Maryland Primary Agent - September 2016

SEPTEMBER 2016 | MARYLAND

COMMON

G OINSIDE A L STHE:

AGENCY-CARRIER RELATIONSHIP

AGENCY SATISFACTION & COMPANY PROFITS 4 WAYS TO HELP UNDERWRITERS CARRIER-AGENCY TECH AGREEMENTS

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IN THIS

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AGENCY SATISFACTION & COMPANY PROFITS A company’s support of an agency goes a long way to building trust and, in the end, financial benefits for everyone involved. Here are three ways to improve the agency-company relationship.

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FOUR WAYS TO FIND COMMON GROUND BETWEEN AGENTS AND UNDERWRITERS Not only do you need a great service and support team, but you need a great underwriting team. When you win, they win.

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CARRIER-AGENCY TECHNOLOGY AGREEMENTS Failure of both carriers and agencies to make sure there’s clarity on technology issues up-front can lead to significant problems down the road – for them and their customers.

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 # 2016-9, 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

A PATH TO PROGRESS

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

G

OFFICERS

reetings! As I write this, my first message as chairman, it’s a mid-summer day in a steamy and sluggish Steel City. But by the time this issue lands on your desk, we’ll be on the cusp of autumn. The air will be changing, the kids will be heading back to school, the pace of business will be accelerating, the Steelers will be eyeing up the Redskins, and – on the IA&B Boards of Directors – a new crop of leaders will be taking their posts.

As the boards reset, I would be remiss if I didn’t thank those outgoing volunteers and officers for their time and dedication to IA&B and to the industry at large.

They set a fine example and put us on the path to sustaining a relevant and vibrant organization.

About that path…. We on the boards identified several areas of focus – a handful of collective concerns among member agencies – and gave the staff the challenge to address them. In the weeks and months ahead, you’ll see the outcomes: new training, resources and services to address compliance (to start, compliance with new overtime pay rules); additional representation of agents’ rights (stay tuned for the results of several agency agreement reviews that currently are underway); and perpetuation initiatives and resources (the Futures Program for young agents is taking off, alongside a new job board and career paths).

Yes, there are a lot of big undertakings plotted along this path. But the effort is worth the end goal – supported agencies that are poised to thrive despite the obstacles.

It’s an exciting time at IA&B, in our agencies and in the industry at large. The IA&B volunteer leaders and staff alike are invigorated and optimistic. I encourage you to stay tuned, get involved along the way and take advantage of the outcomes.

It’s going to be a great year. n

Chair of the Board

Michael F. McGroarty Sr. 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.

Richard M. Rankin, CIC Lancaster, Pa.

April E. Ressler, CIC Altoona, Pa.

Scott C. Rogers, CPIA York, Pa.

Glenn R. Strachan

Ft. Washington, Md.

Until next time,

Bryan S. Willey Dover, Del.

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

J. Marshall Wolff, CIC, CPCU

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

Easton, Pa.

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

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SEPTEMBER 2016

Ask Our Experts This month’s answer was provided by Claire Pantaloni, our industry affairs director.

Question: Am I really supposed to conduct a background check on every employee in the agency?

Answer: NOT DIRECTLY, BUT INDIRECTLY, YES.

Whatever the case may be, the procedure must be applied consistently.

The Violent Crimes Control and Law Enforcement Act of 1994 (VCCLEA) specifies that individuals convicted of a felony involving dishonesty or breach of trust1 may not work in the insurance industry without first obtaining written permission to do so from the state Insurance Department. In addition, insurance agencies and companies may not “willfully” allow such individuals to work in the insurance industry.

Naturally, agents should be cautious that the third party used to provide any services is reputable and will be compliant with the Fair Credit Reporting Act (FCRA). Agents should also make sure that they themselves comply with the FCRA and other federal and state employment laws, including antidiscrimination laws. As an example, bear in mind that you need to secure the individual’s consent before conducting a criminal background check.

Since insurance companies and agencies are prohibited from allowing those convicted of the above-listed crimes to work in the insurance industry, they may need to conduct criminal background investigations of employees. Relying on the wording “willfully permits the participation” and choosing a “don’t ask, don’t tell” strategy is not the way to go about this as it might be interpreted as the employer’s willful permission to violate the law.

Agencies should have a formal policy in place to make sure that none of their employees are working in the agency without proper authorization. Your formal policy may involve a systematic criminal background check for your current employees as well as your new hires, full-time and part-time alike.

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A complete list of crimes can be found at 18 U.S.C. § 1033

Other noteworthy items: • The VCCLEA contains a few gray areas, generally around the types of crimes that qualify as “dishonesty or breach of trust.” However, a good vendor can help decide how to cast the background-check net in order to reach your goal without breaking the bank; • A “hit” is not a complete ban from working in insurance, but a requirement to secure consent from the regulator, and this consent is granted to a number of individuals every year; • New local laws and ordinances may affect how to conduct the background check. A growing number of municipalities and counties have adopted “ban the

box” policies, which preclude a potential employer from asking criminal-background questions before a first interview has taken place (that means no questions on the job application!); • In order to show due diligence, a proper procedure should be applied consistently; • Remember that a procedure normally should include your current employees as well … something that we know can be sensitive for staff who have been working for the agency for many years.

Whatever you choose to do, it should clearly show that due diligence was applied.

Something to bear in mind when you review your agency’s employment processes.

A complete suite of resources, including a sample authorization form, a sample announcement explaining the process to staff, a sample strategy to review the background checks, and more, are all available at IABforME.com. 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

HOW TO NAVIGATE COMMON E&O TRIGGERS

By Utica National E&O Program

T

rends in Errors & Omissions (E&O) claims show patterns, common circumstances from which issues arise. Among these are insuring vacant structures and responding to a client’s claim denial. Here, Utica National offers insight – and lessons learned – about how to handle these situations with caution.

VACANT STRUCTURES E&O claims involving vacant structures are on the rise. It is common for clients to blame their insurance agent when a carrier denies coverage for a claim based on the insurance contract’s vacancy

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exclusion. In most cases, the agent is unaware that a residential or commercial structure is unoccupied or vacant when placing coverage for a specific risk.

Insurance agents can take these easy yet important steps to avoid getting caught in the “vacancy vacuum”: • Verify the intended use of your client’s property and confirm it in writing.

• Do not write standard HO-3 policies for vacant structures.

SEPTEMBER 2016

• On commercial properties, make sure the coverage does not exclude vacancy.

• Advise the carrier’s underwriter that you need coverage for a vacant structure. Some insurers will simply eliminate the vacancy provision under an insurance contract with an endorsement.

Other carriers will write coverage under a manuscript policy.

• Important! Some vacancy policies will not afford coverage for theft or vandalism losses.

Identifying a potential vacancy exposure and writing coverage for this risk with the proper coverage form will go a long way toward eliminating E&O claims involving vacant structures.

• Anticipate that your client will make a claim against the agency.

Carefully document all discussions and interactions among the agency, client, and carrier.

CLIENT CLAIM DENIAL A claim denial can be stressful for your client. As the agent, you have some responsibility to assist your client through this difficult time by answering questions, advocating for them, and providing good advice. Keep the following dos and don’ts in mind.

DON’T

DO

• Disclose your file to your client, the carrier, or any third party. Contact your E&O carrier or corporate counsel first.

• Contact your client. Help your client understand the basis for the claim denial. Carrier denial letters often contain facts pertaining to the claim and excerpts of policy language supporting the denial.

• Review the facts on which the carrier is relying with your client.

Are the facts correct? Is there additional information the carrier should know? If so, promptly communicate this information to the carrier.

• Review the policy and the specific language that the carrier is relying on. Was the carrier right in disclaiming coverage? If you have questions, press the carrier for additional information about why the claim was denied to ensure that the rationale for the denial is clear.

• Admit any liability or errors to your client or to the carrier.

Statements admitting or even suggesting a mistake was made by the agency could be used against the agency in a lawsuit by the client or carrier.

By following these simple tips, you will be better prepared to assist your clients as they navigate the turbulent waters of a claim denial while protecting yourself and your agency. n

The Utica National E&O Program supplied this article. Our sales center is the exclusive agent for the Utica E&O program in Delaware, Maryland and Pennsylvania.

For questions regarding this article or your E&O coverage, contact IA&B at 800-998-9644 or IAB@IABforME.com.

• Admit or suggest to your client or to the carrier that the policy should have provided coverage.

E&O: THE MORE YOU KNOW LEARN MORE about common causes of E&O at “Mistakes that Lead to E&O,” coming to Baltimore on Sept. 27. The class provides 6 PC credits, plus it is approved for loss-control credit for Utica policyholders.

IABforME.com/E&Oseminars

• Review the claim denial internally.

Was the denial the result of a potential error by the agency? If so, consider whether the incident should be reported to the agency’s E&O carrier.

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COVERAGE CORNER

BAD FAITH ACTION AGAINST THE INSURER AND PUNITIVE DAMAGES

By Jerry M. Milton, CIC

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n Wolfe v. Allstate Fire & Casualty Insurance Co. the Third Circuit, interpreting Pennsylvania law, held that punitive damages awarded against an insured may not be recovered in a later breach of contract or bad faith suit against the insurer.

Allstate’s insured rear-ended the plaintiff while under the influence of alcohol.

Allstate’s policy provided liability coverage of $50,000. The plaintiff made a settlement demand to Allstate for $25,000, based on medical records

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provided by Allstate’s adjuster. Allstate presented the plaintiff a counteroffer of $1,200, which the plaintiff rejected. After the plaintiff filed suit, Allstate warned the insured that if the damages at trial exceeded the $50,000 policy limit, the insured would be personally responsible for the excess portion of the award.

During the course of the litigation, the plaintiff learned of the insured’s intoxication and amended his complaint to include a claim for punitive damages.

Allstate informed the insured about

SEPTEMBER 2016

the potential for punitive damages and reminded him that those damages were not covered under his policy.

Throughout the course of litigation neither party moved from its initial offer or demand, and the case moved to trial. At trial the jury awarded the plaintiff $15,000 in compensatory damages and $50,000 in punitive damages. Allstate paid the compensatory damages award, but not the punitive damages award. In return for the plaintiff’s agreement not to enforce the

punitive damages judgment against him personally, the insured assigned his rights against Allstate to the plaintiff.

The plaintiff then filed a suit against Allstate, alleging they breached their contract and acted in bad faith. Prior to trial, Allstate filed a motion to bar evidence of the punitive damages award in the underlying trial as damages in the bad faith suit, since Pennsylvania law prohibits an insurer from paying a punitive damages award.

The District Court denied Allstate’s motion, but the Third Circuit reversed the District Court’s decision, predicting the Pennsylvania Supreme Court would conclude “in an action by an insured against his insurer for bad faith, the insured may not collect as compensatory damages the punitive damages awarded against it in the underlying lawsuit.”

Furthermore, the Third Circuit held “an insurer has no duty to consider the potential for the jury to return a verdict for punitive damages when it is negotiating a settlement of the case.”

Imposing such a duty, the Third Circuit stated, would result in making the insurer responsible for punitive damages, which are not insurable under Pennsylvania law.

damages award was paid by Allstate, and therefore the insured suffered no harm.

The District Court denied Allstate’s motion to dismiss the breach of contract claim. The Third Circuit affirmed the District Court’s denial, noting that an insurer “can still be liable for nominal damages for violating its contractual duty of good faith by failing to settle.” The Third Circuit further upheld the District Court’s denial of summary judgment on the statutory bad faith claim as the statute makes no requirement that the plaintiff be entitled to damages for the insurer’s bad faith to bring such a claim.

This holding reflects the intention of the statute, which is intended to deter insurance companies from engaging in bad faith practices and not compensate injured insureds.

This ruling affirms that, in Pennsylvania, an insured “does not need compensatory damages to succeed on a statutory bad faith claim, which only permits recovery of punitive damages, interest and costs.”

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.

SP E C I AL I Z E D C O V E R AG E F O R

The Third Circuit granted Allstate a new trial on the bad faith claim, in which the plaintiff was barred from presenting evidence relating to the $50,000 award in punitive damages. However, the plaintiff was allowed to seek compensatory damages based on any injuries other than the punitive damages award.

Allstate also filed a motion for summary judgment on the breach of contract and bad faith claims prior to trial. Allstate argued that once the punitive damages award was removed from the plaintiff’s claim, the case should be dismissed because the $15,000 compensatory

Agricultural Insurance Management Services Bow, NH 877.552.2467 • www.aimscentral.com Underwritten by member companies of Great American Insurance Group, 301 E. 4th St, Cincinnati OH 45202

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STATE NEWS

MIA ADOPTS OUR PIP WAIVER FORM SUGGESTION Agents and carriers alike avoided a potentially time-consuming complication when dealing with their auto insureds.

The Maryland Insurance Administration (MIA) in July released a bulletin stating that if an insurer, other than the Maryland Automobile Insurance Fund (MAIF), elects to not offer the newly enacted option of a full rejection of PIP benefits to its qualified applicants and policyholders, the insurer may continue to utilize the current PIP waiver form.

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.

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SEPTEMBER 2016

OUR ADVOCACY This bulletin comes on the heels of a recent stakeholders’ meeting during which the MIA unveiled a new draft form which includes not only the notice and acceptance/waiver of PIP benefits but also the option to fully reject coverage. While MAIF is required under the new law to offer the rejection of coverage option, other carriers are not.

Understanding that many carriers are choosing, at least initially, not to make this change to their operating system, we suggested that the draft form on which the MIA requested comments be accompanied by an enforcement policy that expressly permits carriers to continue using existing forms if they choose not to adopt the powers granted under the new law.

We argued that while agents are accustomed to explaining to current and prospective insureds both full PIP and limited PIP benefits, the draft form introduces a new and potentially confusing element to that discussion which should not be necessary if a carrier has not elected to provide that option.

BACKGROUND Senate Bill 784, passed by the state legislature earlier this year, was part of a package of legislation that sought to address the state’s uninsured motorist problem. Under SB 784, a MAIF applicant has the option to reject PIP coverage only if he or she has not been insured continuously by MAIF for at least one full year prior to the application.

Other insurers may offer a first named insured, at the time of application, the option to reject PIP coverage only if his or her prior insurance policy (1) was not a MAIF policy and (2) was canceled by the insurer before the end of the policy’s term.

This legislation, which takes effect on Oct. 1, 2016, was intended to provide a way for a certain subset of motor vehicle liability insurance applicants to lower their premiums, making coverage more affordable.

MORE MARYLANDERS ELIGIBLE FOR REDUCED FLOOD INSURANCE PREMIUMS City of Baltimore residents now receive a 25 percent reduction on eligible National Flood Insurance Program (NFIP) premiums. This equates to an average savings of $213 annually per policyholder.

The premium reduction is a benefit of the Community Rating System (CRS), a voluntary incentive program that encourages floodplain management that exceeds minimum NFIP requirements.

CRS participation requires local officials to meet three goals: 1) reduce flood losses, 2) facilitate accurate insurance rating, and 3) promote awareness of flood insurance.

The City of Baltimore joins 11 other Maryland communities that currently are participating in the CRS program: • Town of Bel Air • Caroline County • Carroll County • Cecil County • Dorchester County • City of Frederick • Harford County • City of Havre de Grace • Howard County • Town of Ocean City • Prince George’s County The program includes 10 different class rating levels based on the number and type of activities initiated by the community.

For each class that a community moves up, it provides its residents with an additional 5 percent reduction of their flood insurance premiums. The City of Baltimore is a Class 5 community, hence the 25 percent reduction.

UNDERSTANDING FLOOD INSURANCE Learn more about the intricacies of the NFIP and how to help your customers properly assess their flood risk by attending our newly updated “Understanding Flood Insurance” seminar. One opportunity remains to hear our resident flood insurance expert, Rita Hollada, CIC, CPCU, CPIA, teach the program: Thursday, Sept. 15 in Baltimore.

IABforME.com/flood2016

MARYLAND CLOSES NEARLY 400 FRAUD CASES IN FIVE YEARS Maryland insurance fraud sanctions netted over $1 million in penalties, fines and restitution in the past five years.

The Maryland Insurance Administration (MIA) this summer released fraud-related statistics for the past five years: 104 civil and 293 criminal sanctions.

Of note, the number of civil fraud orders rose consistently since the MIA received authority to issue them in late 2012.

During calendar year 2013, there were four civil orders; in 2015, there were 40.

The MIA press release espoused the agency’s investigative work and encouraged the public to report suspected insurance fraud.

WELCOME NEW MEMBERS CONSTRUCTION RISK SOLUTIONS LLC Hunt Valley, Md.

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PLATINUM PROFILE

UFG: A FINANCIALLY STRONG AND TRUSTWORTHY INSURANCE COMPANY

I

nsurance can be complex. But, when you look beyond the complexity of insurance — the rates, coverages, regulations and guidelines — the insurance business is simply about trust, as stated by Iowa-based insurer United Fire Group (UFG).

Founded in 1946, UFG is a successful and growing multibillion-dollar-asset insurance company, dedicated to protecting people and earning their trust, with every policy issued and every claim resolved.

“We’ve built our company on the foundation of trust, because we know that trust matters — to our insurance agents, policyholders, employees and shareholders — who have all invested in UFG, whether it’s in the form of a partnership, insurance protection, a career or shares of stock,” said UFG President and CEO Randy Ramlo.

UFG offers commercial insurance, personal insurance, life insurance, annuities and surety bonds through a select group of approximately 1,200 independent property and casualty insurance agents and 1,250 independent life insurance agents across the country.

With a UFG workforce of nearly 1,100 employees working at its corporate headquarters in Cedar Rapids, Iowa, and five regional offices, the company delivers exceptional protection and services to thousands of policyholders throughout the United States.

INDUSTRY RECOGNITION

UFG believes its success over the years comes from simply doing business the right way and treating people the right way — and this uncompromising commitment to conservative financial management and ethical business practices hasn’t gone unnoticed in the industry.

In 2015, UFG was named one of “America’s 50 Most Trustworthy Financial Companies” by Forbes for the second year in a row and awarded the Integrity Award from the Iowa Better Business Bureau.

More recently, UFG was named a “2016 Premium Player” by Sandler O’Neill + Partners, for consistently demonstrating exceptional growth and profitability,

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Insurance Agents & Brokers proudly recognizes United Fire Group (UFG) as one of its Platinum Partners. IA&B Platinum Partners dedicate the highest level of sponsorship to our organization.

and our parent company, United Fire & Casualty Company, earned recognition as a Super Regional Property/Casualty Insurer™

by Insurance Journal in 2016 for the 11th consecutive year.

Also, in a third-party research study conducted by Vernon Research Group this year, 99 percent of UFG insurance agents surveyed said that an insurer’s trustworthiness is important and the agents rated UFG as a trustworthy insurance company.

“As part of our corporate vision, we always aim to be a trusted partner for our insurance agents, as well as a secure insurer for our policyholders, a great employer for our people and a solid investment for our shareholders,” said Ramlo.

THE CUSTOMER EXPERIENCE

UFG agents and policyholders appreciate UFG’s commitment to exceptional claims service — paying what is owed quickly and efficiently—and beneficial loss control services — reducing the frequency and severity of losses. “Ease and speed of doing business are our goals at UFG, and making our customers’ lives easier guides our service philosophy,” added Ramlo.

Though UFG has always prided itself on its high level of customer service, the company understands the importance of delivering an overall great customer experience at every single touchpoint — from their emails and phone calls to their websites and printed materials.

“A helpful attitude and pleasant demeanor go a long way when assisting a customer, but the customer experience goes far beyond that,” explained Ramlo. “We understand that we have to think from the viewpoint of our agents and policyholders when developing our products and services, putting their needs ahead of our own.”

Throughout its 70 years in business, UFG has proven itself to be an insurer that stands by its words and makes good on its promises, rightfully earning its reputation as a financially strong and trustworthy insurance company. n

SEPTEMBER 2016

FOCUSED ON RESULTS FEATURED PARTNER United Fire Group (UFG) PRESIDENT & CHIEF EXECUTIVE OFFICER Randy Ramlo HOME OFFICE Cedar Rapids, Iowa EAST COAST REGIONAL OFFICE Pennington, N.J. 1-800-223-0534 A.M. BEST RATING "A" (Excellent) WEBSITE www.ufgins.com

PARTNERS PROGRAM

Listed below are those companies that strongly support the independent agency system and Insurance Agents & Brokers.

Thank you for your continued sponsorship.

WHAT IS IA&B PARTNERS? The IA&B Partners program gives company and allied businesses the opportunity to demonstrate their commitment of support to independent agents and receive maximum market exposure. As an IA&B Partner, you will also realize the benefits of IA&B membership to help you succeed in the insurance industry.

PLATINUM LEVEL

BRONZE LEVEL

ACUITY

Aegis Security Insurance Co.

Amerisafe

Agency Insurance Company

Berkley Mid-Atlantic Group

AmWINS Program Underwriters Inc

Donegal Insurance Group Erie Insurance Group Insurance Agents & Brokers Service Group Inc Liberty Mutual Insurance

Auto-Owners Insurance Company Bailey Special Risks Inc Berkshire Hathaway GUARD Insurance Companies Brethren Mutual Insurance Company Briar Creek Mutual Insurance Company

MAPFRE Insurance

Conemaugh Valley Mutual Insurance Co

MMG Insurance Company

Countryway Insurance Company

Millers Mutual Group

Encompass Insurance

Mutual Benefit Group

GMI Insurance

Nationwide

Goodville Mutual Casualty Company

Penn National Insurance

Grinnell Mutual Reins Company

Swiss Re The Main Street America Group

HM Workers’ Compensation Insurance Alliance of Central PA Inc Insurance House

DO YOU SEE YOUR NAME?

United Fire Group

GOLD LEVEL

Merchants Insurance 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

Mercury Casualty

Westfield Insurance

Millville Mutual Insurance Co

Utica National Insurance Group

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

PennPRIME Municipal Insurance SILVER LEVEL

Cumberland Insurance Group Farmers Mutual Insurance Company of Western Pennsylvania Frederick Mutual Insurance Co

Reamstown Mutual Insurance Company Rockwood Casualty Insurance State Auto Mutual Insurance Company Strategic Comp TAPCO Underwriters Inc 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

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THE

AGENCY-

RELATIONS 3 WAYS TO MAKE IT WORK

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SEPTEMBER 2016

-COMPANY

SHIP

By Chris Burand

A company’s support of an agency goes a long way to building trust and, in the end, financial benefits for everyone involved.

On the following pages, agency consultant Chris Burand shares what he has seen work well – and not work at all – in the agencycompany relationship.

Question: What is the key to profitable insurance company growth?

Answer: Great relationships with agencies.

Magazine headlines tout that one strategy or another is necessary for insurance company growth, but after two decades as an agency consultant, my experience says the key to a company’s growth is their relationship with agencies. I’ve seen how most companies work with agencies – I’ve seen the good, the bad and the ugly.

Based on observation and an insider’s eye as an agency consultant, there are a handful of carriers that I believe have excellent relationships and reputations with agencies. To test whether developing a quality relationship with agencies has an impact on company performance, I decided to calculate the average growth of each of my top picks over the past five years.

The carriers I believe had worked to have good relationships with agencies had a median five-year growth rate of 76.5 percent. An industry listing of the top 90 carriers shows a median five-year growth rate of 57.7 percent. My picks performed better because, I believe, the agents that work on their behalf, work harder for these companies.

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The carriers I chose as top-picks continually score high in every survey of insurance companies. At any given time, they may not be the “hottest� company with the lowest rates, but to me that says even more. Agents are helping these companies grow, yet it is not because the companies offer the lowest prices. Agents are selling these companies based on integrity, trust and relationship.

Each carrier I selected has a high A.M. Best rating. Each is known for treating agents well. Each works to have a great relationship with an agency.

I have asked hundreds of producers and CSRs, when price and coverages are fairly equal, how do they decide which company to place their business with. Nearly every time, the answer is relationship. This does not mean that they are friends with the company or that they get free tickets to football games and concerts. Instead, they define a good relationship as one of trust – trust that the company will follow through on its promises; trust that it will act timely and work to resolve difficulties; trust that the company will be fair. These companies are willing to try to find a way to make a risk acceptable versus focusing solely on underwriting rules.

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Companies and agencies can both grow faster and more profitably when a strong and trusting connection exists.

SEPTEMBER 2016

It’s a fairly simple concept. No fancy marketing is involved, very little expense is incurred. In fact, most of these companies have fairly small advertising budgets. Yet interestingly, few insurance companies generate this kind of trust. Many companies may claim to do all the things agents and CSRs value, but if they truly did, more than a handful of selected companies would be on my list of top picks and more would be growing quickly while maintaining high ratings. In reality, many talk the talk, yet few walk the walk.

FAIR GOALS A simple example of how companies can say all the right things yet destroy meaningful trust occurs when companies establish agency “growth goals.” Several companies mandate significant growth levels as part of their contingency contracts. Inflexibility with those goals can jeopardize the agency/company bond because it makes no sense to demand 10 percent growth, for example, in a soft market. It creates resentment and may result in disrespect between the company and the agency. It weakens any sense of trust or good will.

Insurance companies, as well agents, face difficult growth in a soft market, and requiring agents to grow their business significantly when a company cannot grow itself is hypocritical.

Leading by example is inspirational and builds trust. Leading by force, while personally not contributing to the desired result, does not. For example, when an insurance company CEO is paid very well while his or her company achieves negative growth and the company’s agencies receive $0 in contingency bonuses when their premiums decline by as little as $1, that company’s agents are not going to help the company grow in the future.

On the flip side is an example from one of my favorite insurance carriers. This carrier discovered they had made a mistake in their contingency check disbursements. None of the agents were aware of the mistake. Nevertheless, after recalculating the contingency amounts, this company delivered new checks, of significant sums, to those agencies affected. No agent would have been the wiser if the company had simply kept the bonus to themselves, yet the company knew of the error. That was all it took. That is what builds agency trust and allegiance.

SUPPORTING THE AGENCYCOMPANY RELATIONSHIP UNDERSTANDING THAT agency agreements are at the crux of agency-carrier relationships, we recently unveiled a new (voluntary) process to review contracts.

How it works An interested company submits its proposed agreement for review ahead of release. After we review the draft agreement, we talk with company reps about their goals and rationale and provide the agents’ perspective in return.

This allows the company to secure a Seal of Approval from IA&B showing that, in our eyes, the agreement comports with industry standards under the American Agency System. If it does not, having knowledge of potential issues allows the company to anticipate and address any ambiguous or nonstandard provisions of the agreement before it’s presented to the independent agency community.

What it means for you Please note that the Seal of Approval is not a substitute for reading the agreement. Agents should always read their agency agreements, which should outline and define items that need to be incorporated in their agency practices, including the extent of their authority (think binding, certificates, premium payments, etc.), how much E&O they should carry or to what extent they agree to indemnify the carrier.

Agency agreements also describe essential rights, such as book ownership, that unwittingly could be contractually relinquished if the agreement is reviewed casually or not read at all.

IABforME.com/agency_agreements

EMPOWERED STAFF Many of the best companies empower their underwriters, giving them authority and responsibility for growth. This puts the company’s interest and the agency’s interest on the same page.

When a company employee’s goals do not mesh with their agents’ goals, situations are created in which management and

15

underwriters are rewarded for actions that are not beneficial to the agent. But when everyone has the same clear goal of creating profitable growth, partnerships are built.

If a company does not have good agency relationships, their loss ratios are usually not as favorable. With investment incomes being equal, poor loss ratios mean that companies cannot make an adequate profit without cutting expenses.

That can translate into lower salaries for employees, less qualified employees being hired and fewer happy, committed agents who will deliver growth.

Companies and agencies can both grow faster and more profitably when a strong and trusting connection exists.

Companies that foster that kind of partnership and reputation are living proof that such a simple strategy is immensely successful. What are the growth strategies of your carriers?

What type of relationship do you have with them? What level of trust and confidence exists? Is it a little or a lot?

If it’s a little, you have to ask whether maintaining such relationships make any sense. Do they? n

When the company/agency relationships are good, loss ratios will likely be great.

The companies I favor have a median pure five-year loss ratio of 55.7 percent!

This is great! When a company achieves excellent loss ratios, they can spend more on experienced and good underwriters and marketing reps. When a company has good underwriters and marketing reps, agencies can place more business with a company. This enables the company and the agency to grow faster.

It’s a win/win across the board.

PRODUCER SUPPORT A third example of how to build good company/agency relationships is to help agencies grow through producer development and marketing programs.

Many companies abandoned these programs because they felt there was little payback from the investment. This was a smart move if agents did not have much of a relationship or level of trust with these carriers. But, such programs can add considerably to the relationship if a strong base is established first.

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Chris Burand is president of Burand & Associates, LLC, an insurance agency consulting firm. Readers may contact Chris at (719) 485-3868 or at chris@burand-associates.com.

NOTE: None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. We have never and would not ever recommend that an agent and/or agency implement a policy of or otherwise advocate increasing its contingency income ahead of the insureds’ interests.

Regulated individuals/entities should also ensure that they comply with all applicable laws, rules and regulations.

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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4

18

WAYS TO FIND

COMMON

GROUND BETWEEN

AGENTS AND UNDERWRITERS

By Brent Kelly

The relationship between insurance agent and underwriter is critical. Both parties are vital to each other’s success, yet oftentimes, the agent/underwriter relationship is strained.

W

hy the strain? There could be countless reasons, but ultimately many agents feel that their underwriters make their lives more difficult by asking for additional information, not providing a competitive price, or just plain make it a challenge to make sales.

Although it may seem that some underwriters don’t want to write business or overanalyze basic risks, they have a tough job to do. They want to write business, but equally important, they want to write profitable business.

No, underwriters are not all the same, and some are better than others. But if you want to be a successful agent, establishing a positive relationship with your underwriter is critical.

I asked one of my company marketing representatives to ask her team of underwriters a basic question, “What can agents do to help their underwriters write more business?” It is straightforward question, but four basic themes developed that I think can help all agents improve the relationship with their underwriters.

1) COMMUNICATION Insurance agents typically are terrific communicators with their prospects and customers. However, agents often overlook the importance of maintaining a clear channel of dialogue with their underwriters. Here are some tips on how you can improve your communication with underwriters.

Be crystal clear using email. Email can be a great communication tool. It’s fast, easy, but can also lead to ambiguity and misunderstanding. When using email, specify what it is you want accomplished and provide all of the pertinent information. Also, emails do not pick up the tone of

19

Insurance is a team sport. Not only do you need a great service and support team, but you need a great underwriting team.

your voice and can be taken the wrong way. I love sarcasm, but if my email recipient does not understand my humor, funny can turn into angry.

Pick up the phone. How many times have you been involved in an email conversation with multiple replies? Most of the time, one phone call would have saved you time and frustration.

If you receive a memo or email from an underwriter that you don’t understand, pick up the phone and call that underwriter.

2) PATIENCE Agents want to get things done now if not sooner. That is a trait that can help you succeed, but it can also cause strain with your underwriter.

Ask for a reasonable response time.

Often, an underwriter receives hundreds of phone calls and emails per day and will get back to you as soon as they can.

Believe me, they are not ignoring you, just working as fast as they can to get to everyone. Underwriting goes through cycles, so sometimes they may be able to respond quickly and other times they may be behind. If they’re behind, try to be patient.

While there are times when underwriters will respond slower than necessary, but that is the exception, not the rule. Having clear communication up front will help set expectations and make sure everyone is on the same page.

20

3) BE A FRONTLINE UNDERWRITER As an agent, your job is not only to write new business, but also be the first line in underwriting.

Know the risk. In property and casualty insurance, look at properties before submitting them. Understand the risk you are trying to write as much as possible. Verify with underwriting prior to submission if it is something the company wants to write. This will save you and your underwriter time.

Use technology. Check your prospect’s website. That is the first place an underwriter will go so make sure you know what your prospect’s website contains. If you are unsure of how to best rate or complete the application while quoting, call underwriting; don’t just guess. Collect as much information as possible before submitting the account.

Nothing is worse than selling an account and having the company issue/cancel or increase in price because the information wasn’t 100 percent accurate.

4) THINK TEAM Insurance agents can think of themselves as conquerors. High-achieving agents are goal driven, highly competitive and focused. Those are fantastic traits, but insurance is a team sport. Not only do you need a great service and support team, but you need a great underwriting team.

SEPTEMBER 2016

Make sure you share this approach with your underwriter. When you win, they win. Make sure you acknowledge and show appreciation for your underwater when they help you land that new account.

Just like your prospects and clients, underwriters want to do business with those agents they know, like and trust.

THE BOTTOM LINE Building and maintaining a strong relationship with your underwriters is vital for success. You need to nurture these relationships just as you do with your prospects and customers.

It takes an effort to do the things necessary to establish credibility and respect with your underwriters. However, that effort will result in writing better and bigger business for your agency. n

Brent M. Kelly, CEO of BizzGrizz Training, wrote this article. For more, visit brentmkelly.com.

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Jeff Teschke Founder and CEO, Forge3 Ltd., a digital marketing firm based in Bethlehem, Pa., Jeff will talk about using the Web and social media for lead nurturing, sales closing and relationship building.

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Read more at IABforME.com/FuturesConference Deadline to register, Sept. 8 21

CARRIER-AGENCY TECHNOLOGY AG R E E M E N T S 10 CONSIDERATIONS FOR INCLUSION By the ACT Technology Agreements Work Group

22

O

ver a decade ago, Agents Council for Technology (ACT) published recommendations on agency-carrier technology agreements that looked at a range of issues, from data access and integrity to document retention, third-party information and more. Much has changed since that report.

And more change is on the way. This led a work group of ACT volunteers to take a fresh look at carrier-agency contracts – those that incorporate technology and those that address it as a standalone topic – and to publish updated guidelines.

Prompt correction of data and system errors: Either party must immediately notify the other when they find incorrect info in the system, and the responsible party must make prompt corrections.

Many issues the work group addressed often are not contemplated during the busy-ness of day-to-day operations. It’s kind of like insurance: You don’t think about it until something happens, and then it’s the most important thing in your life.

Failure of both carriers and agencies to make sure there’s clarity on technology issues up-front can lead to significant problems down the road – for them and their customers.

Agency agreement controlling document: Significant inconsistency currently occurs from agreement to agreement.

Recommendations offer guidance on form, timing issues, duties and an array of content-related topics.

The ACT work group identified key overarching principles that govern agreement language and details. These include: addressing technology as an addendum to a broader agency agreement; establishing the agency agreement as the controlling document; handling data ownership and expirations in the main agency agreement and addressing retention and systems of control in the tech addendum; and ensuring that negligent parties bear responsibility for resolution.

The group also identified and offered guidance on 10 specific issues that agreements should address: E-signatures: Significant growth in the use e-signatures calls for clear understanding of procedures and policies, particularly around integration, characteristics of identity, consent, disclosure, and audit trail.

Click-through/Clickwrap agreements: These on-screen license agreements typically are one-sided and “signed” only by parties against whom terms will be enforced. Recommendation to not use these for agreements between carrier and agency.

Single sign-on/federated IDs: As vendors implement single sign-on and the industry moves toward ID Federation, agreements need to address access restrictions and administrative responsibilities of both parties.

Data breach: It’s important to spell out notification responsibilities and incorporate “hold harmless” and other language that addresses what happens for both parties – carriers and agents – when a data breach occurs. And we know one will!

Telematics: Carriers should provide agents and brokers with clear education, direction and access to available telematicsgenerated data and procedures to ensure responsive agency- and carrier-driven customer service.

Access by authorized users: Carrier policy on website access and definitions of user and permitted use must be clear, as should processes for granting access and responsibilities for misappropriation or misuse of information.

Use of data by third parties: Use of third-party information and disclosure of customer information to third parties should be addressed, as should use of click-through and clickwrap agreements for customer access.

Access to data by active & terminated agency: Agencies that terminate their agreements still need access to their data – including policy information and full activity logs. The recommendations set out considerations for this.

The work group created a six-page document, “Summary Review of Agency Agreements for Technology Content” (available from independentagent.com/ACT), which reviews these critical and emerging issues. A section for each briefly discusses how agreements should address the topic and, more importantly, offers guidance for contractual improvement.

It is in the best interest of carriers, agencies and their business partners to understand the issues and to address them now, before a problem arises. n

This synopsis was provided on behalf of the Agents Council for Technology (ACT) Technology Agreements Work Group.

To learn more about ACT or to view the complete “Summary Review of Agency Agreements for Technology Content,” visit independentagent.com/ACT.

23

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SEPTEMBER 2016

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

My Events

SOUTHEAST PA PRODUCERS & AGENCIES

SEPTEMBER 2016 DATE TOPIC

LOCATION

SEPTEMBER 2016 7

William T. Hold: Choices for Commercial Coverages

Pittsburgh, Pa.

12-15

CIC Commercial Property Institute

Harrisburg, Pa.

13

William T. Hold: Choices for Commercial Coverages

Altoona, Pa.

13

Who, What, When, Where & Why of Workers’ Comp

Mechanicsburg, Pa.

13-15

Property & Casualty Licensing Study Course

Pittsburgh, Pa.

14

Who, What, When, Where & Why of Workers’ Comp

Philadelphia, Pa.

15

Understanding Flood Insurance

Baltimore, Md.

15-16

Futures Conference

Philadelphia, Pa.

20

E&O Risk Management: Meeting the Challenge of Change

Pittsburgh, Pa.

20

*CPIA: Position for Success

Philadelphia, Pa.

21

Contracts & Leases Seminar

Mechanicsburg, Pa.

21

*CPIA: Implement for Success

Philadelphia, Pa.

22

*CPIA: Sustain Success

Philadelphia, Pa.

23

Who, What, When, Where & Why of Workers’ Comp

Pittsburgh, Pa.

26-29

CIC Commercial Casualty Institute

Erie, Pa.

27

CISR Commercial Casualty II

Philadelphia, Pa.

27

Mistakes that Lead to E&O

Baltimore, Md.

28

CISR Commercial Casualty I

Mechanicsburg, Pa.

28

Who, What, When, Where & Why of Workers’ Comp

Allentown, Pa.

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

NEW SPECIAL TOPIC SEMINARS The Who, What, When, Where, and Why of Workers' Comp State workers' compensation laws, while similar in many of their provisions, are different as to who is covered by the law, where they are covered and the benefits paid. This course will discuss in detail all aspects of workers' comp laws and coverage, including the classification system and the experience rating plan.

September 13, Mechanicsburg, Pa. September 14, Ft. Washington (Phila.), Pa. September 23, Pittsburgh, Pa. September 28, Allentown, Pa. Directors & Officers and Professional Liability — the Buck Stops Where?

Directors and Officers (D&O) Liability insurance provides financial protection for the leadership of a company in the event they are sued for a breach of their duties. This course will review the duties of directors, officers and professionals, plus the provisions of most D&O Liability and Professional Liability policies.

October 5, Newark, Del. November 2, Mechanicsburg, Pa. November 3, Ellicott City, Md. November 16, Bethlehem, Pa. Read more and register at IABforME.com/SpecialTopics

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