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wArd-winning A 

Winter 2016 • Tennessee edition

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Winging it Not an option in disaster preparedness

InsIde thIs Issue 9

UVAs

13

E&O and the NFIP

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Disaster preparedness And more …


Stepping Forward to Serve Clients MidSouth Mutual has provided quality Workers’ Compensation insurance and services to agents and their clients since 1995. Every step of the way, the company has moved forward to provide exceptional service and expanded coverage areas across the Southeast.

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Electricians

Framers

Insulation

Dozing Services

Plumbers

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Departments Winter 2016 • Tennessee edition

04 In brief 09 Tech 13 Case law 27 Sales 30 Readers’ service and advertising index 31

Officers and directors directory

Cover story 16 Winging it Not an option in disaster preparedness

Feature 23 Disaster preparedness What employees need to know

Statements of fact and opinion in PIA magazine are the responsibility of the authors alone and do not imply an opinion on the part of the officers or the members of the Professional Insurance Agents. Participation in PIA events, activities, and/or publications is available on a nondiscriminatory basis and does not reflect PIA endorsement of the products and/or services. President and CEO of PIA Management Services Inc. Mark LaLonde, CPIA, CIC, AAI; Executive Director Kelly K. Norris, CAE; Communication Director Mary E. Christiano; Senior Magazine Designer Sue Jacobsen; Member Information Manager Jaye Czupryna. Postmaster: Send address changes to: Professional Insurance Agents of Tennessee, 504 Autum Springs Court, Suite A-3, Franklin, TN 37067. “Professional Insurance Agents” is published quarterly by PIA Management Services Inc. PIA Management Services, 25 Chamberlain St., P.O. Box 997, Glenmont, NY 12077-0997; (518) 434-3111 or toll-free (800) 424-4244; email pia@pia.org. ©2016 Professional Insurance Agents. All rights reserved. No material within this publication may be reproduced—in whole or in part—without the express written consent of the publisher.

Cover design Roberta Lawrence


In brief

platinum partner profile

Johnson & Johnson Charleston, South Carolina (800) 487-7565 www.jjins.com

Doing business in Alabama, Connecticut, Delaware, Florida, Georgia, Maine, Maryland, Massachusetts, Mississippi, North Carolina, New Hampshire, New Jersey, Pennsylvania, Rhode Island, South Carolina, Tennessee, Virginia and Vermont.

Senior executives Francis Johnson, president Harry Johnson II, chief operating officer Peter M. Burrous, chief marketing officer Steven Craig, chief financial officer Frank Zanin, treasurer

History Johnson & Johnson is a full-service managing general agency that was founded in 1930. Johnson & Johnson provides insurance solutions to its valued agency partners east of the Mississippi, from the Deep South to the Northeast. J&J’s product lines include personal lines, commercial lines and premium financing. Supported by a staff of professional underwriters, each production department offers markets, which are tailored to the specific needs of the independent agent.

Philosophy Johnson & Johnson philosophy is: “Johnson & Johnson is the No. 1 choice for providing insurance solutions.

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Our business is built on a foundation of long-term relationships with our agents and companies. We are a technology and service driven sales organization committed to writing business with our agency partners. We are embedded in their communities with marketing representatives, regional sales vice presidents and local underwriters. This allows J&J to understand the needs of our agency partners better and allows us to help them grow their business. We are a family of highly trained insurance professionals recognized as industry leaders. Our commitment to continuing education enables our staff to service day-to-day business and to craft creative solutions for difficult accounts. Long-term relationships with our agency and company partners provide a solid foundation for our future.”

Appetite Personal lines include habitation, flood (excess and private flood), manufactured homes, high-value homeowners, marine & recreation. Commercial lines include excess & surplus property/ casualty, standard, professional, workers’ compensation, transportation and brokerage. Premium financing includes our full-service finance company and will finance all policies, not just those written through J&J.

Professional Insurance Agents magazine


platinum partner profile

Progressive 6300 Wilson Mills Road

Profile

Mayfield Village, Ohio

Over 75 years, we’ve learned that the needs of independent agents are as diverse as agents themselves—and we’ve grown by meeting the changing needs of more than 38,000 agents and their customers every day. We built our company as a go-to for under-served segments.

www.progressive.com/agent

Senior executives Tricia Griffith, CEO John Barbagallo, commercial lines president Patrick Callahan, personal lines president

Tennessee staff Jeff Scovell, regional sales manager Carrie Poindexter, regional sales manager David Benchabbat, senior account sales representative Robert Cannon, senior account sales representative Will Haddix, account sales representative Joe Shriver, inside account sales representative

Over time, we’ve earned your trust as the No. 1 carrier for a broad range of personal auto risks, as a specialized offering for your RVs, boaters, bikers and business owners, and more recently, as a destination for your most complex bundled households. We help you keep your promises by always keeping ours, operating consistently from our Core Values (which can be viewed here: progressive.com/progressive-insurance/ core-values/) and delivering intuitive technology, claims and service excellence, marketing support for your local brand, and a national name your customers know and trust. We’re proud to serve independent agents by making insurance a little better every day, and we’re proud to have independent agents like you representing our brand in your community.

www.piaTN.COM

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FYI

Disaster checklist To make sure it functions to the best of its ability, your professional, independent insurance agency has many different plans (e.g., daily operations; budgets; shortterm and long-term goals; growth plans; perpetuation/ succession plans). To start any plan, you need to ask yourself the right questions. Before you develop your agency’s disaster preparedness plan, you (and your agency’s disaster team) should ask yourself these questions: ‰‰ What type of plan does your local government/ municipality have in place in the event of a disaster? ‰‰ What type of plan does each of your insurance carriers have in place in the event of a disaster? It’s best to make sure your procedures complement each other to make the claims and other processes go as smoothly as possible. ‰‰ Consider coordinating your disaster preparedness plan with those businesses around you to avoid gridlock, should you be required to evacuate unexpectedly. ‰‰ How will you protect your office equipment? ‰‰ How will you back up your computer system and office and client data (e.g., off-site backups, cloud computing, satellite internet capabilities)? ‰‰ Where will you store emergency supplies? ‰‰ Where will you go if you need to evacuate? ‰‰ What will you do if you are unable to return to your office? ‰‰ Do you have an agreement with another business in a different geographical location, where you can go and perform your daily business functions, in case you cannot access your office location? ‰‰ How will you communicate with your employees, your insureds, your insurance companies, your vendors, your community and your local media? ‰‰ Who has the authority to make important decisions about your agency before, during and after a disaster? ‰‰ How will you divide your daily office duties after a disaster?

‰‰ Who is in charge of ensuring proper supplies are on hand (e.g., first-aid kits, batteries)? ‰‰ How will you contact your insureds with important agency contact information before an event (i.e., phone, fax, email, website, Facebook, Twitter, LinkedIn)? Having a disaster plan in place only works if you let people know about it. Let your customers and insurance companies know you’ve developed a disaster plan and you are ready to implement it. Send notices to your clients about your plan and ask them to provide you with alternative ways to get in touch with them since traditional methods may not be available after the disaster. Remind them about your website and socialmedia platforms (e.g., Facebook, Twitter, LinkedIn), which you can use to distribute important information if phone lines are down. Post helpful and expert information on your website and Facebook for your insureds and future prospects. Send a copy of your disaster preparedness kit to your insurance carriers so they are familiar with your procedures and are able to reach you. Make sure they have alternate ways to reach you. Issue a press release to your local media offering your assistance and expertise as an insurance professional in the event of a disaster. Make sure they have alternate ways to reach you, since traditional communication may not work after a disaster. Consider placing an ad in your local media—either on your own or with your partner insurance agencies—to alert your community. Let them know you are prepared to continue your business and provide service for your clients after a disaster. Contact your municipalities, local government agencies and technology vendors to offer your support in the event of a disaster, but also to let them know your services will be crucial after a disaster. They may be able to put you on a primary list to make sure your electrical, communication and other services are restored quickly if your service is interrupted.

‰‰ How will you handle your insureds’ claims if your office isn’t running at full power?

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The FYI on UVAs ASAP Recently, I took a class to update one of my designations. The instructor showed a video of an aerial-drone view of his commercial property and the surrounding area, which provided us with a perspective we would not normally see. After viewing the video, it is easy to see why interest in drones is soaring—in fact, the Federal Aviation Administration expects sales of these unmanned aerial vehicles to jump to seven million in 2020 from about 2.5 million this year. After the class, I read several articles on how insurance carriers are going to start using drones. I think it is a great idea. Think of the information a drone flying over an area devastated by a catastrophe could gather. Adjusters who have the addresses of specific risks could record drone videos on all

the locations, which then could be uploaded to the carriers. The carriers’ claim personnel could get immediate information on the extent of the loss, which could assist in the adjustment of the loss. Even better: The carriers’ claim personnel could cut a quick check to the insured and help the insured in a crisis. In addition to just pictures of a claim, a drone could provide a 360-degree aerial view

Tech

jim pittz, cic, cpia PIA Management Services’ business issues director

SM

There can be no doubt that all our knowledge begins with experience. – Immanuel Kant Policies are underwritten by Bridgefield Casualty Insurance Company and Bridgefield Employers Insurance Company, authorized insurers in AL, AR, FL, KY, GA, MS, LA, NC, SC, and TN; BusinessFirst Insurance Company, authorized in FL, GA, KY, NC, SC and TN. ©2015 Summit Consulting LLC | 2310 Commerce Point Drive, Lakeland, FL 33801

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of the loss location and extent of damage. Adjusters would not have to put themselves in peril to review the damage by accessing the location or climbing on effected property. Now, think of it from an underwriting perspective. When I was an underwriting manager for a national carrier, I used Google Earth to get a better view of the entire property. For example, after being told there weren’t any horse barns on the property, I noticed a couple of them on the Google Earth image. Initially, the inspector had conducted a “fly by,” but he never ventured to the back of the property. With this antiquated technology, I was able to get a helpful view of the property. However, with drones, you can fly around the property—unobscured by the foliage overhead—and get a better look at a property in real time. Going further, suppose you needed to see a high rooftop. Instead of climbing up there, you could fly a drone overhead to get a complete look of the roof and all the sides of the property.

Before you buy If you are thinking about buying a drone as part of your agency’s everyday tools, consider the following: While anyone can buy a drone, there are steps that need to be taken, regulations in place and requirements that need to be met before you can launch a drone. First, let’s look at the pilot requirements: Drone pilots must be at least 16 years old and have passed an initial aeronautical knowledge test at an FAA-approved knowledge-testing center. (So, your summer interns would be able to fly the drone after they have qualified). The FAA test is more complicated than going to your local post office and filling out a form. It quizzes prospective operators on applicable regulations, airspace classifications, emergency procedures and more. There are certain areas that applicants must know to pass the test. Some of those areas include: • applicable regulations relating to small unmanned aircraft system rating privileges, limitations and flight operation; • airspace classification and operating requirements, and flight restrictions affecting small unmanned aircraft operation; • aviation weather sources and effects of weather on small unmanned aircraft performance; • small unmanned aircraft loading and performance; • emergency procedures; • crew resource management; • radio communication procedures; • determining the performance of small unmanned aircraft; and • physiological effects of drugs and alcohol. You can take the test online if you hold a Part 61 pilot certificate. However, all other applicants must take the test in person at an approved FAA Testing Center. Additionally, the Transportation Security Administration will conduct a security background check of all remote pilot applications prior to issuance of a certificate. The cost of the test currently is $150. For more information, visit faa.gov/uas/.

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Now that we know what is required of the drone operator, what about the drone itself? The drone and its attachments (including cameras) cannot weigh more than 55 pounds and it must be registered with the FAA. The drone operator will be subject to civil and criminal penalties if he or she meets the criteria to register an unmanned aircraft and does not register it. For more information, visit registermyuas.faa.gov/. Once a drone operator is ready to let his or her drone fly the friendly skies, it’s important to remember the following operating rules: Drones must fly in the Class G airspace and operators must keep the aircraft in sight (visual line-of-sight); they must fly under 400 feet and go no faster than 100 mph; and they must fly during the day and yield the right of way to manned aircraft. They are not permitted to fly over people or from a moving vehicle.

Security concerns With all new technology, there are security concerns. With the types of surveillance gear that can be attached to drones, there is understandable apprehension about drones and some people feel there should be a limitation as to where they can go without permission. There have been ongoing legal discussions as to the rights of property owners. Some say that the rights of the property owners extend up to 500 feet above a property, at which point the FAA regulates the airspace and explains why drones must stay below 400 feet (so they do not interfere with commercial air traffic). Some people have argued that a person who flies his or her drone over someone else’s property is trespassing, as well. Also, there is the issue of hacking into the drone’s GPS system to take


control. For example, a professor at the University of Houston hacked into a functioning drone in 2011. Normally, this would not warrant immediate corrective action. However, the operator was an employee of the Department of Homeland Security, who immediately saw the need to include anti-spoof-proof technology, which would allow a drone to recognize and ignore modified GPS data. While it is necessary to nail down the GPS interference, equally important is to secure the common data link, which ties the drone to the remote pilot who is operating it. Since drones can be equipped to carry almost anything, there needs to be more than a beltsand-suspenders approach to security with drones.

Insurance implications Drones can crash due to faulty and inappropriate operation, mechanical defects and/or drone component failure. Losses and damages could involve bodily injury to people as well as property damage buildings and other structures as well as damage to the drone itself. Also, let’s not forget that some people could use drones for inappropriate activity. Since there are many insurance implications involved, it is imperative that insureds tell their agents when they have purchased or have become the new owners of a drone. What types of insurance do drones need? You have the obvious one, physical damage to the drone itself, and liability if the drone should injure someone or damage something. You also should consider personal injury and privacy intrusion protection. If you are using the drone for strict commercial activity consider aviation commercial general liability; aviation products liability; and nonowned aviation liability. Drones can have their place in the insurance industry in the event of a disaster or an everyday claim, but it is important to remember that they aren’t toys. If you are planning to use one in your agency to help in the underwriting process, make sure you are familiar with all the requirements and have considered all the insurance implications. Pittz is PIA Management Services’ business issues director.

M. J. Kelly Company-Arkansas www.mjkelly.com I 800.873.8374 501.945.3159

www.piATN.COM

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E&O claims and the NFIP There has been, and it seems will continue to be, discussion about whether global warming is real and whether it has an impact upon our weather and climate. Regardless of one’s political views on the topic, it is beyond dispute that catastrophic weather events do occur with some frequency as shown by recent storms such as Hurricane Matthew and Superstorm Sandy. Of course, disasters also bring along with them the inevitable lawsuits and innovative legal arguments, which keep the courts busy developing a new body of jurisprudence. As the title of our column suggests, our topic this month involves flood claims that are covered (or supposed to be covered) by policies issued under the National Flood Insurance Program and the so-called Write Your Own Program established by the Federal Emergency Management Agency under the National Flood Insurance Act of 1968. The WYO is a program that, inter alia, allows private insurance companies to issue and administer Standard Flood Insurance Policies in their own name. The federal government underwrites the policies and the private companies are responsible for adjusting, servicing and defending all claims. The federal government reimburses private insurers for all claim payments and litigation costs. The insurers are paid a commission based upon the amount that is paid under a claim. Under the program, it is the federal government and not the insurers that bear the loss on all claims.1

The doctrine of preemption We begin with the premise that insurance claims filed with respect to policies issued under the program are governed by the NFIA. An insured who is dissatisfied with the handling of a claim may bring an action in federal court to seek redress.2 However, under the so-called doctrine of federal preemption, the provisions of the NFIA are the exclusive remedy for an insured and state law claims based upon fraud or negligence or claims seeking punitive damages or attorneys’ fees are precluded. Indeed, as will be discussed below, even some claims under the federal statutes are preempted. For example, in one case filed in New Jersey federal court,3 an insured brought a claim against a WYO insurer for underpayment of a claim. In addition to alleging a claim for breach of the SFIP contract, the insured also alleged claims seeking punitive damages, bad faith and attorneys’ fees under New Jersey state law. In rejecting the state law claims, the court held:

www.piATN.COM

Plaintiffs’ claims against defendant in this case are nothing more than a disagreement with defendant’s decision to pay less on the claim that plaintiffs believe is warranted. Plaintiffs may still pursue that claim through their breach of contract action based on the SFIP itself. However, plaintiffs are not entitled to receive compensatory, punitive or consequential damages, or attorneys’ fees, for alleged bad faith during the National Flood Insurance Program claims process, because federal law does not provide for those remedies in this type of case …4

case law

robert m. sullivan, esq. Senior partner, Sullivan & Klein, LLP

In a more recent New York case,5 a property owner brought an action against a WYO carrier, an insurance investigator, insurance adjusters and certain engineers engaged to inspect plaintiff’s residence on Long Island that had been damaged in Superstorm Sandy. Allegedly, the engineers observed storm-related damages sufficient to trigger the full amount of the policy, but reported damage less than what was observed. The WYO insurer, relying upon the report, allegedly underpaid the claim. In addition to the breach of contract claim against the insurer, the plaintiff asserted claims against the adjuster, investigator and engineer, as well as the WYO insurer, for violation of the Racketeer Influenced 1

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and Corrupt Organizations Act seeking additional lost rental income, treble damages and attorneys’ fees provided for under RICO. It was alleged that the reports were intentionally falsified to reduce the amount of the claim paid. Based upon the preemptive effect of the NFIA, the court dismissed the RICO claims in their entirety. (The court also dismissed the contract claim against the WYO insurer, but on the grounds that the claim was time barred). So, if state law claims for errant claims handling and even claims for allegedly faking engineering reports to underpay a claim are preempted, a claim against an insurance producer also should be preempted, right? A survey of case law involving errors-and-omissions damages, including claims against insurance producers, unfortunately, does not support such a finding.

Claims handling vs. procurement In determining whether preemption of state law claims is available for claims involving a loss under an SFIP policy, the courts specifically draw a distinction between claims related to actual deficiencies in the claims handling process and the act of procurement of the coverage. A recent case by a federal court in Tennessee is illustrative of the point.6 In the Tennessee case, a homeowner purchased a home that he believed, based upon representations of the seller, was not in a flood zone requiring flood insurance. Sometime after the purchase of the home, FEMA revised its so-called Flood Insurance Rate Map of the area placing the property within a flood zone. The mortgagor of the property wrote to the homeowner and mandated that the homeowner obtain flood insurance. The homeowner directed his insurance agent to obtain, “the maximum [flood] insurance to cover the house and contents” and that it was “critically important” to obtain both house and contents coverage. The agent obtained a “Pre-FIRM” flood policy, but not the coverage for contents. A pre-FIRM policy is a policy for a building construction before the effective date of a FIRM. A pre-FIRM policy

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provides more expensive coverage than a post-FIRM policy, particularly with respect to the coverage afforded for the first non-elevated floor of the property. The plaintiffs here sustained damage due to a flood and during the claim investigation, the NFIP adjuster adjusted the loss under the more restrictive post-FIRM coverage finding that, contrary to the seller’s representation, the home actually had been in a flood zone when constructed and the pre-FIRM designation was factually incorrect. This resulted in the homeowner paying more premiums than necessary for his coverage. The agent sought to dismiss the action, inter alia, because the state law claims against the agent for his failure to procure the correct policy (post-FIRM versus pre-FIRM and contents coverage) were preempted by the NFIA. The lower court did not reach the preemption issue and dismissed the action against the agent because the evidence showed that the homeowners did not sustain damage due to the agent’s error in obtaining a pre-FIRM policy since the home was constructed postFIRM and accordingly it was impossible for the agent to have obtained a post-FIRM policy. In addition, the lower court also dismissed the action against the agent because the plaintiff had received the policy that clearly did not show the existence of contents coverage. Under a Tennessee statute, receipt of the policy created a rebuttable presumption that the insured agreed to the absence of contents coverage. The court let stand a claim for excess premium charged due to the error in placing a pre-FIRM policy.


On appeal to the U.S. Court of Appeals for the Sixth Circuit, the appellate court took up the issue of whether a claim for failure to procure insurance was preempted. While it affirmed the lower court’s dismissal of the case against the agent on state law grounds, the court nonetheless held that claims relating to the policy procurement process, as opposed to those claims based upon claims handling, are not preempted; holding: … We … hold that the NFIA does not preempt policy procurement claims such as plaintiffs. Damages stemming from policy procurement claims unlike those arising from policy coverage claims, are not “flood policy claim payments.” (citing the NFIA and regulations) That being so, the Federal Treasury bears no responsibility for damages awarded in policy procurement actions … Policy procurement damages, therefore, pose no damages to the federal interests prompting preemption in the claims handling context …7 Similarly, in a New Jersey case,8 a homeowner sued a direct writing insurer under the WYO program for breach of contract against the insurer and sought extracontractual damages under New Jersey law for bad faith and attorney’s fees. In opposition to the motion to dismiss, the plaintiff withdrew the state law claims conceding that they were preempted. However, he sought to amend his complaint alleging fraud and misrepresentation in inducing him to obtain a policy with an incorrect limit of liability (too high), thereby overcharging him in premium and leading him to believe the limit was an agreed value policy. The court found the amendment patently without merit but went further and held that: … At the outset, the court notes that plaintiff’s proposed claim for fraud in the procurement process of an SFIP is not preempted by the NFIA as his claims for extracontractual damages are.9

A producer needs to: 1. Confirm the insured’s specific request or decision not to buy flood insurance. 2. If flood insurance is procured, practice the business of insurance and ensure that the policy is adequate. Confirm that the policy does not, for example, provide coverage or limit coverage for the flood zone in which the insured is located. In this fashion, the producer can avoid the “flood” of claims always attendant to a national disaster. Sullivan is senior partner of Sullivan & Klein, LLP. He can be reached at (212) 695-0910. See Jacobson v. Metro Prop. & Cas. Ins. Co., 672 F.3d 171 (2nd Cir., 2012) 1

See Moffett v. Computer Sci. Corp., 457 F.Supp.2d 571 (D.Md., 2006) 42 U.S.C. Section 4072

2

See Messa v. Omaha Property & Casualty Ins. Co., 122 F.Supp.2d 513 (D. N.J., 2000).

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Analysis and recommendations While claims by an insured relating to the claims process are limited in scope by the NFIA by review of the doctrine of preemption, claims relating to alleged errors in the procurement process are not preempted. Accordingly, an insured is free to bring any claim based upon state law even concerning procurement of an SFIP. All state law defenses to such a claim, however, are available as well, as clearly demonstrated in both the Tennessee and New Jersey cases surveyed above. In our view, this also would include state law limitations on recovery of damages as well. Since the general rule is that a producer stands in the shoes of the insurer, a viable argument could be made that because an NFIP may not provide coverage for loss of income on consequential damages, a claim against a producer would also be so limited. At the end of the day, when the discussion with an insured leads to a discussion about the need or availability of flood insurance, a claim documented file is the best defense.

www.piATN.COM

Messa, supra, 122 F.Supp.2d at 522

Melansan v. U.S. Forensic LLC, ____ F.Supp.3d ____, 2016 WL1729493 (E.D.N.Y., 2016)

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Harris v. Nationwide Mutual Fire Ins. Co., 92 F.Supp.3d 736 (M.D. Tenn.) aff’ d in part ____ F.3d ____ (6th Cir., 2016), 2016 WL4174381 (Aug. 8, 2016) 6

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Harris, 2016 WL4174381 at p. 4

McDowell v. USAA General Indemnity Co., 2016 WL4249487 (D.N.J., Aug. 9, 2016)

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Id., 2016 WL4249487 at p. 4

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Stacey RobeRtS President and CEO, Computer Systems Management

Winging it Not an option in disaster preparedness

W

hen you think of disasters, what comes to mind is usually big, devastating and covered by insurance. A large calamity is something that your clients and vendors can understand and cut you some slack, giving you the time you need to get up and running again.

www.piaTN.COM

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Here are some disasters you probably haven’t considered: • Your building loses electrical power for three days. The fish market next door, thankfully, never loses power. However, it refuses to let you run an extension cord to power your servers. • The fish market next door catches fire under suspicious circumstances, causing the fire department to deny you access to your building for an entire day while it investigates. • An employee deletes your accounting and client databases. You never find out which employee. • A hacker sends you a virus that shuts down your internet service. You sit on hold with your internet service provider for six hours before it tells you the problem. • Your email goes down for three days. When it comes back up, it is so clogged with new email your network slows to a crawl during the download. Your staff plays catch up, costing you a fourth day. • Your employee of the month password-protects every important document on your server, then quits to go to work for your competitor. • Your exchange server hits the built-in storage limit and shuts down. The defragmentation process to get it back up and running takes four hours. Your staff spends the rest of the day deleting unneeded emails. Then you have to do another defragmentation. • Your website that you use for client communication and new business goes down. You don’t realize it for a week because you never check it. • A ransomware virus encrypts all your documents and databases. For $15,000 the culprits will give you the unlock key. There are dozens of other examples. A new definition of disaster is required, because it doesn’t take a big thing to cost you hours or days of downtime. A disaster for any business is the temporary or permanent loss of critical data, or the inability to conduct business for a significant period. Time is the enemy; the longer you are unable to retrieve and process information for the normal business operation, the worse your situation. One in five businesses struck by a disaster are no longer operational five years later. Let’s explore the nature of disasters and ways to plan for and recover from them in the shortest amount of time.

Part 1: Your critical data Your agency’s critical data involves more than your accounting transactions; inventory lists; and customer databases. It’s all the data your agency needs to conduct business profitably. You can get by with a few missing pieces of information, but the more you have to go without, the less efficient and profitable your operation. Critical data includes: email messages that have been sent and received by all your staff; correspondence to and from your clients; records of faxes sent and received; password lists; digitized copies of paper you have thrown away; client proposals and presentations; and your website content. Once you’ve identified all the critical data for your agency, the next step is to find it and protect it. 1

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Part 2: Find the data Your agency’s data should be saved on your server, which is backed up every night. However, the following functions are saved on a computer’s C:/ drive, which is not backed up: email (Outlook or other mail clients do not have a back-end mail server for storage, unless you invest in one), including email address and phone numbers; anything saved under “My Documents” or on the computer’s desktop; your internet favorites; network-faxing programs (copies of sent/received faxes and your phonebooks); lists of passwords for company website access (unless they are saved on sticky notes at each workstation or a password-manager program); and any files employees may have brought home; any information you have stored on your smartphone or other mobile devices. Most companies have this data spread across servers, workstations, laptops, mobile devices, flash drives, CDs, sticky notes, etc. This kind of data fragmentation makes the recovery from even a small disaster difficult, if not impossible. A critical step to prepare your business for a disaster is to consolidate all this data to a single, central point—your server or cloud platform. Once this is accomplished, that server needs to be backed up and protected with electrical protection and redundancy.

Part 3: Protect the data Your server should have a smart Uninterruptible Power Supply that will shut it down properly during a power loss. The purpose of the UPS is not to keep the server up and running; its only function is to


perform a proper shutdown of the server if main power is lost. Test your UPS battery periodically—they can die after a couple of years and should be replaced. Every computer on your network and any computer that might be on your network (e.g., a laptop or a home computer that dials in to the office) should have updated virus protection. Virus protection also should scan your incoming and outgoing email. If you have more than five computers on your network, you should consider an enterprise version of anti-virus software. The server manages enterprise anti-virus software—updates and regular scans are controlled so users don’t have to be responsible for it. Without the proper protection, a computer with internet access can be hacked in six seconds. Hackers scan IP addresses and look for vulnerabilities. Once they are into your computer they can: delete data; change passwords; deliver a virus; and flood networks with packets that make them unusable. If your network is connected to the internet, you must have a firewall for protection. While it is true some internet service providers include a firewall with their service, this is not something to leave to others; your firewall must be your own and managed by you. There are hardware and software firewalls available; a combination of both is preferred.

Part 4: Back up the data The simplest definition of a computer back up is: A complete copy of your data in another location. Any back-up solution must have sufficient capacity to back up all of your data. It is preferable that it is done in one

pass, on one media, automatically, every night, or continuously if you have the storage or bandwidth for it. Whether you use tapes, external hard drives, or other media, they must absolutely leave your office every day. External hard-drive or network hard-drive solutions stay connected to your server and continually back up your data. It is important to consider what happens if you have a fire that destroys your office. In one shot, your server and your backup are gone. If you use external drives for backup, get more than one and rotate them. Cloud backup solutions like Mozy Pro or Carbonite will back your data up to the cloud. Just remember that getting the data back down to earth can take some time. If it needs to be downloaded, your internet speed can be a limiting factor. If your back-up hard drive needs to be shipped to you, you will lose at least a day for shipping. If your office is destroyed, the tape or hard drive you have kept off-site becomes the most important piece of plastic you have. You need to know that the media is good, has data on it and is recoverable. The best way to do this is to regularly buy new tapes (once a year) and do periodic restores from the tapes (once a month). This will make sure your back ups go both ways.

Part 5: Recover the data Now that you’ve established protocols to protect your data, how do you recover it when you need it? A proper recovery plan: assesses the current operational status of your agency; notifies the key people who are needed to continue operations; gets the word out to employees, vendors and customers about your business interruption; moves from your existing location to a temporary one, if needed; repairs or replaces affected systems; establishes a temporary level of operation; and plans and implements the return to normal operations at your original location, if possible. In short, a disaster plan should include the following information, customized to the needs of your agency: • Phone company—to establish or re-establish phone service or to forward your main numbers. • Public utilities—to determine the state of power or other utility outages and how long they will take to come back up. • Employees home numbers—to notify employees whether to report to work or not and what to do when they get there. • Computer repair people—to help assess the level of damage to the IT infrastructure and start planning repair/replacement. • Internet service providers—to establish or re-establish internet access. • Critical IT and other equipment—to be moved to a temporary location and to assess what components are functional and which are not. • Critical paper files—to be moved to a safe location. • Insurance carriers—to file claims needed to activate business interruption coverage.

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The disaster plan The most necessary step in disaster planning is deciding it must be done. Management must make a tangible decision to come up with a disaster and recovery plan. A committee should be formed to evaluate what components are needed to operate; identify the key crisis managers; devise a written plan; communicate it to the employees and key vendors; and update it periodically. Remember, the most important rule you have established is one of an effective standard of operation (i.e., the minimum level of computers, data, phones, etc., that you need to run your business). The best way to conceptualize a disaster plan is to go through the steps to recovery. Assume you’ve had a disaster, then walk through coming back from it. To help you with your plan, consider the following: Assessment. Once a disaster strikes, the first impulse is to try to determine the type of disaster. Have we lost communications, data or our entire location? Is it a workstation, a server, a cluster of servers? Is it hardware? Is it software? Is it a virus? Is it a problem that we think might go away on its own (e.g., power outage)? Whether the catastrophe is anything from a virus to a meteor hit on your headquarters, it is important to focus on the essence of business interruption: effectiveness and time. Are you at an acceptable operational capacity? If not, how long will it take to get back to capacity? How soon can you get back to a minimal operational standard and how long will it take to ramp up from there? Who do you need to assist (e.g., technicians, phone people)? These are the first questions of recovery. Don’t underestimate the severity of your problem. One of the chief mistakes during a disaster is thinking the problem is less serious than it really is—by the time the gravity of what happens is apparent, precious time has been lost. It could be because the responsible party wants to minimize the seriousness of the situation to superiors or technicians want to cover their own mistakes or something as simple as not wanting to be the bearer of bad news. If you are the person in charge of the recovery, you are the bearer of news. Good or bad, it’s all you. It is better not to explore a variety of scenarios. Instead, we should address the question of returning to an acceptable operational level. In your planning phases, you decided what that level was. Now comes the time to implement. Assemble the key people. If you planned well, you know who the key people are and how to get in touch with them. A key component of this phase is to communicate the severity of your problem. Don’t let these folks believe your problem is anything less than immediate and critical. Don’t accept stalling, and don’t try to work it over the phone. If you need them there right now, that’s what you tell them. How long will it take? This is the key question. You could have a minor problem that takes days to fix or a major one that is fixed in an hour. It is not the problem that determines the disaster, it’s the time it takes to solve it. It’s also important to distinguish between a temporary solution and a permanent one. The temporary solution will probably take less time, so that would be preferred, as long as an accurate assessment of how long it takes to get to the permanent solution is done. 2

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Get the word out. There is nothing to be gained by keeping the problem quiet. Don’t let the employees, management, customers or vendors discover the problem on their own. Control the story. Once you know what the problem is and how long it may take to fix, it’s time to get the word out. Let people know what is going on and how long you expect to be down. Your disaster plan should include what information to release and to whom. Your downtime results from the demands placed on your IT structure by users, managers and customers. Letting them know of the problem proactively may just buy you the time and patience you need to get it done. Plan B. Sometimes, things just don’t go the way you plan. Improper assessment, lack of parts to do the repair, and just plain bad luck can conspire to make your recovery fail. What are you going to do if Plan A fails? How much time are you going to give Plan A to work? Consider this: Have one team work on the repair while another works on the replacement. That way you get to both finish lines at once.

Recovery specifics–get the data back

It’s difficult to be too specific about the recovery without knowing the exact nature of the problem, but an easy assumption is that your server is damaged or destroyed or your physical location is, or both. Location. If you have to move to a temporary location, consider the following: Does it have enough room for all your people? Does it have enough electrical capacity for all the


computers, phones, fax machines, laser printers, etc.? Does it have phone lines? Does it have internet access?

To repair or not to repair It is tempting to try and fix the current server because it is already preconfigured the way you like it—no need to add the users and printers. And if it works, everything comes back just the way it was before the crash. The problem is if it crashed once, it can do it again. If you’re going to fix it, do you have the spare parts needed to rebuild the entire server? It may take hours to determine the faulty part. Also, consider the possibility of moving the data to another server in your operation. It is OK to move the data to a working server rather than be down while you fix the data server. How long will a repair take? Would it take less time to rebuild the server? Or, get a temporary replacement?

Agency

Ag

E&O

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Tapes, CDs, temporary servers

If it turns out that you have to start from scratch, you’ve got to have all the items you need, including: 1. original media for your operating system, application software, etc., so you can reinstall everything;

has a market for your agency and specific risk

has a m agency a

2. the media from your most recent backup and the means to restore it (matching tape drive, internet connection, etc.); and 3. a machine to put it on. Not to say that all computers are alike, but if you have to take a workstation and temporarily install server software on it, do it. Replacing a server is not an easy thing. You need to get a machine, install an operating system, install application software, then recover your data. It’s important to remember that you don’t need the final server you’re going to end up with; and you don’t need a computer that is an exact match of the old one. Not to oversimplify, but what distinguishes a server from a workstation is usually the operating system. You can, under the right circumstances, take any computer and make it a server if you install your server-level operating system on it. Things to watch for: it must have enough physical storage space to hold all your data and a way to back it up. You may not have your final server for weeks. Once you get it, this entire process will have to be done over again on the new machine. But you may be stuck with your temporary server for longer than you think.

The same disaster twice

Try not to have the same disaster twice. When your new server arrives or your old one is repaired, do the switchover during off-peak times. And, keep the old one as a backup against future disasters. In the end, you may come away with the feeling that you haven’t done enough to prepare for and recover from disasters. You may be right about that, but the only way to know for sure is to have an actual disaster and no one wants that. Don’t overcompensate. Every disaster plan is a work in progress. Roberts is president and CEO of Computer Systems Management and the author of the novel Trailer Trash, With a Girl’s Name. He can be reached at (859) 491-7947 or stacey_roberts@csmworld.com or on the web at csmworld.com. www.piaTN.COM

Contact Kristopher Fisher 800-875-7428

C Kristo 800

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Coverage features on a following-form basis ■ Full prior-acts coverage ■ Covers any person acting in a capacity as a real estate agent or notary. ■ Options unique to this program: • Personal coverage — broadened and excess personal protection for owners, partners and officers, including members of their families. (Submit ACORD Personal Umbrella Application.) • Employment practices liability — excess limits protection for liability incurred by named insured or employees for wrongful employment practices. Coverage can be written on a claims-made basis over a number of approved EPL carriers. Maximum available as a sub-limit is $2 million. (Submit a copy of underlying EPL application.)

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Contact Us Contact your local PIA producer. To find yours, visit the PIA Main Street Store at www.PIANET.com


Dan Weedin President, Toro Consulting Inc.

Disaster preparedness What employees need to know

As insurance professionals, you make your living helping your clients improve their ability to avoid peril and prepare for losses. You also assure them that they are in a position to survive a disaster. However, just like mechanics who never fix their own cars, most insurance professionals do a terrible job preparing themselves for disaster. How do I know? They’ve told me. How prepared are you? Here are five questions to ask yourself: No. 1—Do I have my own disaster plan written and communicated to every employee? This plan should include roles and responsibilities; names and contact information for all employees and key partners; an evacuation plan; first aid and medical information; backup and technology rules; and off-site office plans.

it works or how do you know your employees are capable of responding to it? No. 4—Do I have human and technological redundancies? Most business owners have backups for technology, but not for people. No. 5—Do I have a base for operation after a disaster? I assume you want to keep your agency open. You have many people and businesses that depend on you to answer the phone. In the event of a disaster, do you know where you will work? As a risk-management professional, if you allow yourself to be unprepared to deal with your own crisis, why would people put their family or business insurance with you?

No. 2—Do I have a formal communication plan? This should detail every communication with backup options for employees, clients, vendors, media and key community members.

The good news is: You know the answers to these questions because you work with them every day. Now you just have to make organizing this information a priority. The biggest excuse I hear is, “I just don’t have the time.” Think about how you respond to your clients when they say that! Time isn’t a resource issue; it’s a priority issue. You’re a role model for your clients, so it’s time to be one.

No. 3—Have I ever tested my ability to respond to crisis? If you don’t actually practice it, how do you know

Here are seven simple strategies you can implement in your agency to be better prepared to respond to your own

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disaster, which can help you protect your employees and better serve your clients. No. 1—Establish a small committee to create a program. The goal is to create a “plug-and-play” disaster response program that includes a communication plan and “next steps” to continue operations if you need to leave your location. No. 2—Select a crisis king or queen. Someone has to be in charge of the crisis. This doesn’t have to default to the agency owner. It requires someone who can remain calm amidst chaos; delegate tasks; communicate well; and be a leader. Why select someone in advance? The person has to be ready to pitch if he or she is called into the game. No. 3—Find a backup location. If your building is uninhabitable, you need to go somewhere else. You need to be able to answer the phone, use computers and operate as close to “normal” as possible. Your clients expect this of you. It’s easier to find your backup location before a disaster. It might be as easy as using a residence for small agencies, to working with a commercial property broker for larger agencies. No. 4—Redundancies, redundancies. You need to back up all your technology off-site and out of the region. Agencies that experienced Hurricane Katrina and Superstorm Sandy, plus others that had regional calamities know this all too well. Technology makes it possible to transfer key data away from regional disasters so you still can access it.

Businesses often forget to back up their people—I call it human redundancy. Who’s in charge if the person in charge is sunbathing in Bermuda? Who has backup duties to the person who is the keeper of usernames, passwords and the decoder ring? Your agency’s Disaster Committee should assign human backups to those with various roles and responsibilities. No. 5—Create a communication plan. Email isn’t good enough by itself. I worked with a client whose main line of communication to employees was email. The problem was that the email was on the same server and if that was compromised, the communication system fails. You need to have several routes of communication to employees, clients and the community. Use multiple forms—email, text, phone tree, fax

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and regular mail. In times of disaster, speed is crucial. A growing number of your employees and clients use smartphones with text capability. This may be the best way to disseminate information to a group of any size to keep them apprised. More than anything, people want to know what’s going on and silence is deadly. Make sure you have a communication plan that has layers of outlets to get your message out quickly. No. 6—Document, document, document. Make sure all plans are in writing and then communicate them with your employees. They need to know (and sign off) on what to do in the event of a disaster. If you send external newsletters to your clients, let them know you have a plan to stay in business in the event

of a crisis. This will enhance the confidence they already have in you, and highlight your professionalism. No. 7—Practice the plan. You probably remember the fire drills we all did in grade school, right? You need to create your own “fire drills” for your office. I was once an accidental participant in an earthquake drill at my bank. It delayed me a little bit, but I’m glad the bank is prepared for a crisis. You can create your own practice plans by implementing simulations, tabletop exercises, or even an old-fashioned fire drill. You can’t expect your employees to know what to do if they’ve never had any practice. You make a living helping others prepare for a disaster, so it is unacceptable for you to be unprepared. The seven steps I’ve detailed are easy to implement, are inexpensive and could prevent a disaster from happening, or at least put you in a favorable position to deal with one that does. There is no reason to delay. Take the advice you regularly dole out to your clients and prepare your agency for disaster. It will be the best investment of time you will ever make. Weedin is an insurance and crisis management expert. He can be reached at (360) 271-1592 or dan@danweedin.com. His website is DanWeedin.com.

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Selling is changing … not really This past week, I’ve received three separate emails from various sales gurus talking about how much sales has changed. While the internet, social media and advances in technology have altered some of the peripheral aspects of selling, the foundational principles and keys that lead to sales success have remained the same. Below are some sales facts that will always remain the same. Fact 1: Sales is still a numbers game Failure in sales is due to a lack of activity 99.9 percent of the time. In other words, not making enough calls. Now that we have the internet, I know sales representatives who spend hours looking up background information on prospects before they call them. This is a mistake. Look up the information a prospect would reasonably expect you to have, but don’t spend hours being perfect. You should get the basics and make the call. Another way technology can work against us is that some people believe they have to be technical experts before they call anyone. An insurance agent I know spent a full six months in the office studying cyberliability because he had to know everything before he could speak to anyone. The insurance agent is a producer (salesperson) first, not an underwriter (technician). The reality is: You will never know everything and this is usually just an excuse to avoid doing the hard work of making the phone calls. Also, just because you have the internet to look up information, it doesn’t mean you should be spending hours preparing at the expense of making calls. Again, start with the basics and make the call. It’s important to learn what you need to learn so you don’t make any careless mistakes, but focus more on activity than on being technically proficient. Fact 2: You’re still the expert While it’s true that, generally speaking, today’s consumer is better informed than in years past, you’re still the expert who probably has forgotten more than they will ever know about the insurance industry. The famous author Malcolm Gladwell once said that it takes roughly 10,000 hours of study to master one’s craft. While you may not be at the 10,000-hour mark yet, you are far better off than someone who has spent five, 10 or even 40 hours on the internet studying your industry and products. You live in your business every day. People still need an honest, straightforward salesperson who understands the subtleties and idiosyncrasies of an insurance policy and can educate them on what’s best for them.

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Fact 3: Face-to-face and phone are still the most effective ways to sell Have you ever not received an email that someone swore he or she sent to you? In addition to the fact that you can’t always rely on an email, LinkedIn in-mail or other electronic communication to reach the person, you also lose the most important parts of communication such as voice tone and body language. Couple that with the fact that electronic communication distances you and dehumanizes the experience. For these reasons, in-person communication is always the most effective way to reach out to a client or potential client—followed by Skype (and other face-to-face apps), and then phone communication.

sales

john chapin President, Complete Selling

Electronic communication serves its purpose—short, sweet, noncritical communication in which you convey information. It kills me when I see salespeople using an email for initial communication or during an important part of the selling process. In this case, they are hiding behind technology because they are afraid to make a call. Keep in mind: Even noncritical electronic communication needs to be followed with a phone call or in-person contact to ensure it was received. You have much more impact when people can see and/or hear you.

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Don’t hide behind technology and spam people on initial and other important communications. Fact 4: It is about relationships and doing what’s best for the person There is no “new relationship selling” or “solution selling.” The best practices always have focused on the long-term relationship and the best possible solution for the prospect, even if it involved sending someone to the competition. The best practices always have been seen as a peer and business partner looking out for the best interests of the prospect.

dis•tinc•tion di-’sti[ng](k)-shen e

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Find out more about this exciting opportunity. Reach our sales representative at piatn@piatn.com.

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The bottom line is: The only way sales practices have changed is for those doing it the wrong way. Years ago, you could pull the wool over someone’s eyes, get away with not knowing as much, have subpar sales and people skills and not work as hard. That said, the people who always have done it right have found little has changed over the years. For them, being great at sales still requires that you work hard and make the calls; communicate effectively; build the personal relationships; be professional and knowledgeable; put the other person first; and embody the character traits of honesty and integrity. Chapin is a sales and motivational speaker and trainer. For his free newsletter, or if you would like him to speak at an event, log on to completeselling. com. He has more than 28 years of sales experience and author of the 2010 sales book of the year: Sales Encyclopedia.


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Enhance your ad with the impact of color. Reach our sales representative at (800) 875-7428. .


Directory

PIATN officers and directors OFFICERS

NATIONAL DIRECTOR

President Mike Tansil, CPIA My Team Insurance Services LLC Murfreesboro, TN (615) 400-7367 mtansil@mileytansilins.com

June Taylor, CIC, CPIA, CPIW, DAE Wilkinson Insurance Agency White House, TN (615) 672-4439 june.taylor@wilkinsonins.com

President-elect Herbert Montgomery Clay and Land Insurance Memphis, TN (901) 767-3600, ext. 107 hmontgomery@clayandland.com

Greg Augustine, CPIA The Augustine Insurance Group Clarksville, TN (931) 503-0015 gaugustine@aol.com

Vice President Adam Cox, CPIA Adler & Cox Inc. Chattanooga, TN (423) 877-3536 acox@adlercox.com Secretary Tina Hutsenpiller, CPIA Hutsenpiller Insurance Mt. Juliet, TN (615) 218-8370 tina@hutsenpillerinsurance.com Treasurer Chris Mills, CPCU, CIC Mills Insurance Agency Nashville, TN (615) 620-4452 chris@millsinsuranceagency.com Immediate Past President Bill Richards, CPIA, LUTCF Community Insurance Greeneville, TN (423) 638-1422 brichards@greatci.com

DIRECTORS

Llew Boyd Southern Insurance Associates Chattanooga, TN (423) 296-0626 llboyd@southins.com Kyle Bradley The Bradley Agency Monterey, TN (931) 544-3598 thebradleyagency@gmail.com Tom Gernt, CPIA Art E. Gernt Insurance Inc. Crossville, TN (931) 484-3448 tom@gerntinsurance.com Anna Lima-Montgomery, CPIA Montgomery & Associates LLC Brentwood, TN (615) 829-8457 anna@montgomeryassociatesllc.com Michael T. Morat, CPIA, LUTC Mike Morat Insurance Service Inc. Germantown, TN (901) 755-8858 mmorat@aol.com

Dedric Pearson, CPIA Pete Mitchell & Associates Inc. Memphis, TN (901) 345-6176 dedric.pearson@petemitchellins.com Jeff Puckett Boyle Insurance Agency Inc. Franklin, TN (615) 567-8000 jeffp@boyle.com

STAFF

Kristopher Fisher, CPIA, LUTCF Executive Director (615) 771-1177 kfisher@piatn.com Jessie Litkenhus Program Administrator (615) 771-1177 jlitkenhus@piatn.com Pam Cass Executive Administrator (615) 771-1177 pcass@piatn.com


The PIA Branding Program

Advertising that helps set PIA members apart from — and above — their competition. �������������� ���������������

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Local advertising for Local Agents Serving Main Street America

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How does a Professional Insurance Agent separate himself or herself from the pack in a crowded insurance marketplace? Simple. By taking advantage of PIA’s new print advertising program.

Best of all, this powerful branding tool is available free and exclusively to PIA members, as part of their PIA membership. Company sponsorship of the PIA Branding Program is also free.

PIA has created a series of ten print advertisements that PIA members can run in local publications or print as flyers. These ads focus on the combination of choice and personal support and service that make PIA members Local Agents Serving Main Street America.

Learn More

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These attractive ads can be customized with agency logos and contact information and (optionally) a company logo. There are four general agency ads, two homeowners ads, two auto ads and two commercial lines ads, with numerous variations, sizes, color as well as black and white ads, making a total of 227 ads in all.

National Association of Professional Insurance Agents 400 N. Washington St. • Alexandria, VA 22314-2353 (703) 836-9340 (phone) • (703) 836-1279 (fax) www.PIANET.com • piabrandingprogram@pianet.org

Whether you’re a PIA member now, you’re an agent who has yet to join, or you’re interested in company sponsorship, head on over to PIA National’s website to see the ads and get all the details about the PIA Branding Program: www.pianet.com/piabrandingprogram

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