IA&B.

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Copyright 2018. 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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CHAIR OF THE BOARD’S MESSAGE

BOARD OF DIRECTORS INSURANCE AGENTS & BROKERS

THE MORE THINGS CHANGE

W

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

OFFICERS

Chair of the Board

John B. Hollister

hen you think of your state agents’ association, what comes to mind first? When IA&B last surveyed agency principals, the top three responses were “education” (28%), “lobbying” (22%), and “advocacy” (11%).

Considering that these are the very reasons that industries first formed trade groups just proves the old adage: The more things change, the more they stay the same.

This fall marks the start of my eighth year with the IA&B Board. During that time, I’ve seen the challenges facing the organization (no doubt similar to those facing the vast majority of industry trade groups). But I’ve also seen the innovative ways that the board and staff are positioning IA&B to remain responsive and relevant to the independent agent community.

Offering tools to compete in an increasingly digital marketplace. Finding new talent to perpetuate the industry. Combining efforts with like-minded state associations to deliver new programs, products, and services. These are all new IA&B initiatives – ways that the organization is rising to the challenge and helping us meet our evolving needs.

However, what I find most impressive is how the organization has not lost sight of what it has always done well – providing top-notch professional development and effectual legislative, regulatory, and carrier advocacy. Year in and year out, decade in and decade out, IA&B has remained at the forefront of industry education and advocacy.

Bottom line: Change is inevitable, and when it’s managed well, it can mean more, not less. And at IA&B, I am confident that is what we’ll all continue to receive – the core products and services we have always relied upon, along with the tools we need to thrive into the future.

Milford, PA Vice Chair of the Board

Craig S. Mader

Crofton, MD Immediate Past Chair of the Board

Michael F. McGroarty Sr. Pittsburgh, PA

MEMBERS

Emory Stephen Burnett, CIC, ARM Wilmington, DE

Richard F. Corroon, CPCU Wilmington, DE

Michael P. Ertel Sr.+ Columbia, MD

Ashley M. Fitzsimmons, CISR Forest City, PA

Len Gieseler, LUTCF Pottstown, PA

G. Greg Gunn, CIC* Lemoyne, PA

Bryan C. Hanes, JD Hagerstown, MD

Lisa A. Leach Goth, CIC New Bethlehem, PA

Shannon Lipniskis Indiana, PA

Elizabeth H. Martin, CIC Millersville, PA

Mark J. Monroe

West Chester, PA

Richard M. Rankin, CIC Lancaster, PA

D. Bradley Rosenkilde Jr. Hunt Valley, MD

Tara S. Silfies, CPCU

All the best,

Bethlehem, PA

Robert L. Smyrl Jr., CIC Hatfield, PA

Glenn R. Strachan

John Hollister Chair of the Board

Ft. Washington, Md

Bryan S. Willey Dover, DE

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

J. Marshall Wolff, CIC, CPCU Easton, PA

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

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OCTOBER 2018

Don’s Discussion IA&B Legal & Corporate Affairs Director Don Bankus provided this month’s answer.

Ask our experts!

QUESTION: A producer just retired. We’re worried about potential liability should a customer report a claim or attempt to modify coverage via an email to the retired producer’s agency email account.

Are there any practical steps we can take?

ANSWER: Whether an employee leaves employment with the agency (for retirement purposes or otherwise), or is simply away for a short or extended period of time, it’s important to establish and implement standard policies, procedures, and workflows to address incoming email issues. From both E&O and customer service perspectives, you’re right to be concerned; and yes, there are a couple of practical steps you can consider.

OPTION 1 One option would be to keep the former employee’s email account open for a specified period of time, during which time a customer (carrier, vendor, etc.) who sends an incoming email should receive an out-of-office reply. The outof-office reply should include additional information, such as the contact information (name, phone number, and email address) of the individual within the agency to whom the customer should direct his or her inquiries.

As part of this procedure, if your system has the capacity, emails should be automatically re-routed to the agency employee(s) assigned to handle

the former employee’s work. In the alternative, the agency would need to implement procedures whereby the former employee’s email account is proactively monitored.

OPTION 2 In the alternative, the agency could opt to shut down the former employee’s email account completely, after which any customers sending an email to the former employee should receive an undeliverable notice. As with the first option, the undeliverable notice should include additional information, such as the contact information (name, phone number, and email address) of the individual within the agency to whom the customer should direct his or her inquiries.

Following is a sample template for inclusion with either your out-of-office or undeliverable notice reply: Thank you for emailing [former employee’s name] at [agency name].

[Former employee’s name] has left employment with [agency name]. You are directed to contact [insert name, phone number, and email address of new contact person], or you may

Have a question?

Rely on our team to find the answer.

Contact Don: 800-998-9644 Ext. 603 DonB@IABforME.com IABforME.com

contact the agency at [insert primary phone number for the agency].

It’s also important to make sure outgoing emails include appropriate disclaimer language notifying recipients that coverage can’t be modified, or a claim submitted, via email, and that any requested changes will not be effective until confirmed by a licensed agent.

In conjunction with these options, it would also be prudent to communicate directly with affected customers via regular mail, advising them (1) that the agent is no longer employed with the agency; (2) as to whom within the agency the customer should contact if they need to discuss anything (to include an applicable phone number and email address); and (3) that emails should no longer be sent to the former employee’s email address.

Whatever practice you decide to implement, it’s never advisable to leave customers in a position where they believe someone within the agency has received, and is appropriately handling, their email request.

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COVERAGE CORNER

UNDERSTANDING THE INSURER’S RESERVATION OF RIGHTS

By Jerry M. Milton, CIC

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our insured has caused a loss, resulting in an injury to another person. That person has filed a claim against your insured. The insured then forwards the claim to the insurer.

Sounds pretty simple, doesn’t it? We follow that process every day.

But, it may not be that simple. Upon receipt of the claim, the insurer reviews the facts of the claim and is not sure it’s covered by the insured’s policy. It may be covered. But, then it could be excluded.

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Not having all the facts, the insurer is reluctant to say, “No covered.”

If it turns out later that the claim is covered, the insurer could face a bad faith claim. Wanting to further review the facts, and limited by the amount of time the insurer has to respond to th e insured and claimant, the insurer sends a reservation of rights (ROR). An ROR letter should be sent as soon as any question of coverage is recognized.

OCTOBER 2018

An ROR is a means by which the insurer agrees to defend the insured against a claim or suit while simultaneously retaining its ability to evaluate, or deny, coverage for the claim. ROR letters typically recite a laundry list of reasons the insurer could have for denying the claim. These letters tend to frighten policyholders who purchased their policies thinking they would be covered in the event of a loss.

The insurer is obligated to notify the insured that it may not cover a particular claim in order to allow the insured ample time to prepare an adequate defense in the event the claim is denied by the insurer. The ROR letter must explain to the insured why a particular provision of the policy could result in the denial of coverage. The letter must quote the relevant policy language that will be the basis of any possible future denial of coverage.

When the insurer’s coverage obligations are unclear, it is beneficial for the insurer to defend the insured subject to an ROR and then seek a declaratory judgment determining the obligations of the insurer. The issuance of an ROR allows the insurer to fulfill its obligation under the policy to provide a defense for the insured while protecting itself and further investigating the claim.

Typically, when an insurer issues an ROR, it retains counsel for the insured while simultaneously monitoring the case and related coverage issues. However, the ROR may give the insured the right to choose its own counsel paid for at the insurer’s expense.

If the insurer defends the insured under an ROR, and it is later determined the claim is not covered, does the insurer have the right to be reimbursed by the insured for the costs and expenses defending this claim which was not covered? Probably not. However, if the insurer had the insured sign an indemnification agreement, then the insured could be held responsible for reimbursing the insurer.

Any attorney defending an insured under an ROR must be extremely vigilant to ensure that it maintains allegiance to his client, the policyholder.

Y’all take care!

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/education.

MORE ABOUT REIMBURSEMENT OF DEFENSE COSTS The state where the insured is located may have a bearing on how reimbursement of defense costs will be treated.

Case in point, Pennsylvania insurers used to rely on an implied principle that if an underlying claim was questionable, the insurer could seek reimbursement of the defense costs. In 2010, a Pennsylvania Supreme Court decision (American and Foreign Insurance Company v. Jerry’s Sports Center, Inc.) ruled that an express provision needed to be included in the policy for the defense-cost recovery to be valid.

ISO introduced an endorsement (IL 01 20) for that purpose. These endorsements have since been added to a number of commercial policies in Pennsylvania.

Can the same attorney represent the insurer and the insured? In most circumstances where consent has been obtained from both the insurer and the insured after full disclosure, defense counsel can continue dual representation of both clients. However, this is not always a good idea since the insurer and the insured will have conflicting interests.

When there is a conflict, the attorney representing both parties must promptly, fairly, and fully inform the insured of all the facts and legal consequences regarding the conflict so the insured can make the decision whether or not to retain independent counsel.

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ONWARD & UPWARD: A MESSAGE FROM JASON ERNEST Every once in a while, IA&B will get an email or note from a member, saying they don’t agree with our political leanings, and they are no longer going to support AgentPAC, or worse yet, they are dropping their membership.

IA&B has only one political leaning – and that is to protect the independent insurance agent in Annapolis and Washington, D.C. We work with lawmakers on both sides of the aisle. What matters is if you are friendly to independent insurance agents and small businesses.

If you are, we will support you. If you’re not, you won’t have our support, and we will actively oppose your legislation that is harmful to our members.

As another contentious and unpredictable election plays out this November, we will be watching. Our advocacy team and lobbyist Bryson Popham (see his article in this issue) have been tracking the races, learning about the candidates, and supporting those that we feel will be most favorable to our issues. There may be questionable social platforms or personality flaws with some candidates we support – that’s inevitable in the business of politics. But at the end of the day, the only thing that counts is what is best for our members.

The American democracy is a pillar to the success we all enjoy today.

It’s by no means a perfect system – and the current political landscape is as fractured as we’ve seen in some time. But please know this one constant when it comes to politics: IA&B has your back, and we do so with no biases or favoritism.

And I can’t let this pass – now, more than ever, we rely on your AgentPAC (IABforME.com/AgentPAC) contributions. There are many key races we are watching this year, and your contributions can help ensure our success.

Jason Ernest, Esq. IA&B President & CEO

CE REQUIREMENT REFRESHER Stay in regulators’ good graces by meeting the training requirements necessary to sell, solicit, and negotiate the lines of business for which you are licensed. The Maryland Insurance Administration (MIA) recently clarified producers’ continuing education (CE) requirements – an effort likely triggered by licensee confusion.

Maryland resident producers must earn 24 CE credits during each two-year licensing period. However, certain factors affect the requirement, including: • The number and types of lines for which you are licensed • How long you have been licensed Our online resource details Maryland’s CE and training requirements. Review it for highlights and explanations of the state’s CE regulation.

IABforME.com/CE_requirements

MARYLAND SCORES TWO ACA VICTORIES Maryland’s efforts to stabilize the individual health insurance market are paying off.

First, the Centers for Medicaid and Medicare Services (CMS) approved the state’s application waiver to create a reinsurance program to address extreme rate hikes. The waiver – along with bipartisan legislation passed by the Maryland General Assembly this spring – will allow the state to set up a reinsurance pool to provide funding for policyholders’ catastrophic claims in the individual market.

Secondly, the Maryland Insurance Administration (MIA) announced late this summer that it received a $280,000 grant

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OCTOBER 2018

STATE NEWS from the CMS to “analyze the individual health insurance market in Maryland as efforts are made to support consumer protections and market reforms.”

THE BACKSTORY The proposed 2019 rate changes for plans sold in the state’s individual and small group markets varied from -1.1 to 91.4%. The MIA at the time cautioned that the individual rates did not take into account the forthcoming reinsurance program.

At the time of this writing, the Maryland Health Benefit Exchange Board was reviewing the reinsurance program structure. After the structure is approved, carriers will refile their 2019 rate requests for the individual market.

RULES CHANGE ON ADJUSTING COMMISSION RATE ON COMMERCIAL PROPOSALS The ability to request a lower commission rate on a commercial account has been officially restricted. While the Maryland Insurance Administration’s (MIA) position on the permissibility of variable rate filings had gone back and forth in the past, two bills (HB 1078 and HB 1127) and Bulletin 18-13 shut the door to the practice, unless: • the commercial account meets specific criteria and • the commercial account has executed a document to evidence that it meets those criteria (Certificate of Qualification as an Exempt Commercial Policyholder).

The changes became effective on Oct. 1, 2018. Carriers and producers may no longer adjust a commission rate unless the insured qualifies as an Exempt Commercial Policyholder,

which means it meets at least two of the following characteristics: • Generates more than $5,000,000 of annual revenue or sales

WELCOME

• Has a net worth in excess of $2,500,000

NEW PARTNERS & MEMBERS

• Employs at least 25 full-time employees

NEW SILVER PARTNER:

• Is a non-profit organization or public body with an annual budget of at least $5,000,000

FREDERICK MUTUAL INSURANCE COMPANY Frederick, MD

• Is a municipal corporation with a population of at least 15,000 Carriers that previously used variable commission rates were asked to submit new filings that comply with the changes. Producers need to be mindful of the change and properly secure a signed Certificate of Qualification for each applicant or policyholder for which a reduced commission is going to be applied.

DOWNLOAD THE NEW “PROUD IA&B MEMBER” LOGO We’re excited to provide you with the new “Proud IA&B Member” logo to showcase your membership. Common usages include:

NEW MEMBERS: INSURANCE XCHANGE LLC Philadelphia, PA HUMPHRIES INSURANCE GROUP INC. Blue Bell, PA THOMAS ROBINSON INSURANCE Jamison, PA REDMER INSURANCE GROUP White Marsh, MD MCAFEE INSURANCE AGENCY LLC Wilmington, DE

• Advertising • Business Cards • Envelopes • Memos • Stationery/Letterhead • Website Review our logo usage guide to ensure proper use – including graphic standards to ensure consistency and accuracy – and then download the logo.

Learn more about membership by contacting IA&B Vice President – Membership Tim Wonder.

800-998-9644 Ext. 351 TimW@IABforME.com IABforME.com/membership

IABforME.com/IAB_member_logos

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PARTNERS PROGRAM

& through IA&B’s Partners Program.

Supporting Connecting

2018 Partners

ELEVATING AGENTS

Program

Offering sincere thanks Among the IA&B Partners are the following Platinum-level sponsors.

PLATINUM PARTNERS ACUITY Agency Network Exchange LLC BBSI Chubb Donegal Insurance Group Erie Insurance Group Farmers Mutual Fire Insurance Company of Marble Insurance Agents & Brokers Service Group Millers Mutual Group Penn National Insurance Plymouth Rock Assurance The Main Street America Group

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The IA&B Partners Program allows companies to support and connect with independent insurance agents and brokers in Pennsylvania, Maryland and Delaware. Through their sponsorship, Partner companies allow IA&B to offer the programs and services that help member agencies succeed.

CALLING ALL COMPANIES Your support helps independent agents succeed and their agencies become more profitable — a win for your company and the independent agency channel. What’s more, you will find more value than ever before from our revamped Partners Program.

Learn more by visiting IABforME.com/Partners or contacting Jess McWilliams at 800-998-9644, ext. 503, or JessicaM@IABforME.com.

OCTOBER 2018

PLATINUM PARTNER Insurance Agents & Brokers proudly recognizes CHUBB as one of its Platinum Partners.

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

PLATINUM PARTNER

FOCUSED ON RESULTS OUR COMPANY CHUBB

CHIEF EXECUTIVE OFFICER Evan G. Greenberg Chairman & CEO

NORTH AMERICA HEADQUARTERS Whitehouse Station, NJ

A.M. BEST RATING

Issuer Credit Ratings: “A++”

WEBSITE

Chubb.com

Chubb is the world’s largest publicly traded P&C insurance company and the largest commercial insurer in the U.S. With operations in 54 countries and territories, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients.

We are more than an insurance company. We are a true partner to our clients, constantly striving to provide the best solutions and services possible. We believe that insurance is a craft and that each client has unique needs — whether they are a multinational company, a mid-market firm, small business owner or individual policyholder. Our team of professionals is highly skilled and trained to help clients stay protected, avoid risks and mitigate those risks as situations occur. We stand out from the competition because we are extremely passionate about what we do and genuinely care about our clients.

Across our many divisions, we can address a broad range of risks through our core and situational coverages, our services and claims delivered by technology and our innovative delivery options. Along with our main coverages, we also provide a full line of top-rated insurance products, services and expertise in just about every industry. Chubb is well-known for its exceptional service and attention to each and every client.

Our Field Operations team consists of experienced leaders who work hard to maintain these long-term client, agent and broker relationships across North America. These leaders help Chubb successfully deliver world-class insurance products and services at the local level in 8 regional offices and 40 additional branch offices throughout the United States and Canada. In the Mid-Atlantic, our offices include:

Baltimore St. Paul Plaza, 23rd Floor 200 St. Paul Place Baltimore, MD 21202-2038 T 410-659-6500

Harrisburg 4999 Louise Drive Suite 203 Mechanicsburg, PA 17055 T 717-791-6000 T 412-391-6585

Richmond 4470 Cox Road Suite 150 Glen Allen, VA 23060 T 804-935-6300

Washington DC 1001 G Street NW Suite 400 Washington, DC 20001 T 202-822-3200

Philadelphia 436 Walnut Street Philadelphia, PA 19103 T 215-640-1000

Pittsburgh Fifth Avenue Place 120 Fifth Avenue Pittsburgh, PA 15222-30008 T 412-391-6585

If you’re an agent interested in an appointment with one of the Chubb Mid-Atlantic branches, please visit: https://www2.chubb.com/us-en/agents-brokers/mid-atlantic-region.aspx.

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OCTOBER 2018

AUTOMOBILE INSURANCE RATING PAST, PRESENT, AND FUTURE

By Bryson F. Popham, Esq.

While automobile insurers’ underwriting abilities continue to grow, consumer groups are pushing back – often with proposed legislation. On the following pages, IA&B Lobbyist Bryson Popham traces the path of rating factors and looks at future roadblocks.

A

re you a man or a woman? Married or single? What is your occupation? Educational level? Are you good at paying your bills on time?

What do all of these questions have in common? They are all used to calculate the premium an individual will pay for insurance – mostly private passenger automobile insurance, but other kinds as well. People are noticing. Some are scratching their heads in confusion. Some are not sure they like what they see.

Ever since automobile insurance was created in the late 19th century, a competitive market has been its lifeblood, and this free market has afforded a vibrant insurance industry the opportunity to compete for business. That is all it has ever wanted.

For many years, there were just a few traditional rating factors that could affect a final premium. The first major rating factor in automobile insurance was the introduction of territorial rating in the early 20th century. Its premise was simple: People who drove their cars in rural areas had fewer accidents than people who

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drove in cities. They deserved to pay less. So companies like State Farm, Nationwide (originally The Farm Bureau), and Farmers served this new market with lower rates. Today, territorial rating remains one of the most accurate, and powerful, predictive factors in automobile insurance rating.

HOW WE’RE PROTECTING RATING FACTORS IA&B, along with the rest of the insurance industry, successfully opposed several pieces of legislation during the 2018 session that sought to eliminate commonly used rating factors.

HB 656/SB 945 - Prohibiting an insurer, with respect to private passenger motor vehicle insurance, from refusing to underwrite, canceling, refusing to renew, rating a risk, or increasing a renewal premium based, in whole or in part, on the occupation, or on the education level attained by, the insured or applicant.

HB 657/SB 1059 - Prohibiting an insurer, with respect to private passenger motor vehicle insurance, from refusing to underwrite, canceling, refusing to renew, rating a risk, or increasing a renewal premium based, in whole or in part, on the marital status or the gender of the insured or applicant.

HB 1670/SB 72 - Prohibiting an insurer, with respect to private passenger motor vehicle insurance, from rating a risk based, in whole or in part, on the credit history of an applicant or insured in any manner.

HB 1748 - Prohibiting an insurer, with respect to homeowners’ insurance, from increasing the premium for an insured who becomes a surviving spouse based solely on the insured’s change in marital status.

Despite our success in opposing these bills, we expect similar legislation to be introduced during the 2019 Session of the Maryland General Assembly which will convene on Jan. 9, 2019.

Territorial rating, however, is not without controversy. For years in the 1980s and 1990s, Baltimore City legislators introduced bills to eliminate territorial rating; in effect, to create a single statewide territory. The obvious reason was to eliminate the disparity between high base rates in Baltimore City and those in the remainder of the state. The legislation always died when legislators outside of Baltimore City saw the effect of the elimination of territorial rating on their constituents. Like politics, all automobile insurance rating is local.

From the list in the first paragraph above, you can see certain questions (other than where you park your car at night) that you have always seen on automobile insurance applications. These questions include information about gender and marital status.

Decades of actuarial data support the validity of such factors in determining a final rate for an insurance premium.

In recent years, however, more controversial factors have been included in the mix. Beginning in the 1990s, credit scoring, a process originally used to determine eligibility in making loans, was correlated to the fundamental question in determining an insurance rate: What is the likelihood that a risk will have losses in the future? Such correlation was proven by carriers to the general satisfaction of insurance regulators, and credit is an authorized rating factor in almost every state today. The use of credit scores (technically insurance scores) remains discomfiting and confusing, however, to legislators who do not understand its correlation in the same way they understand a correlation between a person’s driving record and the likelihood of future losses. Those public officials suffer the same discomfiture with factors such as occupation and education, which have become widely used in the 21st century. It’s simply too technical for average citizens (and their legislators) to understand.

The undeniable result of this ability of the insurance industry to segment risk in new and different ways (e.g., once upon a time Maryland had 12 rating territories for automobile insurance – today, many companies have 60, 70, or more) has been brutally effective competition. That competition can be evaluated in at least a couple of different ways.

First, there has been tremendous contraction in residual market mechanisms for automobile insurance countrywide. The Maryland Automobile Insurance Fund (MAIF) is an exception

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OCTOBER 2018

to this rule. MAIF has approximately 35,000 policyholders, while many other states, such as Pennsylvania, Virginia, and Florida have fewer than 1,000 each. (MAIF is a different animal – an entity unique in the United States – and deserves a separate examination of its persistently high number of policyholders.

The positive effect of competition in other states in shrinking the residual market has not worked effectively in Maryland.)

Other evidence is anecdotal, but equally persuasive. Turn on your television when you go home tonight. How long will it take to see an ad for automobile insurance? Or two? Or three or more? The prevalence of expensive automobile insurance television advertising demonstrates just how competitive this market is.

In addition to a highly functioning, competitive market, Maryland has a strong combination of statutes and regulations for automobile insurance. Indeed, Maryland Insurance Administration (MIA) officials will say that consumer protection is a top priority for the agency. By statute, insurance rates may not be excessive, inadequate, or unfairly discriminatory. There is a multifaceted network of options for consumers to obtain useful

information from the MIA about their insurance policies, and effective remedies to protest wrongful actions by insurers. The MIA enforces these statutes and regulations vigorously.

So what’s not to like about a competitive market that offers your clients many choices? And also a market backed up by a regulatory agency that takes consumer protection seriously?

Just ask certain consumer advocates; specifically, the Consumer Federation of America (CFA). For years, the CFA has issued studies on various aspects of the private passenger automobile insurance market. In particular, CFA has devoted considerable attention to affordability. And CFA has identified one vulnerability in the market: In a study of access and affordability for lower-and-middle income Americans, CFA found “the cost of state-mandated basic liability insurance is higher than many lower-income Americans can afford and the number of uninsured citizens in this category is higher than the national average as a result.”

Affordability, of course, is always in the eye of the beholder. It is certainly true, however, that automobile insurance costs in some parts of Maryland (e.g., Baltimore City) are orders of magnitude

IA&B works on your behalf to ensure that Maryland legislators and regulators understand the issues affecting agents.

But it is your financial support that helps our message to be heard loud and clear.

Please consider contributing.

More information at IABforME.com/AgentPAC

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higher than in other parts of the state. The reasons for this phenomenon are complex. For one thing, the predictive power of territorial rating generally points to higher rates in urban areas.

And urban areas often have a higher proportion of lower- and middle-income residents (again, think Baltimore City) who are highly sensitive to automobile insurance costs.

But it’s not that simple. Another key factor is the judicial climate: the propensity of individuals in a given area to file lawsuits, together with the costs of resolving litigation. Insurance fraud is yet another factor affecting rates, as is the number of persons driving without insurance in a particular locale.

CFA and other consumer groups prefer that rating factors be limited to a person’s driving record, and they have issued a stream of reports in support of that principle. A 2018 report purported to show that some major insurers provide no discount to low-mileage drivers. A 2017 report asserted that “most” large insurers charge 40- and 60-year-old women with higher rates.

And a 2016 report claimed that “major insurers charge moderate income customers with perfect driving records more than highincome customers with recent accidents.”

unavoidable result of less competition will be higher insurance premiums for consumers. Insurance agents and companies always seek more competition and oppose proposals that substitute political judgment for economic reality.

The 2018 Session of the Maryland General Assembly saw separate bills that would eliminate the use of gender, marital status, occupation, education, and credit. IA&B and the rest of the insurance industry opposed these bills. With an expected shift in the composition of the legislature next year to a greater number of self-identified progressives, coupled with the need every four years to educate new legislators about how the insurance industry operates, we expect a strong push for this type of legislation next year. We will have to be ready for it.

Most controversially, CFA issued a 2015 report alleging that premiums in predominantly African American communities, when compared with predominantly white communities, were 71% higher.

In Maryland, as in all other states, insurers are prohibited from using race to develop their rates. And here is the real agenda for CFA and other consumer groups: automobile insurance rating is a political issue, not a business or economic issue. These groups are quite active before the Maryland General Assembly as well as the Maryland Insurance Administration. They appear regularly, always attacking “non-driving rating factors” and seeking to reduce the industry’s ability to adequately price risk by limiting rating factors to driving history only. At its most extreme, CFA and other groups claim that the current automobile insurance rating system is racially discriminatory. That claim resonates in Maryland, which has a substantial percentage of minority citizens who must, by statute, purchase automobile insurance.

While affordability is a real issue for persons of low to moderate income, the alleged connection between affordability and racial discrimination is both highly sensitive and highly controversial.

Consumer groups continue to seek the elimination of rating factors one by one. To those in the industry, the effect will be obvious: reducing an insurer’s ability to adequately price risk will correspondingly reduce its willingness to write business. The voluntary market will not grow, but the residual market will. The

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OCTOBER 2018

Bryson F. Popham, Esq., principal of an Annapolis law firm concentrating in lobbying and government relations, serves as IA&B’s contract lobbyist in Maryland.

Shopping your E&O? IA&B offers coverage that agents need.

Contact David today.

For personalized service, CONTACT DAVID WERTZ 800-998-9644, ext. 506 DavidW@IABforME.com IABforME.com/agency_insurance

Acuity Loves You! PROU D TO PARTNER WITH THE BEST I N DEPEN DEN T AG ENTS IN THE BUSINESS!

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2018 AgentPAC of Maryland Contributors We sincerely thank everyone below for contributing at every level.* Your financial support of AgentPAC helps make sure your voice, collectively with other agents, is heard during the legislative process, and helps us as we advocate for ways to strengthen agents’ political interests on key insurance and business issues in Maryland.

Learn more at IABforME.com/AgentPAC.

PRESIDENT’S CLUB ($1,000+)

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Brad Rosenkilde R & A Insurance Inc

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GOVERNOR’S CLUB ($500 - $999)

Tony Bennett Famous & Spang Associates

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Bryan Hanes Antietam Insurance Assoc Inc

Virginia Donohue Community Insurance Services of MD

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John Hostetter Hostetter Agency Inc

Kimberly Matney Matney Insurance Services Inc

Alan Keir A R Keir Inc

Kent Reynolds Keller-Stonebraker Insurance

Craig Mader Craig S Mader Ins Agency Inc

Timothy Schaefer Schaefer Insurance Services

Blair Mattheiss B J Mattheiss Insurance Inc

Charles Veirs C Clifton Veirs Agency

Stacey Nicholson CNR Insurance

Gerald Zoller American Heritage Ins Agency Inc

Stephen Spencer Insurance Associates Inc

E Larry Sanders Edward L Sanders Ins Agency Barry Winstead Winstead Insurance Agency

UP TO $99 James Crassas Omega Insurance Agency Inc * Contributors between Jan. 1 and Aug. 15, 2018.

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OCTOBER 2018

PREPARING YOUR CUSTOMERS FOR TOMORROW’S THREATS TODAY. Cybersecurity breaches are unfortunately common — and mishandling them can have lasting consequences on a business’ future success. If your policyholders become targets, Cyber Liability and Data Breach Response coverage helps them keep their customers’ trust.

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grinnellmutual.com “Trust in Tomorrow.” and “Grinnell Mutual” are registered trademarks of Grinnell Mutual Reinsurance Company. © Grinnell Mutual Reinsurance Company, 2018.

TECHNOLOGY UPDATE

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OCTOBER 2018

HOW MUCH DO I NEED TO SPEND TO KEEP MY TECHNOLOGY HUMMING? PART II

By Greg DiDio

On the following pages, Greg DiDio follows up on his September Primary Agent article – Are You Strategically Investing in Your Technology? – with a look at how much you need to spend to maximize the value you get from your technology.

I

n the last issue of Primary Agent, I provided advice on how healthy, operationally mature agencies should be investing their IT spend to achieve high performance. In this issue, I will review how much you should expect to spend to maximize the value you get from your technology. I will review costs associated with six major categories that require IT investment: 1) agency management systems, 2) sales automation, 3) office productivity software, 4) user/desktop experience, 5) proactive management and support, and 6) security and compliance.

AGENCY MANAGEMENT SYSTEMS Market-leading agency management systems, such as Applied Systems’ EPIC or Vertafore’s AMS360, will cost around $150 per month per user to obtain the comprehensive functionality of a modern agency. This includes features such as policy download, invoicing, claims tracking, sales/renewal management, and financial reporting.

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TECHNOLOGY UPDATE

WHAT ABOUT YOUR WEBSITE? YOUR AGENCY’S website is an additional – and integral – component of your agency’s technology investment. First impressions matter, today more than ever, and they’re happening online.

Forge3’s ActiveAgency website platform is designed to help your agency look great, reinforce credibility, and build relationships. Plus, it’s easy to use, cost effective, and streamlined – integrating seamlessly with Rocket Referrals and any agency management system.

In addition to ActiveAgency’s built-in, bestin-class sales and servicing tools like Clickable Coverage, Hello Producer, and live-chat integration, IA&B members have full access to several exclusive features.

Pricing is just $250/month, and there are no upfront setup fees or long-term contracts for IA&B members.

Learn how you can benefit by visiting https:// forge3.com/iab/ or by contacting Zack Yurch.

Zack Yurch Director of New Business Forge3, Ltd. 484-275-0983 Zack.yurch@forge3.com

Deploying these applications or migrating to a new system is a significant undertaking requiring a large investment in both labor and capital. For a successful agency management deployment, agencies typically spend about $2,000 per employee in project implementation costs. Agencies who try to cut corners to reduce costs are often disappointed with the results. We strongly warn agencies not to cut corners, especially when it comes to dataconversion preparation and employee training.

SALES AUTOMATION Sales automation is generally included in the full-featured, industryleading products from Applied Systems and Vertafore. If you have one of these products, your out-of-pocket costs are covered above, but you still need to take the time to build workflows and train staff to deploy best practices.

If you choose to go a different route and deploy a niche market product, you will likely see much lower rates for agency management. This might be the right solution for you depending on your needs and your willingness to complete the solution through other processes or third-party applications.

Depending on the agency management system you select, some of these savings need to be earmarked for a third-party sales management tool such as Salesforce.com, along with consulting to successfully integrate the application and processes with your agency management solution.

OFFICE PRODUCTIVITY SOFTWARE Generally, office productivity software is provided via Microsoft Office 365 subscription service. A typical agency requires business email and Office applications including Word and Excel. The Office 365 service bundles that include these components start at $12.50 per user per month. If you need data encryption and archiving, your subscription costs will rise to about $20 per user per month.

Most agencies will require a technology consultant to effectively perform the initial deployment of Office 365. Also, since Office 365 data (email, documents, etc.) are not backed up by default, make sure you add a backup service so that your data is fully protected.

This will add $2-$4 per user per month. Finally, these Office 365 bundles include applications such as SharePoint, OneDrive, Skype, and Teams which allow employees to share files, conduct videoconferences, and collaborate. Speak to your technology partner about how to get the most from these tools.

USER/DESKTOP EXPERIENCE This will vary depending on the specific user requirements but for simplicity, we will consider two examples: a typical office-based user and a typical mobile user. Minimum requirements for a typical office-based user includes a business class PC with an Intel

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Core i5 class processor, 16 GB RAM, 250 GB Solid State hard drive, running the Windows 10 operating system. This system currently costs about $1,000 plus approximately two hours of set up time for your technology provider. For high-quality monitors that reduce eyestrain, provide ergonomic benefits, and improve user productivity, expect to pay about $400 for a pair of good-quality, 22-inch widescreen monitors suitable for business use.

The tool of choice for mobile employees including producers is the two-in-one laptop. These devices are convertible from standard Windows 10 laptops to touchscreen tablets.

Depending on features, these devices can vary greatly in price.

A typical two-in-one device with a 13- to 15-inch screen provided by a major vendor (Dell, HP, Lenovo, Microsoft) will cost between $1,300 and $1,600. Our agency clients typically add a docking station, so they can seamlessly transition to their office environment. This usually adds about $300.

PROACTIVE MANAGEMENT AND SUPPORT A competent technology provider is extremely valuable in advising you on your technology investment and keeping your agency running effectively. Rates for such service can vary greatly depending on how comprehensive the services are.

Proactive, high-quality services cost about $100 per user per month (excluding backup/disaster recovery services). At this rate, your provider should be conversant in agency operations and should provide strategic technology reviews. Also included should be help desk support and basic security products such as spam filtering, endpoint protection, computer updates, firewalls, and gateway security. Finally, your provider should interact on your behalf with your other technology vendors such as phone system supplier, internet service provider, and agency management system vendor.

Backup and disaster recovery costs can vary depending on agency requirements from simple “file-based” backup solutions to very expensive high availability alternatives. An in-between solution that will keep your data safe and secure with an “imagebased” backup of your systems should cost between $300 and $600 per month depending on the amount of data.

SECURITY AND COMPLIANCE This area has evolved a great deal in the last few years and will continue to do so as the threats, compliance requirements, and tools all continue to change. Today, enterprise tools are being repurposed for smaller businesses, so new tools and methods are becoming affordable all the time.

Continued on page 22

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TECHNOLOGY UPDATE Continued from page 21 Some of the services you should expect to procure include: annual security assessments, security awareness training for your employees, and security event log management. A basic managed security service will add approximately $400 per month to your proactive managed support. Adding mobile device security, data encryption, advanced endpoint protection, dark web searches, and a more sophisticated security incident and event managements system can add a lot more.

CONCLUSION I hope this overview gives you a sense of the costs associated with key aspects of your agency’s technology. Strategically planning the best use of your technology dollars will go a long way in improving your agency’s productivity and making you more profitable.

Greg DiDio is CEO of Kite Technology Group, a Maryland-based IT services and consulting company serving the needs of over 100 insurance agencies across the country.

He has 25 years of leadership experience, with the last 18 focused on information technology management. Greg has a passion for developing leaders and creating corporate cultures that facilitate high performance and employee growth.

committed to mutual success.

Harford Mutual Insurance partners with independent agents in Maryland.

We insure restaurants, contractors, mercantile, and other commercial entities. We’re committed to protecting your client’s business and building yours.

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HarfordMutual.com | 800.638.3669

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OCTOBER 2018

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PICS & POSTS

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Education

CLASSIFIED

OCTOBER 2018

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