Professional Insurance Agents, Tennessee Edition

Tennessee Edition/Winter 2012

2013 Forecast for the year

Professional Insurance Agents/Winter 2012

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or provisions may vary or be unavailable in some states. Policies have exclusions or limitations which may affect any benefits payable.

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Dedicated to the advancement of knowledge and informed opinion for the professional enlightenment and growth of the men and women of the insurance industry.

Cover Story

D epartments

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Navigating the propertycatastrophe market in 2013 The events of the last few years have affected how risks are viewed

Feature

4 7 9 17 19 22

Update

Readers’ service & advertising index

23

Officers and directors directory

Legal services Your best defense Pro CSR Tech bit

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Insurers have role to play as social media, cyber risks grow An overview of the industry’s increasing role in the social-media liability

Cover design: Roberta Lawrence 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.

CEO of PIA Management Services Inc. Kenneth Bessette, President Mark LaLonde, CPIA, CIC, AAI, Communciation Director Mary E. Christiano, Senior Magazine Designer Sue Jacobsen, Member Information Manager Jaye Czupryna, Advertising Sales Executive Susan Newkirk.

Postmaster: Send address changes to: Professional Insurance Agents of Tennessee, 504 Autum Springs Court, Suite A-2, 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; toll-free (800) 424-4244; email publications@pia.org. © 2013 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.

Winter 2012

Professional Insurance Agents/Winter 2012

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Platinum partner profile AFCO/Prime Rate Insurance Premium Finance

Pittsburg, Pennsylvania www.myAFCO.com www.afco.com www.primeratepfc.com

Prime Rate Premium Finance Corporation

Philosophy

Providing insurance premium financing solutions to clients across the U.S., including PIA of Tennessee agents.

Senior executives

Daryl Zupan, president and CEO AFCO Credit Corp./Prime Rate Premium Finance Corp.

Rick Fowler, executive vice president, North American sales AFCO/Prime Rate Insurance Premium Finance

Tennessee staff

Alan Malone, vice president & regional sales manager Sheila D. Geary, vice president & senior business development officer

History

financing personal lines and smaller commercial accounts, serving customers with an efficient, highly automated quoting system and workflow process.

Together, AFCO/Prime Rate combine to offer premium financing solutions across the spectrum of client needs—from smaller and simpler turnkey deals to larger, more complex and highly customized transactions.

AFCO was established in the early 1950s as part of what was known then as Continental Insurance Corp.’s America Fore Group of companies. In 2007, AFCO combined with Prime Rate PFC, which was founded in Florence, S.C. in 1984, with a focus on

AFCO/Prime Rate philosophy is: “At AFCO/ Prime Rate, we put the premium on performance.

By providing premium finance solutions across the spectrum of client needs, AFCO/Prime Rate is uniquely positioned to help PIA of Tennessee agents use premium financing to grow their business, generate new revenue streams and cultivate closer relationships with insured customers.

“Offering the premium finance industry’s strongest mix of experience, expertise and resources—from significant funding capacity and in-house legal and underwriting expertise for large, complex accounts to high-tech efficiency for personal lines and smaller accounts—AFCO and Prime Rate Premium Finance Cos. deliver premium finance solutions across the spectrum of client needs.”

Appetite

Whether the client is a multinational enterprise or a smaller business, AFCO/Prime Rate makes it easy for PIA of Tennessee agents to offer their insured clients all the advantages of premium financing for property/casualty insurance. From hightouch guidance through large, complex transactions to high-tech servicing of personal-lines and smallbusiness accounts, AFCO/Prime Rate Insurance Premium Finance delivers unparalleled experience, expertise and capabilities in premium finance.

“We are focused on providing the highest quality, competitive solutions through transparency, simplicity and exceptional customer service. AFCO is thrilled to be able to prove ourselves to the PIA of Tennessee membership.

—Rick Fowler, executive vice president, North

American sales

PIA of Tennessee and AFCO/Prime Rate proud partners for independent agents

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Professional Insurance Agents/Winter 2012

Platinum partner profile Argos Group Inc.

Gene Josey, loss control Tommy Bills, loss control Brenda White, marketing representative Janet Cornett, marketing representative Maxine Long, marketing representative

2200 Resource Drive Suite 101 Birmingham, Alabama 35242

History

Argos Group was formed in August 2007 as a general agent for Benchmark Insurance Co. and SteadPoint Insurance Co. in Tennessee.

Philosophy

Doing business in Tennessee, Alabama and Mississippi

Argos Group’s philosophy is: “At its essence, insurance is a relationship business and our continuing goal is to forge a strong relationship with each one of our agents. We strive to be consistent and disciplined in our underwriting so agents can consistently rely upon Argos year-in-and-year-out.”

Senior executive

Todd Larry, president and CEO

Tennessee staff

Deb Greene, underwriter Renetta Hawkins, underwriter Ron Murphy, senior underwriter Diana Tabor, field auditor Ivan Gunn, claims supervisor Kristi Gant, claims adjuster Annette Smith, benefits claims specialist

Appetite

Workers’ compensation

“We continue to aspire to become Tennessee’s premier small account workers’ compensation provider by offering Tennessee independent agents and their clients workers’ compensation coverage backed by unmatched product and claims support and user friendly technological operations.”

—Todd Larry, president and CEO

PIA of Tennessee and Argos Group proud partners for independent agents

FloodSmart

www.Agents.FloodSmart.gov

History

In 2004, the Federal Emergency Management Agency’s National Flood Insurance Program identified the critical need to educate communities nationwide about the risk of flooding and the importance of flood insurance coverage. In response to this need, the NFIP developed FloodSmart, a comprehensive, integrated campaign to educate and inform partners, stakeholders, property owners and renters about financially protecting their homes and businesses from flood damage.

Flood awareness strategy

FloodSmart’s awareness strategy promotes flood insurance nationwide, not only among those who live in high-risk areas, but also among those who live in lower-risk areas. Everyone is at risk from flooding, and the FloodSmart campaign reminds people in moderate-to-low-risk areas that their risk is simply reduced, not removed. In addition, the campaign targets high-risk areas with a greater and more consistent emphasis on the importance of flood preparedness and protection. Through TV, print, radio, online advertising, direct mail and online sites, FloodSmart.gov and Agents.

FloodSmart.gov, as well as consistent media relations, the FloodSmart campaign employs direct public outreach to gain the most exposure to the message.

(Continued on page 6.)

Professional Insurance Agents/Winter 2012

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Platinum partner profile (cont’d) Progressive

History

6300 Wilson Mills Road Mayfield Village, Ohio www.progressiveagent.com

Progressive began in 1937, and over the years, has worked hard to build a superior product for auto insurance consumers through competitive pricing and by continuously improving its products and services. Today, Progressive offers competitive rates and 24-hour, in-person and online services to drivers throughout the U.S. Glenn M. Renwick, president and CEO since January 2001, leads Progressive in its quest to become U.S. consumers’ No. 1 choice for auto insurance.

Philosophy Progressive has 25,000 employees in more than 450 offices throughout the country. Progressive writes in all states except Massachusetts.

Senior executives

Appetite

Glenn M. Renwick, president and CEO Tricia Griffith, claims group president John Barbagallo, commercial-lines group president John Sauerland, personal-lines group president

Tennessee staff

Progressive’s philosophy is: “Progressive’s vision is to reduce the human trauma and economic costs associated with automobile accidents. It does this by providing customers with services designed to help them get their lives back in order again as quickly as possible. Governing its vision, decisions and behavior are Progressive’s core values: integrity, golden rule, objectives, excellence and profit.”

Glenn M. Renwick

Jeffrey Scovell, regional sales manager David Benchabbat Sr., sales representative Robert Cannon Sr., sales representative Todd Tipton, sales representative

Progressive offers insurance for personal and commercial autos and trucks, motorcycles, boats, recreational vehicles and homes. It’s the fourth largest auto insurer in the country, the largest seller of motorcycle insurance and a leader in commercial auto insurance.

Progressive continues to make shopping for insurance and servicing policies easy and convenient for customers. It continues to grow its network of independent agents—local experts tuned in to their customer’s needs. It continues to offer mobile applications that make servicing policies easier. And, recently it launched its newest usage-based-insurance product, Snapshot, which rewards customers for safe driving habits.

“Agents have been an integral part of the success and growth of Progressive. We remain committed to the channel and our agents— in fact, our agency channel is as large today as it has been at any time in the history of Progressive. We’ll continue to find new ways to help agents stay relevant and meet consumers’ needs.”

—Karen Barone, general manager of agency sales

and distribution PIA of Tennessee and Progressive proud partners for independent agents

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Professional Insurance Agents/Winter 2012

Legal Laws for small businesses— Services health care and taxes

By Matthew F. Guilbault, Esq.

With the beginning of a new year, a number of new laws, which will impact independent insurance agencies and small businesses, will go into effect.

Below is an explanation of a few of these laws that may affect you and your agency.

Health care Guilbault is PIA of New York, New Jersey, Connecticut and New Hampshire’s director of government & industry affairs.

Any discussion of new laws would be remiss if it did not begin with the most discussed law set to impact small businesses—the Patient Protection and Affordable Care Act. Since the PPACA became law, businesses and individuals have sought to make sense of its requirements and parameters as it seeks to “provide every American access to high-quality, affordable health care.” The PPACA requires states to choose to take the lead to implement and enforce many of the new reforms or they can decide to take part in a health insurance exchange set up by the federal government. States had until December to declare whether they would operate their own exchanges or default to exchanges operated by the federal government.

As established by Congress, individual states have the opportunity to play a major role in the creation and operation of the health insurance exchanges—new competitive insurance marketplaces that promise millions of Americans and small businesses the opportunity to purchase affordable coverage. The PPACA includes two basic types of federal requirements for exchanges, most of which are found in Section 1311. These include: 1.) minimum functions exchanges must undertake directly or, in some cases, by contract; and 2.) oversight responsibilities the exchanges must exercise in certifying and monitoring the performance of qualified health plans, as defined in Section 1301. Plans participating in the exchanges also must comply with state insurance laws and federal requirements in the Public Health Service Act. Establishment of an exchange is a critical step that states must take to be on track for achieving certification of an exchange by Jan. 1, 2013, under Section 1321.

So what does this mean for small businesses?

Beginning with an open enrollment period in 2013, exchanges are designed to help individuals and small employers shop for, select and enroll in high-quality, affordable private health plans that fit their needs at competitive prices. Moreover, it is contemplated

that exchanges will assist eligible individuals to receive premium tax credits or coverage through other federal or state health-care programs. By providing one-stop shopping, exchanges promise to make the purchase of health insurance easier and more understandable.

But, the implications of the law are not restricted to employees. A Kaiser Family Foundation study of insurance coverage for businesses with less than 25 employees shows reforms (i.e., the ability to buy insurance on exchanges and the prohibition on barring people with preexisting conditions) may affect as many small-business owners as employees of small businesses.

The Kaiser study also found that while few employers anticipate canceling their health benefit plans after reform is fully implemented, smaller employers are nearly three times as likely to say they will cancel coverage for their employees despite the individual mandate and employer penalties. When asked whether they plan to terminate employee health coverage in five years (after reform is fully implemented) 16 percent of smaller employers (between 10 and 499 employees) said they believed they would terminate their plans.

While major portions of the reform law will take effect in 2014 (e.g., the opening of insurance exchanges), a number of the provisions going into effect in 2013 may affect small-business owners and the self-employed. As mentioned earlier, open enrollment for individual and small-business health insurance exchanges begins Oct. 1, 2013. Moreover, as in recent years, dating to tax year 2010, eligible employers that provide health coverage will again get a tax credit for up to 35 percent of their contribution toward employee insurance. The credit is calculated based on average wages and number of employees; it goes up to 50 percent for tax year 2014.

For singles with modified adjusted gross income of more than $200,000 and married taxpayers with $250,000 MAGI, a 3.8 percent Medicare contribution tax also will apply for tax year 2013 to investment income, including interest, dividends, annuities, royalties and rents.

Taxes

At the time of this writing, there are many open questions about federal income, estate and payroll taxes for 2013. Will the Bush-era tax cuts be extended for all taxpayers? Will the 2 percent reduction in the Social Security tax on employees and self-employed individuals that applies for this year also be extended? While these questions cannot be answered at the present time, what is certain is that some tax rules are set to change in 2013

Professional Insurance Agents/Winter 2012

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from self-employment). The change also impacts the taxes for self-employed individuals. The same additional Medicare tax of 0.9 percent applies to net earnings from self-employment (i.e., profits).

However, as a self-employed individual, there is no withholding. The tax must be included in estimated tax payments to avoid underpayment penalties. Those who have working spouses can have them request additional income tax withholding from their wages; this withholding can then be applied to the additional Medicare tax when they file their joint returns for the year. Because of the new tax, the deduction

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and your small business can prepare for them now.

One such change is the withholding for the additional Medicare tax. There is a new additional Medicare tax of 0.9 percent on workers that takes effect in 2013. It applies only to earned income over a threshold amount: $250,000 for married persons filing jointly; $200,000 for singles, heads of householdsand qualifying widow(er) s; and $125,000 for married persons filing separately. This additional Medicare tax is on top of the basic Medicare tax of 1.45 percent on all compensation earned by employees (2.9 percent on all net earnings

S in ce 193 0

Our primary goal has been to provide the best of service to the specialty lines insurance marketplace. Understanding the needs and providing rapid response to the independent agent has been and remains our number one priority.

For Transportation visit

www.insurewithnai.com Call NAI for quick quotes or visit us on the web 1-800-824-1740 or www.nai1982.com • General Liability • Premium Finance

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• Garage • Property

Professional Insurance Agents/Winter 2012

• Liquor Liability • Transportation

from gross income for self-employment tax will not be exactly one-half of all self-employment tax paid. The deduction is limited to the so-called employer portion, which will be less than half of the total amount of self-employment tax paid by those with net earnings over their applicable threshold amount.

Although the law does not require a company to notify employees about the new tax, it might be a good idea to do this so high earners will not be surprised. Additionally, employers should know that there is no employer matching of this additional tax; the tax falls exclusively on employees. However, there may be additional administrative costs for compliance with withholding for the tax—whether you handle payroll in-house or outsource this function. As in the case of the basic Medicare tax, it applies to all taxable compensation, including bonuses, tips and taxable fringe benefits. Withholding begins in the pay period in which an employee’s earnings first exceed the applicable threshold amount and withholding applies only to the portion of earnings over the threshold amount.

Additionally, there is a new FSA cap. Companies offering medical flexible spending accounts must limit employee salary reduction contributions for 2013 to $2,500. Up until now, the cap on employee contributions had been set by employers, not the tax law, with the cap averaging around $5,000 in most companies. Therefore, employers should inform employees about the change in the law (The $2,500 cap will be adjusted for inflation after 2013) as well as amend company FSA provisions to reflect the tax law’s limit on employee contributions. While the deadline for making amendments is the end of 2014, plans must be operating under the new rules in 2013. Keep in mind, the cap applies only to medical FSAs. It does not apply to dependent care FSAs or other employee contribution plans, such as health savings accounts and if a married couple work for the same employer, each can contribute up to $2,500 to a medical FSA.

Now is a good time for business owners to meet with their tax advisers.

Discuss which tax rules need to be addressed now and how to proceed.

Your Best Assess your agency’s Defense overall E&O culture

Pearsall is president of the Pearsall Associates Inc. and a special consultant to the Utica National E&O Program.

By Curtis M. Pearsall, CPCU, AIAF, CPIA

How would you assess your agency’s overall errors-and-omissions culture? The question is not easy to answer. After all, there are many issues to factor to make this determination. A better way to look at this is to compare your E&O culture today with a certain point in the past. The question then becomes, “Is your E&O culture stronger today than it was last year at this time?” In a recent industry survey, 85 percent of the agencies that responded indicated an improvement over the previous year, with 70 percent of that 85 percent indicating a substantial improvement.

Creating and maintaining a culture of constant improvement is key. It probably is best to evaluate your agency on a continuum. As you may not know where the end is, the goal is to be confident you are making progress and improving.

If your agency is unsure where it stands or if you have not given it much thought, here are some areas to consider:

Management/leadership

As with most businesses, the culture of the organization starts with management/leadership. The staff will follow suit to the degree that management “walks the walk” and “talks the talk.” Thus, where it is apparent that agency management is committed to a strong E&O culture, that message will drive staff behavior.

Conversely, if agency management does not truly embrace an E&O culture, the agency only is fooling itself and will never achieve the desired level of E&O commitment.

Staff engagement

Undoubtedly, this area will determine an agency’s E&O culture greatly. Why? Agencies don’t make mistakes, people do. Two agencies could have the same procedures and expectations, yet have a different culture within their respective shops. E&O is serious

Professional Insurance Agents/Winter 2012

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stuff, requiring every staff member who believes in the cause to perform his or her duties ethically and professionally.

Because an agency’s staff involves many different functions and disciplines, assessing the agency’s culture requires an assessment of each person. While producers and customer service representatives are heavy drivers of E&O claims, virtually everyone in an agency, including the receptionist and claims team, has the potential to cause (and are causing) E&O claims.

Educate your staff

For the staff to perform their jobs professionally and efficiently, they must possess a high level of proficiency in the technical aspects of their positions. Your customers count on the staff’s expertise on an insurance matters. In addition, training in the areas of sales, customer service and systems also is important. As you develop goals for each of your staff for 2013, identify educational opportunities based on your assessment. This may include education courses, designations, seminars, etc. PIA is a great resource for this type of material.

Moreover, exposure analysis checklists are an excellent tool for agencies to understand classes of business and the various insurance issues and exposures.

Educate your customers

Many agencies would contend the best customer is an educated customer.

Celebrating 30 Years

Has your agency undertaken a campaign to educate customers on various coverages and how these coverages respond? There are many approaches to accomplish this, including producing a printed or electronic newsletter to send to customers. There are many topics to address. Some apply regardless of the time of year, while others are more seasonal (e.g., boating, children going off to college, etc.).

A great approach is to perform an annual agency review for each of your customers. This will help your customers understand their coverage and also may identify any exposures the customer has that are not insured properly. It definitely is better to discover and discuss these issues before a loss occurs as opposed to afterward.

Documentation

What is the quality and timeliness of the documentation in the customer’s file?

For example, documentation stating “spoke with insured regarding his homeowners insurance” is unacceptable as it does not provide any real details. The best rule of thumb for documentation: Another staff member should be able to review the documentation and know exactly what the issues are as well as any open items.

Auditing

To truly assess the E&O culture and commitment of the agency staff, it is necessary to review files and the details each contains. How well are

While

it’s

traditional

to

celebrate

30-year

anniversaries with the gift of pearls, we at LEMIC are showing our appreciation and agency loyalty by continuing to provide the highest standard of workers compensation coverage for companies of any size. Thanks to all of our business partners and those who have allowed us to serve them for over three decades.

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MARKETING 225.201.0107 EXT225 UNDERWRITING 866.314.9970

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Professional Insurance Agents/Winter 2012

Customer accountability

With many E&O claims, the customer does not take any responsibility for the decisions made regarding his or her insurance program. Some possible approaches: • Provide options for the customer to consider and require the customer to sign off on the coverages and limits selected and rejected.

• Send a cover letter with the policy to the customer to request the customer reviews the policy and advises your agency of any questions or problems.

An example of such a letter: Enclosed please find the renewal of your businessowners package written with XYZ Insurance Co. You will be receiving your premium invoice shortly.

It is important that you take the time to read this policy to ensure your understanding of the limits and the coverages. If there are any questions, or if you wish to make any changes to this policy, please contact the agency promptly.

The limits of insurance have been selected by you and we can’t guarantee the limit selected will be sufficient in the event of a major loss. Higher limits are available upon your request.

Thank you for your confidence in our agency. We appreciate your business.

Sincerely,

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agency procedures being followed?

What is the level and quality of the file documentation? To perform this function effectively, develop an audit form to address key issues and then perform periodic reviews of a predetermined number of files for each staff member.

While this takes time, it is a critical to discover any issues before they become a problem.

Growth and improvement

If you are unsure your agency’s culture has been enhanced compared to last year, or if it has regressed, don’t be disheartened. Start today on a path to growth and improvement. It will be time and energy well spent.

Navigating the propertycatastrophe market in 2013 The events of the last few years have affected how risks are viewed

By David Pagoumian

T

o understand where the propertycatastrophe market was in 2012 and is heading in 2013, let’s start with 2011. Global catastrophes in 2011 included: the earthquake and tsunami in Japan; the earthquake in New Zealand; a rash of damaging tornadoes in the U.S.; and floods in Thailand. These and other weather events pushed catastrophe losses to at least $105 billion for the year, surpassing the 2005 record of $101 billion.

Along with record losses, insurers began to implement Risk Management Solutions Inc.’s new hurricane model (RMS, version 11.0), which changed the grading of risk as hurricanes move inland.

With some industry experts estimating this change to be similar to a manmade $60 billion event, the probable maximum loss of accumulated risk for several reinsurers more than doubled under the new model.

As a result, 2012 saw a long anticipated turn in the propertycatastrophe market. After several years of price reductions, a move from softmarket conditions in 2011 accelerated in 2012 with prices rising from 5 percent to 50 percent. Capacity also was reduced, including reductions from Lexington, one of the insurance industry’s largest property-catastrophe markets.

However, as we reached the latter part of 2012 the market dynamics began to change again. Most insurers had put the RMS model into effect, and insurance prices now reflect this change.

Meanwhile, catastrophe losses remained far below historical levels, reaching

just $12 billion in the first half of 2012, compared with $82 billion in the first half of 2011.

This picture changed dramatically on Oct. 29, 2012, with the arrival of Superstorm Sandy.

Sandy accelerates change

At the time of this writing, just days after the storm, it is too early to tell exactly what impact Sandy will have on pricing and capacity. However, it seems clear when it comes to underwriting discipline in the property-catastrophe market, the Northeast will be handled more like Florida and the Southeast.

In addition, as will be discussed below, risk models are looking anew at severe weather events, including windstorms in the Northeast. Sandy will accelerate this process. The question that both models and underwriters will ask is whether climate change has laid the foundation for more severe storms in the Northeast.

What do these trends mean for agents and brokers—and their clients who buy property-catastrophe coverage?

Agents and brokers who have both practical experience and in-depth market knowledge can help buyers navigate the market’s ebb and flow and deliver the best possible outcomes.

The role of risk models

A hot topic in the propertycatastrophe market is the use of risk models and their impact on price and capacity. These models were first developed in the late 1980s and focused

primarily on earthquake risk. The three top firms AIR Worldwide, RMS and EQECAT were founded between 1987 and 1994. Blending earthquake science, structural engineering and actuarial science, the risk model marked a significant advancement in the assessment and management of catastrophe risk.

Over the last two decades, these models continued to evolve and also cover hurricanes, tornados, hail storms and even terrorism risks. Currently, changing weather patterns are forcing the property-catastrophe market to reconsider the weather events for which it prepares and how it goes about doing so. Now, risk models are being developed for the frequent and widespread wildfires in the west, “derecho” winds in the Midwest and more powerful hurricanes (e.g., Sandy) along the East Coast.

We don’t know how modeling severe weather events will affect coverage and pricing yet, but there is a certain amount we can deduce based on underwriting experiences. If we have a better idea of how an area will be affected by frequent storms and weather events, we should be able to better tailor coverage and price accordingly.

Some insurers also are returning to underwriting basics, using their professional judgment when considering how to price an account. Over the years, models have had their fair share of critics who question their reliability and the industry’s reliance on them.

In 2012, the year following the introduction of the revised RMS model,

Professional Insurance Agents/Winter 2012

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insurers began to rethink their use of catastrophe models. Some have reduced their reliance on the RMS model and use models from AIR Worldwide and EQECAT with greater frequency. Others have developed their own models. By using more than one model, insurers may be able to obtain lower loss estimates, which may open the door for them to offer more competitive prices.

While modeling helps provide us with a clearer picture, the best underwriting results can be produced through a combination of data obtained from models and the wisdom of traditional underwriting. Underwriters are able to understand and account for nuances in a way that software cannot.

Considerations for 2013

While property-catastrophe prices rose in the third quarter of 2012, as we enter 2013 it appears the case for higher pricing may be starting to weaken. Along with lower catastrophe losses and the integration of RMS 11.0, policyholder surplus was at a near-record high. While Sandy certainly will put upward pressure on rates, it is too early to forecast at the time of this writing.

The momentum in the market is beginning to shift and insurers rarely have the leverage to win significant price increases. Some accounts still may see some modest price increases—depending on geographic location and loss history.

For example, the Northeast may face higher price increases than imagined just a few months ago.

Experienced agents and brokers with practical knowledge of the market can help insurance buyers manage the insurance cycle and emerge from their renewals with improved outcomes.

Pressure to reduce prices may begin to build in 2013, but insurers have reasons to hold the line on price. For instance, low interest rates have put insurers under more pressure to turn an underwriting profit.

The RMS 11.0 model also establishes a floor of support for the price of property-catastrophe insurance.

Because the model is backed by the major

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rating agencies, most insurers will be unwilling to reduce prices too far below the model’s pricing guidance. Still, if even one or two insurers begin reducing rates, a new round of competitive pricing could begin in 2013.

Prepare your clients

To secure capacity on the most favorable terms for clients don’t be complacent. While increases in the price of property-catastrophe insurance are not expected to be as steep as they were in the first half of 2012, by taking steps to prepare, the agent and the insurance buyer will be in a position to keep costs under control.

Start by beginning the renewal process as early as 90 to 120 days before the current program expires.

While many underwriters may not be willing to negotiate programs until 30 to 45 days before policy expiration, the earlier the process is started, the sooner important preliminary feedback—about rates, capacity and any potential issues regarding their particular program— can be obtained. This also allows time to respond to any questions underwriters might have about the risk and develop strategies if there is a need to make adjustments to a program or replace capacity.

Large claims can be a red flag to insurers. They will look at an account’s loss history to determine pricing and the amount of capacity to make available.

Underwriting submissions should explain the large claims they may have had; what happened with these claims; and a discussion of loss-mitigation measures they have taken to reduce the risk of future similar and/or large claims.

Accurate data is key

When using risk models, it is important to remember a model’s results only are as good as the data that goes into them. Data points like addresses, occupancy types, year built, number of stories, construction type and more are essential to accurate models. Professional insurance agents should work with their client to obtain the most detailed and

Professional Insurance Agents/Winter 2012

current engineering and empirical data possible. Underwriters put more time into accounts with complete data.

Accurate data is important when it comes to building values, which are at the core of risk models. Today, underwriters are keying on accurate “insurance to value.” Questionable building values not only lead to a policy that does not provide the correct protection, but they create a weakened negotiation position from the start of the placement process.

Finally, with capacity still strong, there is no need to rely too heavily on any one insurance market. Having multiple insurers, principally in difficult primary layers, helps protect the client from the effect of any single carrier’s decision on price or capacity. Also, consider the pricing objectives and whether it is the proper time to replace an incumbent insurer to obtain only minimal savings.

In some cases, it may make more sense to stay with incumbents and continue to build relationships that will endure the next hard cycle. The insured may have more success obtaining rate reductions the following year, barring any large catastrophic losses.

The property-catastrophe market is cyclical and affected by many complex risk factors. Gaining in-depth market knowledge or working with partners with this expertise, can help your clients secure the most favorable placements.

Cyclical forces cannot be controlled, but they can be managed.

Pagoumian is CEO of NAPCO (www.napcollc.com), a leading wholesale broker of commercial property insurance coverage and an expert in the propertycatastrophe market. He can be reached at dpagoumian@napcollc.com or by calling (732) 603-2082.

Insurers have role to play as social media, cyber risks grow An overview of the industry’s increasing role in the social-media liability

By Robert Hartwig, CPCU, and Claire Wilkinson

A

re you a fan of Facebook, YouTube, Twitter or LinkedIn? If you are one of the millions who interact on these social networks every day, do you ever consider the risks as you Tweet, message, “like” and share?

Social Media, Liability and Insurance, an Insurance Information Institute white paper, which was cowritten by the authors of this article, observed that, like any other new technology, social media brings enormous opportunities and benefits.

We found that individuals seek to protect themselves better from the risks created by their participation in social media. And, while traditional homeowners insurance policies include liability protection that covers the insured against lawsuits for bodily injury or property damage, coverage for this type of liability may be limited and individual policies differ by company and by state.

Case law in this area also is evolving and still is uncertain. Umbrella or excess liability policies provide broader protection to individuals, including claims against the insured for libel and slander, as well as higher liability limits.

Yet as businesses navigate this shifting online risk landscape, they face a range of evolving social-media-related liabilities including privacy, security, intellectual property and employment practices liability.

The proliferation of social media use also comes amid growing concerns over cyber security. Businesses that store confidential customer and client

information online are exposed to increasing liabilities and costs because of cyber attacks and data breaches.

For example, a massive data breach at Sony Corp’s online game networks in April 2011 resulted in the theft of more than 100 million online accounts. Just months later, in October 2011, Sony’s Playstation Network and other online entertainment services were hit in a second attack that compromised 93,000 user accounts.

Coming in the wake of the 2010 Wikileaks breaches of classified data, these high-profile data breach incidents have served to increase both public and government scrutiny of cybersecurity practices.

The Securities and Exchange Commission issued guidance in the wake of those events, urging publicly traded companies to disclose significant instances of cyber risks and events.

Description of relevant insurance coverage was included in the SEC’s list of appropriate disclosures.

Traditional business insurance policies that policyholders and their lawyers have looked to for coverage in the event of a data breach or other cyber-related attack include: property insurance (including business interruption coverage); liability insurance (including E&O, D&O, general liability and umbrella insurance); crime insurance policies (including financial institution bonds, computer crime policies and fidelity insurance); and businessowners policy packages. But, as reliance on

traditional policies is not enough, specialist social media and cyberinsurance policies have been developed by insurers to help businesses and individuals protect themselves from an ever-evolving range of risks.

An Advisen survey sponsored

by Zurich, found that while a growing number of risk professionals acknowledge information security and other cyber risks as serious concerns, only about one-third of organizations (35.1 percent) currently purchase insurance as part of their cyber-riskmanagement strategy.

Some key reasons survey participants gave for not purchasing cyber-liability insurance included:

• investment in prevention rather

than insurance;

• limited markets;

• broker disconnects;

• lack of coverage clarity;

• lack of information to make

informed decisions;

• too expensive;

• application process is difficult;

• deductibles are too high;

• difficult to quantify; and

• policy coverage is too limited.

Advisen did report that interest in the coverage appeared to be growing, as an increasing number of companies have purchased protection in recent years or are considering buying coverage in the near future.

Specialized cyber-risk coverage is available primarily as a stand-alone policy. Each policy is tailored to the

Professional Insurance Agents/Winter 2012

13

specific needs of a company, depending trademark infringement, libel, on the technology being used and the slander, defamation or other “media” level of risk involved. Both first- and activities on the company’s website, third-party coverages are available. such as postings by visitors on Types of cyber-risk coverage include: bulletin boards and in chat rooms.

Loss/corruption of data: Covers This also covers liabilities associated damage to, or destruction of, valuable with banner ads for other businesses information assets because of viruses, located on the site. malicious code and Trojan horses.

Crisis management: Covers the

Business interruption: Covers costs to retain public relations assistance loss of business income as a result of or advertising to rebuild a company’s an attack on a company’s network that reputation after an incident. Coverage limits the ability to conduct business, also is available for the cost of notifying such as a denial-of-service computer consumers of a release of private attack. Coverage also includes extra information, as well the cost of providing expenses, forensic expenses and credit monitoring or other remediation dependent business interruption. services in the event of a covered

Liability: Covers defense costs, incident. settlements, judgments and, sometimes,

Criminal rewards: Covers the cost punitive damages incurred by a company of posting a criminal fund for Wishing you a peaceful, prosperous New Year!reward In 2013, as a result of: information leading to the arrest and may all good things be conviction yours inof abundance.

• breach of privacy due to theft of a cyber criminal who has data (such as credit cards, financialattacked a company’s computer M. J. Kelly is an Excess and Surplus Lines systems. or health-related data);

Data breach: Covers the expenses wholesaler and We canresulting write your prop• transmission of a computer virus and broker. legal liability from a data or other liabilities resulting from a breach.

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Identity theft: Provides access Managing General to Agents prides itself on strong relationships with the inLines Brokers thirdSurplus parties; to an identity-theft call center in the 1-800-873-8374 surance companies represent and or you—our • rendering of Internet Professional event ofwe stolen customer employee Wes Meacham ext. 118 Services; and personal information. www.mjkelly.com colleagues, friends, and neighbors.

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are looking to develop products that cover a company’s social-networking activities under one policy. Some cyber policies now provide coverage for certain social-media liability exposures (i.e., online defamation, advertising, libel and slander). Depending on the individual policy, specialized cyber-risk coverage can apply to both internally and externally launched cyber attacks, as well as to viruses that are targeted specifically against the insured or widely distributed across the Internet. Premiums can range from a few thousand dollars for base coverage for small businesses (less than $10 million in revenue) to several hundred thousand dollars for major corporations that want comprehensive coverage. As part of the application process, some insurers offer an online and/or on-site security assessment free of charge regardless of whether the applicant purchases the coverage. This is helpful to the underwriting process and also provides extremely valuable analysis and information to the company’s chief technology officer, risk manager and other senior executives.

Despite the fact that cyber risks and cyber security are acknowledged to be a serious threat, a majority of companies today still do not purchase cyber-liability coverage. Research indicates that this is changing. Insurance will no doubt play a key role as companies look to reduce their potential financial losses related either to social media or cyber risks.

Hartwig is an economist and the president of the Insurance Information Institute. Wilkinson, a former vice president at the I.I.I., writes the award-winning Terms + Conditions blog.

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Pro ISO forms—new changes CSR adopted now or in 2013

Magnusson is vice president of KJM Consulting & Training Inc. She can be reached at (315) 439-6764 or by email at mmagnusson@ windstream.net.

By Mishell K. Magnusson, CIC, CISR, CPIA, AAI, FIPC

Often insurance agents will say they have no idea what version of a form their insurance company issues a policy. They think, “What choice do we have so what does it matter?”

It should matter, as the edition of the ISO form affects the coverages that you are providing for your insurance customer.

Most states have now adopted 2010 versions of ISO forms including the homeowners (Edition 05 11). There were more than 25 changes made to the coverages, definitions, exclusions and/or endorsements. Below follows a brief summary:

Definition changes

Definition of insured. The reference to the person described has been changed to a resident of your household who is your relative; because some may interpret that the unnamed resident relative may not be considered an insured.

Collapse. The wording on collapse has been clarified. However, there is no change in coverage.

Perils insured against. Words “risk of” have been removed.

Vermin preclusion. The policy excludes specific actions or damages from any animals rather than damage from specific animals. The reference to vermin has been removed, and the policy now specifically excludes “nesting or infestation, or discharge or release of waste products or secretions, by any animals.”

Personal injury coverage. The definition of “personal injury” is revised to include an oral or written publication in any manner. This change addresses Internet exposure.

New endorsements

Trust endorsement. The current endorsement, Residence Held in Trust (HO 05 43), issues the policy in the name of the trust. A new endorsement, HO 06 15, has been introduced to replace the HO 05 43 endorsement. It allows the policy to be issued in the name of the grantor, since often the creator of the trust has requested the policy and still is living in the house.

Canine liability. A new endorsement, Canine Liability exclusion, excludes liability coverage for a specifically named and described canine.

Dwelling under construction. A new optional endorsement, Limited Coverage for Theft of Personal Property Located in a Dwelling under Construction, provides theft coverage for personal property in a dwelling under construction. However, the endorsement still does not cover building supplies that are not located in the dwelling.

Withdrawn endorsements

Day care. The Home Day Care Notice endorsement form has been withdrawn.

Escaped liquid fuel and limited lead.

The Rating Information for Property Remediation For Escaped Liquid Fuel and Limited Lead and Escaped Liquid Fuel Liability endorsement form has been withdrawn.

New language

Deductible provision. The new policy language reiterates that the deductible applies on a per loss basis.

Personal property in storage. Now a limit of 10 percent of Coverage C limit applies to personal property in storage.

Electronic equipment. A sublimit of $250 will now apply to accessories; however, the sublimit does not apply to apparatus.

Theft peril. Student coverage for theft now is 90 days instead of 60.

Earth movement exclusion. Damage by earth movement is not covered regardless if from natural causes or otherwise. However, if there is a direct loss by fire, explosion or theft as a result of the earth movement, the ensuing damage is covered.

Water exclusion. In 2008, Water Exclusion endorsements were introduced. This wording now is incorporated into the policy language.

Motor vehicle exclusion. The policy now states that the exception to the exclusion applies to a vehicle “used solely to service a residence” rather than “used solely to service an insured’s residence.”

Professional Insurance Agents/Winter 2012

17

Toy vehicle provision. Provides coverage for owned toy vehicles designed to be used by children. If the vehicle is designed for children under the age of seven, battery-operated and low speed, the vehicle is covered on or off the insured premise.

Expected or intended injury.

The policy now gives coverage for property damage when resulting from reasonable force.

Controlled-substance exclusion.

This exclusion no longer applies to the use of prescription drugs lawfully ordered by a health-care professional.

Unit-owner modified other insurance and service agreement.

The HO 00 06 now becomes primary to cover any amount due on a covered loss as a result of the other insurance policy’s deductible.

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Transition endorsements.

These endorsements allow companies to use up stock of preprinted 2000 Homeowners forms by incorporating the 2011 changes by endorsement.

Loss assessment coverage endorsement. The special limit of $1,000 on the HO 04 35 no longer applies when the assessment is to cover a deductible making the full additional amount available.

Replacement cost loss settlement for certain nonbuilding structures on the residence premises endorsement.

The revised endorsement allows replacement cost loss settlement for in-ground swimming pools, hot tubs and therapeutic baths.

Limited water back-up and sump discharge or overflow endorsement. Wording has been added to reiterate that water back-up coverage only is provided when water or waterborne material originates from your dwelling.

Low-power recreational motor vehicles. The Incidental Low-Power Recreational Motor Vehicle Liability Coverage endorsement has been revised to exclude off-premises coverage for motorized scooters in addition to the already excluded motorized bicycles, mopeds and motorized golf carts.

Most states have adopted these forms, so they are available for your insurance carriers to use. Did any of your carriers adopt this form in 2012 or will they in 2013? As you prepare for 2013, now is the time to ask.

Remember, the homeowners form is not the only ISO form to change.

Tech Laptop recycling Bit

Marshall is a speaker, author and consultant. He can be reached by email at gmarshall@ vendor-tech.com. or visit www. vendor-tech.com.

By Gregg Marshall, CPMR, CSP, CMC

If you have followed my advice and looked at your computer purchases as office supplies rather than the IRS mandated capital equipment purchase, you have probably been upgrading your computer every couple of years. And, most likely it is a laptop so you can take your work with you.

Trickling down—giving your old laptop to someone else in the office or your household—only works so long. At some point the computer is old enough, and slow enough, that the intended recipient has declined the offer. So you end up with laptops that aren’t good enough for people here in the U.S.

Hopefully, you haven’t thrown the old laptop into the garbage. Computers are full of recyclable materials, not to mention poisonous materials that shouldn’t go into a landfill. Often these laptops are useable, they just aren’t “state of the art” enough for family and co-workers. There is an alternative.

One of the fun parts of the Consumer Electronics Show is the little booths in the corners of the exhibition hall. They are the start-up companies with interesting new products and ideas. This year’s CES went one better with its Eureka Zone, a pair of ballrooms with even tinier little booths—all from start-up companies.

One of the first booths caught my attention because it had a 15- to 20-year-old Toshiba Satellite notebook computer sitting out on the table. I recognized it and started a conversation with one of the founders of the group Labdoo.

Labdoo (www.labdoo.org) is one of many nonprofit organizations that attempts to collect older computers, refurbish them and recycle them to needy organizations in poorer parts of the world.

Many years ago, we used to recycle our old desktop computers and peripherals with a local group that would sort them, then pack them in a container to ship to another group in sub-Saharan Africa to be reused in schools there. Given what I’ve learned about toxic electronics “recycling” in Nigeria, I can only hope it was a legitimate business and our donations were redirected when they got to Africa. But, the group went out of business, in part because its model required significant funding to support a facility and staff in Denver, shipping in containers and an organization in Africa to refurbish and distribute the computers.

The official presentation of one of the laptops to the school.

Gregg Marshall and another volunteer, Serena (on the left side of the picture) present one of the laptops to teachers and students from the school.

On the other hand, Labdoo takes a distributed approach based on the concept of social networking.

Rather than have one or two centralized facilities with space and staff (and overhead), Labdoo has a distributed group of volunteers all over the world. Like social networks, as the network expands, some locations evolve into hubs of activity and connections to other parts of the network.

What is truly unique about Labdoo is its solution to the logistics problem of moving the donated computers between Labdoo volunteers. Rather than having to fund traditional shipping, it uses the baggage allowances of volunteers to do point-to-point transportation of computers. Volunteers register their “dootrips” on the Labdoo site and a Labdoo volunteer (soon to be replaced by the site’s own logic) will arrange for computers to be transported.

As a result, Labdoo is able to get quite a few laptop computers to needy organizations all over the world with a minimum of funding, mostly using volunteers working as a distributed team with an amazing logistical process for moving computers around the world to be refurbished and delivered.

One of the concerns a lot of people have about donating computers is the security risk of any data that might accidentally be left on the hard drives.

Fortunately, the Labdoo refurbishing process starts with a security erase of the hard drive that makes several

Professional Insurance Agents/Winter 2012

19

passes to overwrite all existing data before clearing the drive to install a fresh copy of the Ubuntu open source operating system.

I actually had the opportunity to experience the Labdoo process first hand as a donor, refurbishing a couple of laptops and organizing a dootrip. It started when I visited the Labdoo booth at CES in January. As I chatted with the founders, one was of Thai descent, and I mentioned I was heading to Thailand in February for a business trip and to attend a conference.

The Labdoo representatives said they had

a school in northern Thailand that was on their list of recipients. Since I was flying on United, where I have million-mile status, I am given a generous free baggage allowance, I offered to do a dootrip for laptops to Thailand.

I donated a Toshiba and a Compaq that could be refurbished, then followed the steps on the Labdoo site, which started with the security erase of the hard drive and ended with installing the Edbuntu version of Ubuntu on the computers. All in all, I spent a couple of hours spread over

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a weekend setting up the two computers.

Eventually, the satellite will find its way to a Labdoo hub to be repaired or stripped and recycled.

As I was organizing friends in Thailand to help get the laptops from Bangkok to the school in northern Thailand, I found out the school was doing a field trip to take a group of students to the ocean for the first time.

The timing was perfect, it turned out they were going to be staying over in Bangkok the weekend I arrived. So, instead of getting the laptops to the school, the school was coming to me.

The organizers of the trip were having a fundraising “meet and greet” for donors who had helped finance the field trip that Sunday and they suggested we do a donation presentation then. Not only did I meet some of the students who would use the computers, but I got a nice Thai dinner out of the experience too. It was gratifying to be able to take a laptop computer through the entire process and actually see it delivered to the people who would use it.

You certainly don’t have to get that involved. You could simply package up your old laptop computer and ship it to a Labdoo hub and the company will take care of getting it refurbished or recycled and distributed. It can be as easy as going to the Labdoo website (www.labdoo. org), tagging a computer and starting the process. Or, if you really want a minimum effort donation, just use the contact form (www.labdoo.org/contact), tell Labdoo what computer you have and that you are willing to ship it and the company will let you know where it is needed.

I would also encourage you to volunteer to be a dootrip volunteer, especially if you have any international travel planned. But, even short domestic trips make possible the option of getting laptops from anywhere in the country to a Labdoo hub, or from a Labdoo hub to an international dootrip volunteer. The effectiveness of this form of distribution is having enough trip “inventory” to make scheduling easier.

I find Labdoo’s approach to recycling laptop computers exciting, I hope you’ll make a decision to donate a computer or get involved!

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