Insurance Q & A – Answers from Marjorie Segale

Question 2 – Workers Comp
We have an insured who is a (domestic) employee referral agency. The employee is paid their wages out of a trust account set up by the homeowner using the domestic employee. The employment contract does not specifically require a Certificate of Insurance showing that the employee is covered for workers’ compensation. We are concerned that the referral agency could be considered the employer if the hiring party has no workers’ compensation coverage. We believe they should be asking for a Certificate of Insurance showing workers’ compensation coverage from the employing homeowner.

Answer by Marjorie L. Segale AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR
Director of Education, Insurance Community Center
I think you are completely correct. Anytime an employee is hurt, the Department of Labor is going to look for any responsible party to pay for the medical treatment and/or lost wages. I think that they should rightfully ask for a Certificate of Insurance (I don’t think that the absence of that requirement in the contract is a big deal). It is very common for people to ask for a COI showing coverage even if there is not a specific obligation to do so in the contract.
More Questions and Answers are on the Homepage of the Insurance Community Center www.insurancecommunitycenter.com

 

 

Insurance Q & A – Answers from Insurance Professional

Question 1 – Workers Comp
If an employer no longer has any employees is it necessary to maintain a WC policy if the amount of time they will be without employees is unknown? If so why?

Answer by Casey Roberts, ACSR, AFIS, CIC – Laurus Insurance Consulting
As you have probably figured out by now (even though you say you are a newbie) there are very few “yes” or “no” answers in the business of insurance. Let’s say the insured is a sole proprietor and no longer has any employees. In California I would not have a problem with canceling their Workers’ Compensation policy. Note that I would be 100% CERTAIN that they have no employees. Sometimes employers work with “independent contractors” who may or may not be considered as such should a claim occur. If this is the circumstance then I would be loathe to cancel their policy.

If the insured were a Corporation or similar ownership, I would want to make certain that ALL of the officers that have the ability to select to be covered or not to be have selected to NOT be covered. I would want this in writing from the individuals. Far be it from me to cancel a policy without the knowledge of one of those that could potentially be injured and have a claim.

Another consideration is that oftentimes insurers are willing for a minimum premium charge to continue to carry coverage just in case the insured suddenly and without telling you (trust me, this happens a fair amount of the time) hires a new employee. Consider that your insured just got a job and needs someone for two or three days…are they always going to remember to call you? Unfortunately the insurance agent or broker is not always the first person they think to call.

 

 

Ethics in the Workplace – Six (6) Points To Consider

1) Define your values – remember this is what you are willing to enforce and live to…so make certain that you

can and will do just that.

2) If you post it, you MUST practice it – walk the talk and talk the walk

3) Integrate it into your workplace – measure it and incorporate it into your everyday processes

4) Watch for the “slippery slope” – make certain that there is a “line in the sand” aver which NO ONE can step…once beyond that line things tend to get a bit slippery

5) Be above reproach – Stay WAY above your line in the sand. It makes it easier to live with that line every day.

6) Get past your self-protective behavior – you are going to make mistakes. When you do own up to them promptly, it is far better for you, your organization and all of those folks you work with on a regular basis.

Written By:
Casey Roberts, ACSR, AFIS, CIC
Laurus Insurance Consulting
www.laurusinsuranceconsulting.com 

 

Producer Contract Fundamentals

One of the amazing things that occurs in some agencies, even successful ones, is that often the producers have not signed contracts.

There are three main reasons for the lack of contracts.

The most common is that the agency owner and the producer has a verbal agreement. Usually the owner is reluctant to put the agreement in writing for fear that the producer will not sign one any way and might leave if forced to sign.

The second reason is that the owner just did not take the time to draft an agreement or did not know were to start. The third most common reason is that the owner feels contracts are a waste of time and money. They believe that if a producer wants to leave and violate the contract they will.

The last reason does have a bit of truth to it. However, if a producer does violate a contract, at least the owner does have a means of recourse. This is especially true if the agreement is fair.

Those who feel a verbal agreement will suffice or fail to take the time to write an agreement are playing with fire, and will get burnt. Without a contract, any dispute must rely on verbal agreements, implied agreements and common practices. The results of such disputes are up in the air. At least with a contract both sides have a common starting point in which to resolve their disagreements.

One of the biggest reasons to have a contract with a producer is to clearly state who owns the business. Producers often feel that since they generated the business they own it. Whereas many owners feel that since they own the agency, they also own all of the business. The conflict arises when these two opposites do business together.

The time and money it takes to put a contract together seems trivial when a producer with a $250,000 commission book of business walks away. Sometimes the ownership issues pop up only when the agency owner is retiring, only to find out their agency is worth a lot less because they do not own the producer’s book of business.

The Starting Point
There are many boilerplate or do it yourself contracts out there. Some of these are quite well written. They can be used as the starting point for negotiations between the parties. Or, you may choose to start with a plain language Letter of Intent that outlines all the terms agreed to by all parties.

The next step is important. HAVE A COMPETANT LEGAL ADVISOR REVIEW AND APPROVE ALL YOUR CONTRACTS. Boilerplates are fine to an extent, but laws change and vary from state to state, so never do all the contract work without an attorney who has experience with producer contracts. If you start with a Letter of Intent, the attorney can use it as the raw material for a contract.

So what are the key elements that make up a good contract? The first thing to consider is that each agency and producer is unique and that a contract can and should vary based on the circumstances. There are, however, some basic components that each contract should contain. The most common elements are:

Parties to the Agreement and Recital – State the name of all parties (individuals and entities) that are entering into the agreement. The recital provides a brief overview of the background and why the agreement is being written.

Term of Employment or Contract – State how long this agreement will run. It can be open-ended, if so desired.

Responsibilities of the Producer – Describe the duties expected from the producer. Always add a line that duties include any reasonable task requested or assigned to him/her by the employer. This is a good “catch-all” phrase.

Obligations of the Employee – Explain what the employer will provide the producer to enable them to perform their work.

Compensation and Benefits – Outline the compensation plan and any benefits provided.

Exclusive Nature of Employment – State that the employee is to devote their full-time and efforts exclusively for the benefits of the business. This section should not be included in a contract with an independent contractor.

Termination of Agreement – Describe what the rules will be for termination of employment.

Death and Disability Issues – Many contracts omit this valuable section. Make sure it is understood how the death or disability of the producer will impact the agreement.

Non-Disclosure and Non Piracy – Clearly state the importance of non-disclosure and non-piracy of the agency materials. If included in the contract, it is most likely to hold up in court.

Ownership of Accounts, Expiration Lists and Renewals – Describe how the ownership of the accounts will be handled.

Injunctive Relief and Damages – Spell out the ramification of any violations of the agreement.

Assignment of Agreement – Allow for the assignment of the contract to a third-party, such as a buyer of the agency.

Invalidity of Specific Sections – This section allows for the rest of the agreement to remain intact, if a specific section becomes invalid for some reason.

In addition to these sections, there will be additional sections related to common legal practices in a contractual agreement, such as Applicable Law, Binding Effects, Amendments, Waivers, Arbitration and Complete Agreement.

Is it Negotiable?
Some of these sections are negotiable, such as Compensation and Obligation of the Employee. It is important, however, that the agency owner not negotiate on other sections such as Non Disclosure, Assignment of Agreement and Termination of Agreement.

The sections that tend to be the most important to the owner and the producer revolve around compensation and ownership issues. The approach towards these two issues needs to be customized based on the needs, expectations and position of the parties.

Insights on how to handle producer compensation was addressed in a prior article (VVVVV). The bottom line on compensation is that it needs to be rewarding and motivating for the producer, affordable to the owner and fair to both parties.

Ownership of Accounts
There is a wide range in how account ownership is handled, or mishandled, by many contracts today. Some agreements have the producer owning it all, some have the agency own it all and some fall in between.

The problem is that sometimes account ownership has been used as the vehicle for a vesting agreement or deferred compensation plan. It is important to keep the concept of account ownership separate from the concept of a vesting agreement or deferred compensation plan.

The ownership of the accounts, renewals and expiration lists should always remain with the agency. The contract should clearly state this fact. This will prevent any misunderstanding about who owns the accounts. The vested interest, if allowed, should be strictly a financial benefit to the producer, not an ownership interest in the accounts.

If the two parties agree to some sort of vesting or deferred compensation, that should be spelled out separately from account ownership. In a vesting agreement, the producer has a vested interest in some portion of the renewal commissions generated by the accounts, while the ownership still remains with the agency. This agreement can be part of the employment contract or it can be its own agreement.

A deferred compensation plan can be effectively the same as a vesting agreement. It is probably less confusing to use the deferred compensation terminology rather than the vesting terminology, since the latter may be confused with an ownership of the accounts.

Keep in mind that a deferred compensation plan can be unrelated to the producer’s book of business. For example, the employee may earn $10,000 in deferred compensation per year of employment.

The terms of the deferred compensation or the vesting agreement needs to be clearly stated. Why bother saying that a producer is 50% vested in their accounts without describing how the value will be determined? Failure to state how the value is determined will only cause more problems.

A “rule of thumb” multiple for value is the most common approach. The main problem with a rule of thumb, such as one times commission, is that it may not reflect the fair value of that particular book of business. It makes sense to include the option for a professional appraisal if a dispute arises.

The contract can also allow the producer to buy the accounts from the agency. This makes the agreement bilateral and may help the agreement to be construed as fair in the courts. The agency, however, should always reserve the right to sell (or not).

Summary
Good producers are hard to find. For an agency owner to spend a lot of time and money finding and developing a good producer, it only makes sense to have a clear understanding of what their agreement is. When both parties know what the terms are and agree to them in writing, it tends to keep both sides honest and more likely to follow the terms.

The legal world is not perfect and valid contracts sometimes don’t hold up for one reason or another. An agency’s clients are better off with the proper insurance then no insurance at all. In a similar fashion, an agency and producer are better off with a written contract then no contract. A well-written producer contract is a form of assurance to a good relationship between the agency and the employee.

About the Authors.

Bill Schoeffler and Catherine Oak are partners in the international consulting firm, Oak & Associates, based in Northern California. The firm specializes in financial and management consulting for national and international insurance agencies, including valuations, mergers acquisitions, clusters, sales and marketing planning as well as perpetuation planning. They can be reached at (707) 936-6565 or by e-mail at catoak@sonic.net.

 

2013 Calendar of CE for Insurance Professionals is Unveiled. Complimentary Class Available.

The Insurance Community Center is proud to release the dates of its 2013 calendar of Continuing Education webinars.  Insurance professionals can now take CE classes for credit from the comfort of their office or conference room.

The Insurance Community Center (ICC), known and regarded for its excellent quality, highly regarded Continuing Education classes have just released the schedule for the first quarter of 2013. In addition to the unveiling of the 2013 calendar,  the ICC is reserving an afternoon class where California students can attend free of charge.

Classes that the ICC offers covers the spectrum of different insurance practices. Learning tracks include topics in the following subject areas: Commercial Lines, Personal Lines, Employee Benefits, Life Insurance, Contractors Insurance and Agricultural Insurance. Some of the most popular titles include: Business Income, Ethics, E&O, Intellectual Property, Homeowners, Voluntary Benefits and Construction Contracts.  New this year are titles such as: How to Insure a Manufacturer, Traps & Tricks of Personal Lines, Equine Insurance and Umbrella/Excess. The full calendar can be found at http://insurancecommunityuniversity.com/CEWebinarsCalendar.aspx

All of these webinar titles are between 2 and 4 credit hours.  The classes take place in a live interactive format, online. This allows the student to fully participate, ask questions and receive feedback all from the comfort of his or her office or conference room.

On Wednesday, November 14, the ICC is offering its popular Cyber Liability course for California agents. Anyone can join in on the class but credit if only approved for the state of CA. To register for this class, please click on the following link: https://student.gototraining.com/r/2873578383228194304. Space is limited, reserve your seat today!

 

 

Let’s Sell Life Insurance in 2013 Improving our Bottom Line

 

As we round the corner to 2013, we are all in the budget process and hopeful that our profitability will improve next year. We have already learned to work lean and mean by decreasing our work staff but now we have to look to new ways to make money WITHOUT adding overhead.

The Insurance Community Center and University has a solution for you.

Our world has changed. Ten years ago or more, our property and casualty insurance companies were begging us to sell their life products offering us special trips and prizes tied into life sales. That just is not happening anymore, few property and casualty companies are pushing the life sales with the exception of many of the direct writers. So it amounts to us not having pro-active markets; not being enthused by the sale and passing up the sale—missing the revenue that would be a natural add on to our book of business.

Over the past 30 years, I have talked to many Property and Casualty brokers about adding life Insurance products to their product offerings, rounding out their own accounts. Depending on the size of the agency, we have heard a lot of reasons why they are NOT selling life insurance or how they are attempting to create that sale such as:

We do not want to sell life insurance because:
1. We are a P & C shop and don’t want to get into the life area
2. We are a P & C shop and have no one that knows anything about life
3. We don’t have the time!

We would like to make money selling life insurance, but:
1. We would have to add a life producer to our agency
2. We would have to cross train one of our over-worked P & C people to sell and handle life insurance
3. We would have to refer the life client to the one branch office that handles life insurance
4. We have a relationship with a life agent that gives us a split on the commission
All of these excuses or solutions amount either to lost revenue (premium leakage) or incurring additional overhead expense.

For those P & C agents that have attempted to enter the life industry, many of them have crashed and burned in the process: For those P & C agents that have adopted the procedure of referring their trusted clients to an outside entity, not only are they losing control and revenue but also putting that customer in contact with a firm that is not branded as part of our operation. Whether it is a life wholesaler from one of your carriers, or a firm that you are collaborating with, you still have the issues of trust and access.
We have to approach this New Year with a new directive—to increase our revenue in writing life insurance WITHOUT overburdening our staff or add more overhead cost. By every study that LIMRA has published over the last 20 years the Life Insurance market is under served, fewer people than ever are being contacted about Life Insurance and by all accounts there are fewer agents selling the product. With the contraction of the retail distribution system selling Life Insurance over the past 20 years there are fewer agents being trained to sell the Life Insurance products – so competition, especially for the more complex and lucrative sales is getting lighter and lighters spelling out opportunity for producers.

By partnering with Quick life, you can remove the barriers and expense to writing life insurance. The Quick Life platform solves the structural problems.

Quick Life creates an immediate back office support system, which eliminates the overhead needed to create a life and annuity department. Quick Life is a delivery system that produces consistent results.

Quick Life Structure:
• Provides online quoting of competitive carriers
• Factors in health issues before underwriting
• Allows application taking from all carriers over the phone
• Takes over all parts of the underwriting process, including examinations and signatures
• Facilitates appointments with needed carriers
• Has concierge service which eliminates any producer time
• Will assist in the servicing of in force policies.
• Provides street compensation to the producer

Quick Life Delivery:
• Is structured to allow greater capacity
• Utilizes existing staff
• Integrates internal social media and technology based marketing systems to existing and new clients
• Allows for involvement and control by broker, without commensurate time commitment
I have been using this platform myself for the past 4 years and it has allowed me to create a structure that historically would have required time and capital. Quick Life is working together with the Insurance Community Center to make this platform available to all of its members. For details, please visit – http://www.iccquicklife.com or contact Insurance Community Center Attend our seminar on October 11th titled Sales Opportunities in Life & Annuities—An Introduction to Quick Life taught by George Fraser, Director of Marketing for Quick Life.
This could be the most valuable hour you spend preparing to succeed in 2013.

Written by:
Laurie Infantino AFIS, CISC, CIC, CRIS, ACSR, CISR
President, Insurance Community Center
and
George C. Fraser III,
Director of Marketing
Quick Life

 

 

Avoid E&O with our E&O class for Insurance Professionals

Join Us this Wednesday & Thursday for an Online & Interactive E&O Class.

REGISTER HERE Space is limited – Reserve your seat now.

This course will discuss the common types of errors and omissions that insurance broker/agents make in the transaction of insurance. The course uses the acronym PRIDE to instruct on how to avoid common mistakes. PRIDE stands for: procedures, regulations, implementation, documentation and education. Following the class, the participants will be in a better position to identify their exposure to making errors and how to implement procedural safeguards.

1. Overview of E & O
2. Procedures
3. Regulations and Requirements
4. Implementation of Procedures
5. Documentation

Wednesday & Thursday
September 12 – 13
Two Day Class for CE Credit

REGISTER HERE

 

Continuous Trigger Re-Loaded

The first time anyone heard of a “continuous trigger” decision was back in 1995 when the California Supreme Court issued its ruling in the Montrose case.  This created a watershed moment for underwriters, claims adjusters, agents and insurance buyers alike.  The result of this decision was the insertion of “known loss or damage” language into the insuring agreement of the General Liability policy, first by an endorsement in 1997 and subsequently included the next published ISO edition.  There is a new decision by the California Supreme Court that will have an impact on the method of claim payments for continuous or repeated injury or damage.  Clearly this is significant for construction defect and some products liability claims.  Although these decisions are California jurisdiction, anytime there is a significant court decision anywhere in the country, form revisions and exclusions often follow.  In order to discuss the latest decision, State of California v. Continental Insurance Company, it is appropriate to go back to that original decision and others that followed to have a contextual understanding of how these decisions have cumulatively affected coverage and claims and will continue to do so for quite some time.

Montrose Chemical Corp. v. Admiral Ins. Co. (1995) 10 Cal.4th 645, 655
Montrose was named as a Potentially Responsible Party in the EPA’s mandated clean-up of the Stringfellow Superfund Site in Riverside County, CA.  When this PRP notification was received by Montrose, they notified their Environmental Impairment Liability carrier but not their General Liability carrier, Admiral.  When litigation subsequently commenced against Montrose, not only by the Federal government for environmental damage, but other injury and damage claims by individual litigants, Montrose then turned to their insurance carrier, Admiral Insurance Company for defense.  Admiral declined, stating that the manifestation of these losses occurred upon notification of the PRP status, which occurred during a time that Admiral was not Montrose’ insurance carrier.  At that time, adjusters were using a “manifestation” trigger of a single liability policy to pay ongoing injury or damage claims.  The judicial review of the policy obligations to defend an insured took almost a decade to complete.  The 1995 decision by the California Supreme Court provided a strict interpretation of the policy language regarding the policies that are required to defend.  The Montrose court applied a “continuous” trigger for continuous or progressively deteriorating injury or damage.  This means that all insurers, beginning at the point a reasonable person believes that the injury or damage first began, all insurers during the subsequent injury or damage period and concluding when legal liability has been imposed.

To use a simple illustrative example:  A water pipe is damaged during construction and over the next 6 years the property sustains water damage.  It is first noticed by the property owner in 2010.  Under the old claims guidelines, the 2010 policy was triggered.  Under the “continuous” trigger, all of the policies from 2006 through 2010 are triggered.  If the damage continues past 2010, all insurers will continue to be triggered until legal liability has been imposed.

This ruling left several coverage questions unaddressed:

1. Does this decision apply to damages?
2. Can the insured stack their limits of insurance over the entire continuous time period?
3. What happens if the insured has a time period for which they are not insured during the continuous injury or damage period?
4. How does this decision affect allocation of defense and damages among the various insurers on any given loss?
5. If the insured has both primary liability coverage as well as excess liability coverage, how does each policy respond?

Each of these questions have been subsequently addressed by either California Appellate Courts or by the California Supreme Court.

Armstrong World Industries, Inc. v. Aetna Casualty & Surety Co., supra, (1st Dist., Div. 1, 1996) 45 Cal.App.4th 1, 55-57, 52 Cal.Rptr.2d 690
This ruling held that insurers on the risk must pay the insured 100% of the insured’s liability to third parties even though the insured was uninsured or self-insured for a portion of the time during which “occurrences” were occurring.

Stonewall Ins. Co. v. City of Palos Verdes Estates, (1996) 46 Cal. App. 4th 1810
The Stonewall case deals with a couple of the issues raised above.  This case involved a property owner, Papworth, who filed litigation against the City for the ultimate condemnation of his property due to actions of the City over a significant timer period, beginning somewhere around 1971 and continuing until the home’s effective destruction in 1980.  The jury awarded Papworth $1,188,791.57 as damages for negligence and nuisance and $1,881,946.70 as damages for inverse condemnation.  Judgment was entered for $1,881,946.70. Pending appeal, the underlying action was settled by payment of $1,600,000.  Of the $1,600,000 settlement, $350,000 was paid by the City, $300,000 by The Jefferson Insurance Company of New York (“Jefferson”) and $950,000 by Stonewall Insurance Company (“Stonewall”). Other insurers of the City refused to contribute toward the settlement.

The court addressed the following questions:
Question 1: How much of a judgment is the City entitled to recover from each primary insurer?
Question 2: In what proportions are the primary carriers to share in whatever payments any of them made or makes toward the $1.6 million loss?

The Stonewall court concluded:  “We find the answer to Question 1 in Montrose ‘s analysis: All primary carriers on the risk are liable to the City (up to the limits of their respective policies, less any applicable deductibles or retentions) for the full $350,000.  Inherent in Montrose ‘s conclusion that in cases involving a “continuing injury” trigger of coverage is the principle that damage was occurring throughout the period in question and that all carriers issuing primary policies for dates within that period are fully liable to the insured for the entire loss.  Once an injury triggers coverage, … the insurer must indemnify the insured for “all sums” which the insured becomes obligated to pay, whether during the period of the policy issued by that insurer or after.”

Question 2 involves allocation among the primary carriers during the time of the risk.  The Stonewall court resolved this question by stating that “because we must consider both principles of equity and principles of public policy, formulating a principle of allocation is no easy task.  Equity indicates that all insurers whose policies covered the loss should participate in the cost of indemnifying the insured.”  …”Apportionment based upon the relative duration of each primary policy as compared with the overall period during which the “occurrences” “occurred” (the “time on the risk” method).”  In this case, the court recognized that there may need to be exceptions to this allocation method and did not make it a mandatory rule to follow in future cases.  The court addressed the “other insurance” clause that may appear in the policies in question.  If that clause allows for a pro-rate allocation method, then that would dictate apportionment.  The court also applied a “horizontal” exhaustion rule, which stated that all of the primary policies would respond, and only after the total exhaustion of the primary policies limits, could the excess liability policies be required to respond.  The Stonewall decision also concluded that since the insured is entitled to payment of damages up to the limit of liability, any self-insured (or lack of insurance) is not calculated into this qualified time on the loss.

State of California v. Continental Insurance Company, et al., Case No. S170560
On August 9, 2012, the California Supreme Court issued a long-awaited unanimous decision, affirming that a policyholder is allowed to recover up to the total limits of all triggered policies over multiple policy years and may stack limits across the triggered policy periods.
For the background, we go right back to the Stringfellow Superfund Site.  The State of California was held liable for remediation costs (as high as $700 million) and sought to recover from its various liability insurers.

The Supreme Court has now ruled on each of the following points:
• Each insurer during the continuous loss has an obligation to pay the entire claim, even if only part of the damages occur during their specific policy period (“all sums”).  The Supreme Court affirmed that once coverage for continuous damage is triggered, the insurer is required to pay for all sums up to the policy limits of liability.  It rejected a pro-rata, time-on-the-risk approach.  The Supreme Court noted that “It is often ‘virtually impossible’ for an insured to prove what specific damage occurred during each of the multiple consecutive policy periods in a progressive property damage case.  If such evidence were required, an insured who had procured insurance coverage for each year during which a long-tail injury occurred likely would be unable to recover.”
• The insured can stack policy limits across the various policy periods, even when coverage is issued by the same insurance company.  The Supreme Court affirmed the Court of Appeal’s ruling that a “no-stacking ruling” was erroneous and concluded that the insured was entitled to stack the limits of all triggered policies across all applicable policy periods.
• The court stated that an insurer can limit their exposure by including an anti-stacking provision in their policies
• If the policy contains a self-insured retention, then that SIR must be paid for each policy period

The Supreme Court reasoned that its “all-sums-with-stacking” rule has several advantages:
• It resolves, as equitably as possible, the question of insurance coverage in long-tail injury or damage
• It allows a fair distribution of coverage, paid in annualized premiums by the insured, and allows the insured to receive coverage up to each policy’s liability limits
• It allows recovery from the insurance policies by looking at the entire amount of damages , rather than requiring it to be broken into artificial periods of injury or damage

So, here’s what we are left with:

Many insured’s face long-tail injury or damage losses.  Each insurance company providing a policy can be held responsible to pay up to their policy limits but can charge the insured any retention on the policy.  There has been a long-standing argument from insurance adjusters on this issue.  There is one more case that I did not address above and that is the Armstrong decision that allows the insured to “select” a particular policy to defend and pay damages.  Should the insured tender to one carrier for defense and damages and notice only the other possible insurers?  In light of this decision, that choice may be moot as it appears that the court will allow the insurers to distribute the claim proportionately, even among their own multiple policy periods.  Watch how fast the adjusters use this decision to apply multiple deductibles and multiple retentions, even if notice was tendered to only one policy period.
We are likely going to see “clarification” in the insuring agreement regarding the issue of “all sums for which the

insured is legally liable”.  The current policies do not use this phrase and instead state:  We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies.

There may well be challenges at some future point on this distinction.  Stay tuned.

The court left intact a horizontal application of insurance coverage, requiring the primary policies to contribute their full limits on a pro-rata allocation basis prior to attaching the excess liability policies.  There is likely to be yet another long and costly battle among primary insurers vs. excess insurers on this issue.
In the absence of an anti-stacking endorsement, the insured is entitled to stack the policies.  That is likely to be the next industry response:  an anti-stacking provision that up until this decision, has been omitted from the vast majority of policies.  All of these decisions should concern the insurance agent as well as the insurance buyer.  From the insurance buyer’s perspective, they need to retain coverage information indefinitely.  From the insurance agent’s perspective, filing claims on the insured’s behalf, explaining how a SIR may affect their coverage response as well as the applicability of limits of liability, just got a little more complicated.
Written by:
Marjorie L. Segale, AFIS, CISC, RPLU, CIC, CRIS, ACSR, CISR
President Segale Consulting Services, LLC

 

 

Don’t Let the Bed Bugs Bite — What does that have to do with Insurance?

The phrase: “Sleep Tight—Don’t Let the Bed Bugs Bite”, has an interesting history as to when it was first said and what it means.

The first citation of the phrase is said to be found in a diary in 1866. One theory of the “sleep tight” statement that appears in most explanations,  is that it had to do with beds that were supported by ropes which needed to be pulled tight to provide a spring for the mattress.

http://www.straightdope.com/columns/read/1570/whats-the-origin-of-the-expression-sleep-tight

As to the history of “bed bugs”, it is theorized that they were first introduced in America with the early colonists who brought the bugs over on the sailing ships.  It was such a problem in the early days that passengers were forbidden to bring any bedding on board the ships. The problem of bed bugs in the United States was almost totally eradicated in the 1950’s because of the wide usage of DDT.  DDT could be sprayed or dusted on and around the bed and the bed bugs were controlled for at least a year or more. Bed bugs can also be found in other places where humans spend time such as couches, chairs, airplanes and so on.

Today, bed bugs are making a comeback…big time. In the mid to late 90’s, bed bugs began appearing more frequently in hotels and motels, even premium ones, and in apartments, single-family homes, nursing homes, and hospitals. Lately, bed bugs have become national news, with media exposés on bed bug attacks in five star hotels.  There are several reasons for the resurgence of bedbugs including: increased worldwide travel; underground economy; increase in secondhand merchandise; changes in bed bug habits (they are a crafty bug); and the banning of DDT. 

Bed Bugs in the news can be big news. From an insurance perspective there are several different situations we have to deal with to determine if there is any insurance response to the potential loss.  Using a hospitality risk as an example, (hotel/motel) here are some of the situations that might occur:

1. Situation: A guest at a hotel is actually bitten by bed bugs at a hotel and makes a claim against the hotel for bodily injury and reimbursement for their costs of staying at the facility.

Insurance Response:  The Commercial General Liability Policy would most probably respond to the claim for Bodily Injury.

1.  Situation:  A guest sees bedbugs and is not harmed, reports it to the manager.

Insurance Issues and Response:

1.  Guest wants repayment for their hotel stay
     i.      The requirement to re-pay the guest could be considered a loss of income BUT the reason for the return of the hotel fees is because of a “siting of a bedbug”.  In addition, the room and probably the adjacent rooms cannot be rented because they have to be treated for potential infestation. This time there is no liability claim, no bodily injury.  We could look to the Business Income form but would then have to look at the cause of loss form that is attached to the Business Income Form which, whether Named Perils (the exception) or Special Form, will not pay for loss due to insects. There is also, typically, a 72 hour waiting period for coverage to apply so the loss would have to exceed 72 hours prior to its consideration for payment.  This varies from form to form.                                                ii.      A case in point: an Alaskan hotel Manager, Sheri Makela,  had an incident with bed bugs saying” it took over 3 months to get rid of the bed bugs, during that time the room had to be sealed totally in plastic and only accessed by the exterminator several times every month for additional spraying. A lost income claim was not filed in this case because you can only claim lost income for nights when the hotel is totally full and the incident happened during shoulder season so the hotel was not full every night. The bed bugs were discovered by housekeeping which most hotels are now routinely training how to check and spot bed bugs.”

The hotel has to hire a pest control company
The requirement to now hire a pest control company to investigate whether there were bedbugs and, if there are bed bugs, to fumigate them is a significant cost.  This would not be covered on a Commercial Property Form.

 

1. The angry guest now reports an incident on the Bed Bug Registry
2. YES –there is a registry of bed bug “incidents” that can be searched by state.  The site is: www.bedbugsepidemic.com/tag/hotel.   The site is updated daily and is searchable by location or hotel name.  All incident reports are also retrievable on the site.  One of the key concerns here is that these are “incidents” which typically are just postings without any substantiation.  The people reporting on the internet are not claiming necessarily that they were bitten by bed bugs; but, that they saw “a” bedbug. The result of this posting is that the hotel/motel could lose income and their reputation (brand name).  Now where is the coverage for the hotel? There is no coverage on the Business Income Form because that form requires that there must be “direct damage to property at the premises described” and covered under the cause of loss.  There really is now coverage available, to my knowledge, for loss of reputation because individuals are posting this on the bed bug registry anymore then there would be if an individual gave a restaurant a low score on a site that rates restaurants.  But, what we do know is that these postings can affect a business’s income.
   1. The angry guest now posts a blog about their alleged siting of the bedbug.
      1. Whether the allegations are true or false, the “claims” of bedbugs can cause serious business incomes losses and loss of reputation. The internet is a new and viral outlet for the disgruntled client to make their claims public. The “accused” in these cases do not take this lightly.
      2.  There is an interesting case in point reported on June 21, 2011 in an article titled: “Be Careful When Making Bed Bug Claims—You Might Get Sued!”  The article was about the Carelton Hotel located in Oak Park, Illinois.  A couple had complained to the manager that there were bed bugs in their room.  The manager refused to acknowledge that there was any problem.  The couple upon leaving promptly wrote a review on line when they returned home.  The hotel hired a pest control company that was unable to find any proof of bedbugs in any of the rooms at the hotel.  (Cost to hire the pest control company not covered on standard forms) As a result of the negative comments, the Carleton Hotel  sued the couple for the cost of hiring a pest company to inspect the entire facility and  $30,000 for loss of revenue claiming that the “malicious post dissuaded many people from staying in the hotel.  (Again, no coverage for the hotel suing the prior guest). The loss of business and loss of reputation is not covered on the Business Income Form.  http://bedbugs.net/be-careful-when-making-bed-bug-claims/

Coverage for the Angry Couple posting a “libelous” article and being sued.

1. Well, the answer was in the title—libel.  If the guest had a policy, such as a Homeowners Policy, and they had Personal Injury Liability Insurance, that form could respond to the lawsuit filed against them by the hotel.
2. Angry Couple claims they brought bed bugs back to their home and hired an exterminator.                                                  i.    This is an expensive proposition.  This cost could be in the range of $5,000 per home.  The Homeowners Policy would not pay for these expenses.

Who would ever have thought that Bed Bugs could bring up so many issues facing the hospitality risk AND other industries such as furniture manufacturers; furniture rental companies, etc.? For the most part these claims fall through the cracks of traditional insurance but that does not mean this is not a significant issue to consider from both a risk control and transfer of risk to an insurance company.  There are now specialty companies that offer coverage specifically for Bed Bugs.  One of the premier companies that offer Bed Bug Insurance is written through PLIS Inc.http://www.plisinc.com/bed_bug_infestation_recovery.htm .  The policy is described on their website and is primarily a first party coverage for Loss of Lodging Revenue; Rehabilitation Expenses; Extortion Payments; Decontamination Expenses; and Crisis Management.  There is a limited Third Party Remediation expense for Customer Decontamination Expenses and Onsite Customer First Aid.  As with any specialty coverage it is important to review the coverage form for definitions (such as the definition of bed bug);  coverages, and limitations.

So next time you tuck your child into bed you might think twice before saying “Sleep Tight, Don’t Let the Bed Bugs Bite”.

 

Has the Insurance Industry Forgotten the Key Drivers of Success?

The sluggish organic growth the insurance brokerage industry is experiencing is certainly a consequence of the general economic downturn coupled with the continued soft insurance market.

However, for many firms this may be further exacerbated by a failure to understand the elements needed to achieve organic growth and a further failure to align their resources in support of progressively higher sales achievements by their production teams. This may have arisen from a lack of precision in measuring organic growth, the elements of which drive behavior and priority of resource allocation. Firms that do not correctly measure organic growth and distill from that definition pure organic growth and it’s implications to alignment of resources in support of producer sales achievement, will find it very challenging to solve the dilemma of sluggish sales.

This article will introduce the concept of ‘pure organic growth,’ and contrast it against traditional metrics and measurements of organic growth. We will demonstrate how measurements of organic growth can cause brokerages to stray from the focal point, or nucleus, of sales excellence, giving rise
to the adoption of ‘band‐aid’ approaches and short, quick fixes that do not generate sustainability in growth over time simply to maintain the perception of organic growth through what has now become a pervasive, and imprecise, definition within the industry. The effects of those short‐term approaches have, in my opinion, contributed significantly to the sluggish organic growth performance reported by the majority of firms in the industry.

Though contemporary measurements have provided value in evaluating and communicating overall growth results, by their very nature they can often mislead organizations into false conclusions about their ability to generate new clients, thereby drawing efforts and resources away from the vital areas of their operations responsible for new client generation. By examining the elements commonly used to track internal growth, it should be easier to create a better metric, which we will define as “pure” organic growth.

With a definition of pure organic growth in hand, we will then examine it’s foundations and implications which may suggest to some readers the need for refocusing efforts and resources within their organizations. Using pure organic growth as a premise, we will then suggest areas brokerages can examine within their sales infrastructure, and questions they can ask, that may help reveal the solution they are looking for in remedying sluggish sales.

The Traditional Way of Measuring Organic Growth

Let us first examine the industry’s commonly held definition of organic growth: “Net topline revenues year over year” as measured by the following components:

1. New/New business: measures converting non‐clients into clients
2. Net/New business: measures converting non‐clients into clients and deducts lost business for a producer’s book
3. New/Existing: from writing new business on existing clients, also referred to as account rounding
4. Cross Sell: writing new business between a firm’s practice groups, such as a new employee benefits client being generated from a firm’s existing property casualty client
5. Change of Book: measures the growth or decline in a client’s business, e.g., in employee benefits, the rise or fall of employee counts which impact the revenue generated from that client, as well as rise or fall of costs of insuring businesses given hard or soft market conditions or related factors.
6. Book Migrations: measuring the revenue gain newly hired producers bring with them, or departing producers take with them to their new organization as a positive or negative factor towards organic growth.
7. Book Purchases: measuring the revenue generated from a book that was purchased as organic growth.
8. Contingents: the measurement of rise or falls in contingent commissions as organic growth. And so the traditional components used to measure organic growth can be expressed by the following formula:

Organic growth = Net/New + New/Existing + Cross Sell + Change of Book + Book Migrations + Book Purchases + Contingents

Three Implied Components to Traditional Organic Growth

The contemporary formula used to calculate organic growth has three implied components:
1) outcomes generated that are directly attributable to producer achievements
2) outcomes generated that are an ancillary byproduct of producer achievements
3) outcomes that are not directly attributable to producer achievements.

Through these implied components we can begin to see problems and ‘traps’ that can draw resources and efforts away from new client generation.

New business, account rounding and cross selling are all direct outcomes from producer achievements. These actions lie at the nucleus of organic growth around which other components may be congregated on an additive basis. This measurement is the beginning of the pure organic growth theory. Focusing efforts and resources to support outcomes directly generated by producers will contribute to sustainability in organic growth.

Contingents are in ancillary outcome from producer achievements. As producers generate new business, a by-product can be an increase in contingent commissions, though other factors such as change of book can contribute equally, if not more in certain instances depending upon market conditions. However, it is a fallacy to consider a re‐negotiation of contingents as organic growth as it was not predicated on an increase in new/new, new on existing or cross sell activity. Focusing efforts and resources to support outcomes generated that are an ancillary by‐product of producer achievements will have no impact to sustainability in organic growth.

Book migrations and book purchases are non‐producer generated outcomes and have no correlation to individual production achievements – they are predicated on a firm’s ability to attract and retain producers either through direct hire or by the capital resources to purchase blocks of business. A
firm using this formula which actively hires or purchases books of business can post phenomenal organic growth results, yet have a lethargic non‐performing base of existing producers. For organizations that have focused their efforts and resources towards book migrations from recruiting efforts, and counting small book purchases as organic growth, what happens as capital dries up for book purchases and/or available talent pools of veteran producers who can migrate books continue to diminish?

Change in book is perhaps the most challenging to categorize, and, recently, it has had dramatic impact upon the industry’s organic growth experience. Does the producer have any direct control over hard or soft markets? Does the producer have any control over the rise and fall of businesses at the micro level or over economic conditions at the macro level? Can a producer, through due diligence in researching approachable prospects, attempt to pursue firms occupying sectors of industry that appear to show promise for growth? Can retail insurance brokerages with enough mass and infrastructure to support research departments and training facilities attempt to identify upcoming growth sectors and direct sales efforts towards those sectors? Can they re‐train segments
of their producer force to shift specialty away from declining sectors and toward high growth potential sectors?

So the issue of change of book is certainly a gray and murky area, and by definition, out of the direct control of producers, but also by definition, within the ability of producers and organizations to influence results or mitigate damages from these externally generated circumstances. Nevertheless, change of book has been the unpredictable but always significant ‘x’ factor within the retail insurance industry’s organic growth results – especially recently.

The Foundation of Pure Organic Growth Extracting a Definition That Will Provide Guidance to Resurrecting Industry Growth

The foundation of pure organic growth lies with the three types of business embedded in the traditional organic growth formula: New/new, new/existing and cross sell. However, the definition must add an important element in order to enable progression of achievement in those areas by producers and contribute to the sustainability of overall growth results achieved by an organization.

We define pure organic growth as:

“The ability of an individual producer within a brokerage to demonstrate progressively higher sales achievements year over year in new/new business, new/existing business and cross sell business.”

The definition is complete, and contributes to sustainability in organic growth results,
because it combines the following:
1) producer ability,
2) progressively higher sales achievements being generated, and
3) an organizational focus toward outcomes directly attributable to individual producer achievement.

Pure organic growth must use more precise measurements than the broad sweeping measurements used to determine overall organic growth, requiring that we focus on the sales pipeline (i.e., a list of prospects and revenues that might be expected from the closing of each transaction identified by each stage of the sales process) as the primary tool:

1) An organizational focus upon increasing the total volume of potential sales in each producer’s new business pipeline
2) An organizational focus upon increasing the average size commission/fees per client in each producer’s new business pipeline
3) An organizational focus upon shortening the amount of time taken to consummate transactions from the beginning of each producer’s sales pipeline to the end
4) An organizational focus upon measuring and openly communicating the commissions/fees derived from ‘won’ cases during the course of a 12‐month period for each producer

Measuring a Producer’s Sales Efforts As You Would Measure a Retail Store Located in a Mall – What to Look For So You Can Align Support Correctly.

To put the above four measurements into perspective, imagine that you just purchased a retail store in a shopping mall. How do you make progressively more money each year with that same store?
Perhaps you would:
1) increase the flow of foot traffic into the store
2) increase the average size sale per customer
3) increase the speed of inventory turnover
4) measure the total sales year over year as the final benchmark. The same principles apply at the micro level to managing pure organic growth.
Now what would happen to same store sales (organic growth) if you chose to spend all your time negotiating deals from your suppliers and forgot to manage the store (contingents)? How about spending too much time travelling and purchasing new stores in other markets at the expense of managing the store (book purchases)? So for organic growth to thrive, focusing on pure organic growth must be the primary driver.

Identifying and Supporting Progression in Producer Achievement

How can organizations align themselves to support progressively higher producer sales achievements? It’s all about producer development and the reallocation of resources to support progressively higher producer achievements in new client generation:

1) Assess your producer’s skill sets against those of the top 5% of performing producers nationwide. Essentially those generating in excess of $200,000 of new business per year. How do your producers match up? What skill sets do they have and what activities do they perform that match, and what’s missing? Determine ‘developmental areas’ that need remedy so that they are ‘mission ready’ for competing and achieving top sales results.

2) Assess your sales management processes and supporting sales infrastructure to determine if you can support top performers and help others achieve that status within your organization. Identify areas of producer activity that are heavily reliant upon your organization’s support mechanisms, and identify ‘choke points’ within your organization that may be hindering producer achievements.

3) Provide standing 12‐month sales training curriculums that support your producers’ desires to increase their knowledge, improve upon their skills, and develop new techniques and processes that will help them compete and win new business. A standing curriculum will benefit developmental hires by providing a training platform, existing producers by allowing them to improve upon skills and performance, and provide an ‘onboarding’ (new hire integration) platform for veteran producers brought into your organization in order to help them integrate into your culture successfully.

4) Perform sales planning and develop sales initiatives in accordance with the sales achievements your producers desire and reconcile them against your firm’s growth goals. This will ensure an alignment between efforts expended by producers with the desired results of your organization.

5) Re‐tool your supporting sales infrastructure constantly in order to accommodate upward shifts in desired achievements expressed by your producers each year. Structures designed for top producers not only tend to keep top producers, but also have a tendency to ‘pull up’ other producers towards that level of achievement.

A final note about pipelines…..I recognize that only a small percentage of producers update and manage their pipelines consistently! However the majority of the top 5% of the industry’s performers do! How can leadership drive the use of pipeline management into the lower ranks?

First, demonstrate that top performers swear by their pipelines. Second, bundle time management tools, research tools, Producer Sales Suites, Lead Relationship Management systems (LRM’s) and Client Relationship Management systems (CRM’s) to the pipeline making it more convenient and
useful to producers to research prospects and set up drip campaigns (or other forms of ongoing marketing or ‘client intimacy’ generating campaigns) and organize the tools they use when they transact their business. Third, tie the issue of leveraging organizational resources, human capital, training and development, etc., to the information the producer records in the pipeline. The pipeline must be established as the information ‘bridge’ between producers and their organizations. Such a bridge can identify and enable the procurement of additional resources to the producer. Once this is understood by producers, a pipeline will be used more frequently and pervasively throughout a production platform.

It’s About Enabling Progressively Higher Sales Achievements!

In summary, organizations that align themselves around increasing the individual producer’s ability to demonstrate progressively higher sales achievements year over year will win the organic growth game. Establishing producer training and development programs, combined with aligning organizational tools and resources to increase pipeline volume, transaction size and speed through the pipeline are the key elements to achieving pure organic growth.

Rainmaker Advisory LLC is a results oriented sales and operations consulting firm specializing in the retail insurance broking sector. Founded in 2008, Rainmaker has relationships with over 5,100 insurance agencies and brokerages nationwide in all practice specialties. Through offices in California, New York and Oregon, Rainmaker Advisory is a leading provider of the tools, resources and vendor partners necessary for successfully growing organizations on a sustainable basis.
For more information, visit www.rainmakeradvisory.com or info@rainmakeradvisory.com.

Written By:

David E. Estrada
Founder & Managing Director of Rainmaker Advisory LLC