Should Agents Report all Claims?

What do you think? ... see page 6

WE’RE PROUD TO HAVE EARNED AN A- (EXCELLENT) FINANCIAL STRENGTH RATING FROM A.M. BEST.

Chesapeake Employers’ Insurance Company, formerly IWIF, has served Maryland businesses for almost a century and currently insures more than 20,000 employers. We look forward to protecting you and your valued workers.

To learn more connect with your local agent or visit ceiwc.com.

Formerly IWIF

Advertiser: Chesapeake

Publication: Maryland Messenger Insertion Date: January 1, 2014

Ad Size: 7.25” x 9.50” Title: AM-Best

If you have received this publication material in error, or have any questions about it please contact the traffic dept. at Weber Shandwick at (410) 558 2100.

t a b l e o f c o n t e n t s

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Chairman’s Message

Should Agents Report all Claims?

Chesapeake Employers Wins Business Philanthropy Award

Ask Pat

Do Clients Claims Equal Agency E&O Claims?

Life Corner

Tidbits

Markets

HIPAA Omnibus Rule will have BigImpact on “Business Associates”

Education Corner

BIG “I” 2013 Best Practices Study Released

IIAM congratulates Chairperson Terry Katz on the birth of her first grandchild. Her grandson, Logan Ellis, was born on December 2, 2013. Logan was a healthy 8lbs. 7 ozs. Baby, parents and grandparents are all doing well.

Congratulations

IIAM OFFICERS 2013-2014Angela Ripley, CIC, CRM, AIS Immediate Past Chair

Terry Katz, CPCU Chair

Michael McCartin, CPCU State National Director

Jay Duke Chair-Elect

Don Grauel, CIC Vice Chair

Rick Raley, AAI Director-At-Large

Denise Carnes, CPCU Past President Rep.

Shelley Arnold, CPCU, AU, President

ARM, AAI, ACSR, AINS

Editor: Shelley Arnold, CPCU, AU, ARM, AAIGraphic Designer: Maritza DintinoAdvertising Info: www.iiamd.orgThe Maryland Messenger is a monthly publication published for the exclusive use of regular and associate members of the Independent Insurance Agents of Maryland. Publication of any article, letter to the editor or advertisement in the Maryland Messenger should not be deemed an endorsement by IIAM of the opinions expressed or product advertised. Questions and comments should be directed to the editor; Shelley Arnold.

Editorial Office, IIAM, 2408 Peppermill Drive, Suite A, Glen Burnie, MD 21061phone 410.766.0600 • fax 410.766.0993email shelley@iiamd.org • www.iiamd.org

THE MARYLAND MESSENGERINDEPENDENT AGENTS OF MARYLAND, INC.

chairman’s messageHappy New Year to my fellow independent insurance agents! As I sit down to write this article, the snow is falling as Maryland experiences an early winter and I look back at a very busy 2013 both personally and professionally. This is a time to reflect on what has taken place throughout the year. Did we accomplish all we set out to do? On a personal level, I began the year focused on my younger son’s wedding in July and hosting family from England and ended the year as a new grandparent to my older son’s first child (a boy). Family is so important and I am blessed with a loving and close family on both sides of the pond. And with each new generation, our values and traditions are passed along and mixed with new traditions as our family grows. This is the beautiful thing! I hope that you cherish your own family and traditions and are still enjoying the memories of the time spent with family over the holidays.

On a professional level, 2013 was very busy. As I was ending my term as Chair of the Insurance Roundtable of Baltimore, I began serving my term as Chair of the Independent Insurance Agents of Maryland. We have much to accomplish this year and we are working hard for our members. As part of the Big I, we are working with our legislature to renew or reau-thorize the Terrorism Risk Insurance Act that is set to expire on December 31, 2014. Many of you have probably read the endorsements issued by carriers stating the terrorism coverage will no longer be afforded at the end of 2014 so it is important that we succeed in our efforts.

The Consumer Agents Portal (CAP) is also well under way and offering comparative rating for personal lines. Maryland is set to go live by March so if you have not already signed up for CAP, now is a good time to join.

Continuing education is a requirement for all insurance agents and as you probably know, Maryland now permits all 24 credits to be earned on line. However, it is important to make the education meaningful and improve our knowledge. Your State agency not only offers live classes but has also contracted to provide wonderful “live” webcasts that can be taken at your desk without leaving the office. Please check the education calendar for the schedule and select a topic that will help strengthen your knowledge and increase your understanding. We are professionals and as such, owe it to our customers to keep up with the changes in our industry. IIAM also has regular web CE courses available so we can accom-modate our members’ preference in fulfilling the CE requirements.

So as you reflect on the past year and plan for this coming year, set your goals high, take a designation course to improve your insurance knowledge, and remember that the more you know, the better you can serve your clients.

My best wishes to you all in 2014. May this coming year bring you good health, prosperity, and success.

Anne Arundel County Insurance Agents’ local enjoy their annual Christmas gathering at Bonefish in Annapolis

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While attending a recent ‘Ethics’ seminar, the question of reporting claims drew a great deal of discussion. Of course, coming from a ‘professional liability’ background, it’s a ‘gimme’ that we report all claims and all potential claims. This was met by the ‘in the real world’ comments that I often encounter because I work for the association. I was amazed at the number of agents who do not file all of their claims.

Agents in the class demonstrated their stand by citing several examples:

1. What about the insured who will be cancelled, or their premium increased if the claim is reported? The loss is small, slightly over the deductible, they have a teen-age son driving, it only makes sense to counsel them and suggest they pay the small prop-erty damage claim.

2. Our commercial insured has been plagued with multiple workers compensation losses. His loss ratio is climbing significantly. He can hardly afford the premium now. He had a small loss…a cut on the left ankle requiring four stitches. The insured paid it from his pocket.

3. It is only a small property loss…small fire did dam-age to our insured’s shed. I suggested that in order to maintain coverage with the current carrier (since this was the second Homeowners loss this year), that the insured pay the small amount to repair the damages.

4. We counsel our insureds to ‘self-insure’ their small automobile claims.

5. I have called the carrier to question a potential loss, only to find the loss is on the insured’s CLUE report, when an actual claim/payment was never made.

After the spinning in my head ceased and I gathered my thoughts, I stressed the importance of filing every claim. ‘What if the insured calls and doesn’t want you to report the claim?’ asked one of my classmates. Where is the agent’s loyalty…what about the agent’s obligation?

There are two key issues here. I think it is vitally impor-tant that we remember we are in a ‘contractual arrange-ment’ with our carriers. Many of our agency agreements make it very clear that we must file all claims or events that may give rise to a claim. I know this may be very dif-ficult. These guidelines are coming from the very people that will cancel an insured for multiple claims. We must

also consider the issue of ‘material fact’ and that compa-nies are in the business to make a profit and claims eat away at profits. Are carriers within their rights to cancel insureds for multiple claims? What is a material fact? A material fact is something that will affect the underwrit-ing of a specific account. What about the law of agency? If we are truly an agent of the insurer (which is normally how our carrier contracts are worded), does notice or the insured’s report of a claim to his agent fulfill the insured’s requirement to notify the carrier? I am not an attorney, but I believe the law of agency would require ‘full disclo-sure’. What a bad situation this could be. Consider that we have been notified, the law says that means the car-rier has been notified, we do not report the loss (at the insured’s request), the insured later reports the claim and the claim is denied due to the delay in reporting. Who do you think the client will blame? Does the agent have an obligation to educate the insured on why they should file the claim and what the consequences may be if they fail to report the claim? I believe we do.

The second issue is the contractual agreement between the carrier and your insured. What does the policy say? The insured has a contractual obligation to report claims. If they purposely fail to do so, they may be in violation of the contract and the insurer may have no obligation to de-fend or indemnify. Could not reporting the claim actually result in a ‘breach of contract’?

Homeowners:We have no duty to provide coverage under this policy if your failure to comply with the following duties is prejudicial to us. You will help us by seeing that these duties are performed:

1. Give written notice to us or our agent as soon as is practical

Personal Automobile:We have no duty to provide coverage under this policy if the failure to comply with the following duties is prejudicial to us: A. We must be notified promptly of how, when and where the accident or loss happened.

Commercial Property:Duties In The Event Of Loss Or Damage a. You must see that the following are done in the event of loss or damage to Covered Property: (1) Notify the police if a law may have been broken. (2) Give us prompt notice of the loss or damage.

Should Agents Report all Claims?By Shelley Arnold, CPCU, AU, ARM, AAI, ACSR, AINS

(con’t on page 7)

Commercial General LiabilityDuties In The Event Of Occurrence, Offense, Claim Or Suit a. You must see to it that we are notified as soon as practicable of an “occurrence” or an offense which may result in a claim.

Both the Homeowners and CGL also include the following ‘loss provisions’:No “insured” shall, except at such “insured’s” own cost, volun-tarily make payment, assume obligation or incur expense other than for first aid to others at the time of the “bodily injury”.

Do you see a trend here?

To wrap this entire discussion in a big red bow, I want you to be well aware of what your Errors & Omissions carriers say about reporting losses:A. The insured shall not, without our written consent, do any of the following: 1. Admit liability; 2. Participate in any settlement discussions nor enter into any settlement; or 3. Incur any costs or expense.B. The insured shall: 1. provide written notice of any “claim” to us or the producing agent shown on the Declarations Page as soon as practical. Any “potential claims” must be reported to us in writing during the “policy period” or Extended Reporting Period. If, during the “policy period,” you, or any owner, officer or partner of the “named insured” first become aware of a “potential claim” and give written notice of such “potential claim” to us during the “policy period,” any “claims” subse-quently made against an insured arising from the “potential claim” shall be considered to have been made during the “policy period” that you, or any owner, officer or partner of the “named insured” first became aware of such “potential claim”;

What type of claims are being submitted to our E&O car-rier as a result of ‘claims’?

o Failure to provide timely notice to the carrier o Failure to transmit lawsuits or other documents

in a timely manner o Not putting on notice an insurer that may pro-

vide coverage or a defense (include the umbrella carrier)

o Claim investigation/adjustment error o Misleading a customer or failing to adequately

explain how coverage will/will not apply

What is my response to those five scenarios presented at the beginning of this article?Cases 1-3-4: Why counsel your insureds to ‘self-insure’?

We purchase insurance for our ‘peace of mind’ and to transfer the risk to the carrier. The carrier, by contract, is obligated to pay claims. We purchase insurance to pay claims and we counsel our insureds to ‘self-insure’? I think this is especially dangerous if this counseling is done after a loss. If you can save your insured money by using self-in-surance or if you believe they should only purchase insur-ance for the ‘big one’ sell them a policy with the premium savings up front. The insured should be made aware that these savings can be realized through ‘large deductible programs’ etc., but it is probable that small losses will be retained and paid by the insured. In these cases, the insured has made a conscious decision to ‘self-insure’.Case 2: One word, ‘infection’.Case 5: Agents should be aware that Maryland law does address the issue of inquiries, at least with respects to Homeowners insurance. HO insurance is where we saw a huge increase in activity based on inquiries when selling the home, etc. Maryland law under §27-501, Discrimina-tion in Underwriting specifically states:(p) Inquiries not resulting in payment of claim.- (1) In this subsection, “inquiry” means a telephone call or other communication to an insurer regarding the terms and conditions of a homeowner’s insurance policy, includ-ing a telephone call or other communication about wheth-er the policy provides coverage for a particular loss or the process for filing a claim. (2) With respect to homeowner’s insurance, an insurer may not refuse to underwrite a risk, increase a premium, or cancel or refuse to renew coverage based in whole or in part on an inquiry by an insured or an insurance pro-ducer on behalf of an insured that does not result in the payment of a claim.

What should the agent do? First and foremost, report ALL claims. If the insured wishes to pay for the loss him-self/herself or if the insured wishes to withdraw the claim, let the insured handle that with the carrier/adjuster. After all, it is a contract between the insured and insurer. Make sure your insureds are equipped with the 800 numbers for their carrier’s claims line. This is probably the only time I support a carrier’s 800 number. Advise your insureds that you are contractually obligated to the carrier and anytime they call you with a claim or potential claim, it is your legal obligation to report it to the carrier. Advise your clients, prior to an occurrence/incident, of the negative conse-quences of NOT filing a claim. Finally, your agency should have or should implement a ‘Claims Handling Procedure’.

(con’t from page 6)

Chesapeake Employers Wins Business Philanthropy Award

President and CEO Tom Phelan, center, displays the Business Philanthropy Award with members of Chesapeake Employers’ Charitable Contributions Committee, the group responsible for planning all

community service activities and charitable donations for the company. Pictured are, front row: Carolyn Gutermuth, Tom Phelan, and Mary Smith. Back row: George Layfield, Bill Cress, and Paul Gwiazdowski.

(TOWSON, Md.) — Chesapeake Employers’ Insurance Company was honored with the Business Philanthropy Award for a mid-size company for outstanding commitment to community service. The award was presented by the Maryland Chamber of Commerce and the Baltimore Business Journal.

Tom Phelan, Chesapeake Employers’ President and CEO, accepted the award at the National Philanthropy Day in Maryland event held at the Waterfront Marriott Hotel in Baltimore on November 6, 2013.

“I am honored to accept this award on behalf of the Board of Directors and employees of Chesapeake Employers,” said Tom. “I thank the Board for making the dollars available in the budget for charitable donations and I thank our generous employees who do the giving day in and day out in the community.”

Meg Ducey, Director of Development and Marketing for the Franciscan Center, nominated Chesapeake Employers for the prestigious award. “It is very fitting that Chesapeake Employers should be recognized for the time, care and love that their employees devote to serving those who are less fortunate in the community and for their extraordinary corporate citizenship,” said Meg.

National Philanthropy Day in Maryland is a program of the Association of Fundraising Professionals-Maryland chapter that recognizes extraordinary commitment to philanthropy by individuals, companies and foundations and the impact their efforts have on the community.

ask PATPatricia McHugh Lambert901 Dulaney Valley Road, Suite 400Towson, MD 21204Pesin & Katz, P.A.410.938.8800 • 410.339.6759 (direct)410.832.5628 (fax) • plambert@hpklegal.com

People ask me all the time about planning. Pat, how do I plan so that I’m prepared for a disaster? Pat, how do I plan so that I don’t get sued? Pat, how should I plan for what happens when I die? Problems. Problems. Problems. Can we ever think about planning without thinking about problems?

This year I am going to try to plan for the best. Now this does not mean that I am going to plan to win the lottery or suddenly becoming best friends with Beyoncé. I still have a certain amount of realism in me. Rather, I am thinking about how I can plan to make 2014 one of my best years, rather than just another year on the calendar.

Clearly, one has to think about what would make a year “one of the best years ever” for a business. Certainly there is the need for a business to remain financially sound; but thinking about such mundane thoughts do not create a climate for making 2014 a year that is the ‘best’ for a business. Best requires figuring out what makes the business special. How is what you do “best in class”? If a business does not understand why a customer or client would believe that the business is special, then the business is simply ordinary.

The same is true for the insurance business. An insurance professional cannot have the ‘best year’ unless he or she determines what makes them best. Is it customer service? Is it a personable style? Is it deep professional knowledge? An insurance professional is likely to know his/her flaws and likely to work to improve them. But planning to play to ones strengths can make a good year a best year. Sometimes, a person is the best at something that seems mundane or boring. Sometimes people are best at innovation. Figure out what you do best and plan to do more of it.

A year will not be the ‘best’ unless you have people that will support you. This means that you must get the ‘best’ out of those that support you. You must consider what you must do to help them be their best. That may mean

that you give them additional financial incentives. It may mean that you have to be nicer to them—ask them about their kids and their dreams. It may mean that you need to offer them training or coaching. It may mean that you have to look at yourself closely in the mirror to determine whether others see you as the ‘best’ boss or ‘best’ staff member. You cannot expect the best of them without expecting the best of yourself. You must think, plan, and change in order for you to get the best out of others.

In order for a business person to have a year that is the best, there must be leveraging of resources. The world is too complex for any one person to do all things well. This is particularly true in the field of insurance. Last year alone in Maryland, there were over twenty-five new and significant laws enacted, over 31 bulletins issued by the Maryland Insurance Administration and over 700 reported cases that mentioned insurance. That’s too many for the busy professional to try to keep up with. To keep up, a busy professional wanting to have a best in class year must use trade associations, business contacts, and other resources to stay on top of their game. Certainly, to be the best, the professional must leverage technology, record keeping and to-do lists.

Finally, to have a year that ranks as ‘best’, a business person must feed their soul. A business person must consider what makes them happy and what makes them sad. Feed the happy and starve the sad. Plan to be happy and get rid of the toxic strains to the extent you can.

For all my readers, I wish them a 2014 that is the best of years. Just remember that it will not be the best unless you plan to make it the best.

Pat

PLANNING FOR THE BEST

“At FCCI, we keep our customers informed. I get to know agents and policyholders and they get to know me, so they know who to call for help. They know I’ll give them great service!”

Katrina Turner Senior Underwriting Technician

FCCI Southeast Region

Duluth, Georgia

Now, let’s talk about your business.

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MM13_Turner_3.75x9.5.indd 1 11/26/13 11:32 AM

Do Clients Claims Equal Agency E&O Claims?By David Hulcher

Most industries manufacture and sell tangible goods and services for customers to purchase. Some products are purchased out of need, others for pleasure. The insurance industry is slightly different from other industries in that consumers buy insurance to protect themselves from something they ultimately don’t want—a loss. If the insurance consumer never has a claim, they should consider themselves lucky and feel secure knowing their assets were protected.

That feeling of security is important, but at the end of the day, clients will be more likely to remember how a claim was handled, if they had one. Handling client claims increases your E&O exposure.

It usually is a stressful time when a client is involved in a claim. But professionally handling claims ultimately is an opportunity to strengthen the client relationship.

Conversely, claims that are poorly handled can cause insureds to question the value added by your agency and make them move their business elsewhere. Many clients don’t know what to expect when a claim occurs, and the unknown tends to make people anxious. Advise your client on how the claims process works and when they are likely to hear from the insurer. Having empathy can go a long way to making the process easier. However, in your haste to make that client feel more comfortable, never confirm or deny the existence of coverage in the policy—that’s the carrier’s responsibility.

Read Up on the Rules Efficiently handling client claims is extremely important, and many states have regulations about the claims process. Review your state’s insurance regulation on unfair claims settlement practices for your responsibilities and those of the carrier. Agents should report claims promptly—preferably the same day. Often, claims are required in writing. Remember a claim reported to the agency is considered made to the carrier. Keep in mind that your client’s information is confidential. Share it only with the insurance carrier and no other third party without written permission.

Provisions within the client’s policy will indicate any duties of the insured as a condition of coverage. If the insured filed a claim, check the policy language regarding claims. Insured duties may include providing prompt notice,

(con’t on page 11)

CAUTION: Claims Ahead

contacting police in case of loss by theft, protecting the property from further damage and descriptions of property. Regardless of the estimated claim payout, simultaneously review the claims notice provisions of other related policies (such as excess or umbrella policies) in case reporting of underlying claims is required for future coverage.

Keep Records in OrderAlthough it’s a declining practice, some carriers provide agents with authority to pay for claims below a certain limit. Agents should strictly follow the guidelines for draft claims authority outlined in the carrier’s procedures. To eliminate errors from going outside of your authority, it is a good idea to have a key point of contact for payments administration. The other option is to distribute a copy of the carrier guide- lines to all personnel that have claims authority, in much the same way that your agency should do with company binding authority.

Finally, create written procedures for handling claims. At the core of these procedures should be transmitting claims immediately and having a suspense system in place to follow up with the insured or carrier as necessary. Keep following up until the claim is resolved, documenting your client file along the way.

Handling client claims effectively can eliminate potential E&O exposure for your agency and shows value to your

Let our experience benefit you.

Core Values Honesty and Integrity

Teamwork

Respect

Concern for the Individual

Responsibility

“The values of our staff are the value of our company. Thanks to all in our MBG family who make our company a truly great place to work.”

Steven C. SliverPresident and CEO

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“The values o“The values off our sta our staffff are the value o are the value off our our

client. But before a client ever makes a claim, you can eliminate the potential for uncovered claims by correctly presenting policy terms and coverage. Always do a thorough evaluation of client insurance needs and offering coverage.

David Hulcher (david.hulcher@iiaba.net) is Big “I” director of E&O Operations.

Never confirm or deny the existence of coverage provided by the policy. Advise the client on what to expect during the claims settlement process and any duties

required to be performed. Review policy provisions of all policies where coverage may exist, including excess and

umbrella policies. Report claims to the carrier on the same day they are received. Do not deviate from insurer-draft claims authority guidelines. Maintain claims handling procedures in agency internal procedures manual. Implement a suspense system to follow-up during the claims settlement process and

document client files. Follow-up until claims are resolved.

Follow these tips to avoid E&O exposures when you handle a claim:

(con’t from page 10)

LIFE INSURANCE MADE

easy

The World of Buy / Sell Planningby Scott Zilber

This article is not just intended for business clients but also for those of you that own agencies.

Helping your clients proactively plan for the succession of your business can help avoid possibly expensive conflicts, confusion, and litigation. This type of planning should cover but is not limited to:-At death, retirement or disability-Estate planning and gifting strategies-Divorce or bankruptcy

There are options for most business owners regardless of the number of partners. The information below is meant to help identify opportunities and disprove misconceptions your clients may have about their options.

The types of buy/sell agreements:

Cross Purchase - In this arrangement each owner owns insurance (Life or Disability) on the other to insure the funds are available to buy the equity of a deceased owner. For example, If there were three owners of a business this plan would typically require six policies to be purchased. The premiums are paid by the policy owners but may be bonused to the owners by the company.

Cross Entity Purchase - Also known as a stock redemp-tion plan. In this plan the business owns life insurance on all of the partners proportionate to their interest in the business. If there were three owners there would be three policies. The business will pay the premiums and use the proceeds at death, disability or retirement to redem the stock of an owner. This plan works best when there are several partners (3 or more).

Cross Endorsement Buy/Sell - Under this agreement the business owner purchases and owns a life insurance policy on his or her own life while the other partners also pur-chase a policy on their own lives. The owners all pay their own premiums. The value of the policy will be based on the projected value of the business and each business owners proportional interest in the business. Since the owner owns their own coverage they can access the policy’s potential cash value in the future to supplement retirement income or a fund lifetime buy-out if and when the buy/sell is no longer needed

One Way Buy/Sell- In this plan a key partner or employee agrees to buy the business in the event of the owners death, disability or retirement. This type of planning calls for the purchase of a single plan. Permanent coverage with the potential for cash accumulation offers the great-

est amount of flexibility in the future to the owner and the business. Typically the premium will be bonused to the employee by the business. This reduces the employee out of pocket expense. The company May bonus the employed additional funds to cover the income taxes due on the pre-mium bonus.

First Steps:How do I get started?Ask questions about your clients goals and dreams. We have developed fact finders at Belman Klein Associates that will help you ask thoughtful, relevant and insightful questions for the purpose of designing the the right plan.

Knowing the Value:If your client would like to design a succession plan for their business you may want to start with an informal busi-ness valuation. Belman Klein Associates currently offers obligation free informal business valuations. This platform requires the client to complete a one page questionnaire and provide three years of tax returns or financials. We can have it back in as little as 5 business days. The informal valuation provides a great guide tool to start planning but will not replace formal valuation.

Review Previous Planning:Your client has already addressed succession planning a few years back? Great! Just like any coverage it needs to be reviewed. Like our valuation platform Belman Klein Associ-ates can help review an existing succession plan with only a copy of the plan and a one page questionnaire.

Scott Zilber is a Life Sales Consultant with Belman Klein. He may be reached at 1-800-729-6007 or via email at szilber@belmanklein.com

Why the Big “I” Professional Liability Program?

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State of the art coverage form, exclusive to Big "I" members$50,000 first party personal data compromise breach response for the accidental loss of client data, with optional higher limits availableFirst claim deductible is waived if you have been insured and claims free with Fireman’s Fund for five or more years80/20 consent to settle clauseTrue worldwide territory coverageInsolvency coverage for all carriers with B+ or better A.M. Best rating90 day notice of merger or acquisition$10,000/$30,000 catastrophe claims extra expense included at no additional premium$35,000 regulatory investigation defense expense coverage per policy period60 days after expiration to report claims and purchase extended reporting provision $500 per day supplementary payments for expenses incurred in aiding the defense of a claimAggregate deductible appliesClaims made policy formDefense outside the limitBroad definition of who is an insured, including spousal or domestic partner liabilityLimits of liability available to $10 million

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Contact: Carla M. McGee, ACSRDirector of Insurance ServicesInsurance Brokers Service Corp., Inc.2408 Peppermill Drive, Suite AGlen Burnie, MD 21061Phone: (410) 766-0600 ext. 100Fax: (410) 766-0993carla@iiamd.orgwww.iiamd.org

1.

2. Big “I” Responds To Long-Awaited Fio Report On Insurance Regulation

Chesapeake Employers’ Insurance Company earns A- rating from A.M. BestFormerly known as IWIF, Chesapeake Employers rated “Excellent” by leading rating agency

(TOWSON, Md.) — A.M. Best Co. has assigned a financial strength rating of A- (Excellent) and an issuer credit rating of “a-” to Chesapeake Employers’ Insurance Company as of November 26, 2013. The outlook assigned by A.M. Best to both ratings is stable.

Chesapeake Employers, which this past October transitioned from an independent state agency to a non-stock, not for profit, private insurance company, has a 23% share of the workers’ compensation market in Maryland, based upon 2012 net premiums written. More than 20,000 Maryland employers insure with Chesapeake Employers. The company, which has assets of

more than $1.8 billion, employs more than 400 insurance professionals in Maryland and works with more than 1,400 independent insurance agents. The company will celebrate 100 years of operation in 2014.

Thomas Phelan, CPA, President and CEO of Chesapeake Employers, said: “This is a tremendous accomplishment and reflects our efforts during the past decade to build our financial strength and deepen our management capabilities. Earning a coveted rating from A.M. Best so soon after our conversion is an affirmation that our strategy has been soundly executed.”

A.M. Best began assigning credit ratings in 1906, making it the first of today’s rating agencies to use symbols to differentiate the relative creditworthiness of insurance companies. Best’s Credit Ratings are independent opinions regarding the creditworthiness of an issuer or debt obligation. Best’s Credit Ratings are based on a comprehensive quantitative and qualitative evaluation of a company’s balance sheet strength, operating performance and business profile.

Agent and broker community expresses strong support for state regulation and welcomes call for enactment of NARAB II. WASHINGTON, D.C.,– The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) today commended the U.S. Department of Treasury’s Federal Insurance Office (FIO) for the release of the long-awaited report on “How To Modernize And Improve The System Of Insurance Regulation In The United States.” The report was required by the Dodd-Frank Act of 2010.

“The Big ’I’ has been eagerly awaiting the release of FIO’s modernization report for well over a year and we are actively reviewing the details,” says Charles Symington, Big “I” senior vice president of external and government affairs. “While we agree with the report’s conclusion that insurance regulation could be improved and modernized in certain areas, we strongly believe that any federal action should be targeted and limited with day-to-day regulation left in the in the hands of state officials. The state-based system of insurance regulation has served consumers and

our economy well for decades. The Big ‘I’ strongly sup-ports the continued preservation of this system and is ardently opposed to any direct infringement by the federal government.”

The report also specifically calls on Congress to enact the National Association of Registered Agents and Bro-kers (NARAB II) Act. It correctly notes that “consumers are detrimentally affected by the absence of uniformity and reciprocity in producer licensing” and that “NARAB II must provide producers an efficient and streamlined multistate licensing mechanism.” The Big “I” strongly sup-ports NARAB II and believes its approach of using narrow and targeted federal legislation to address a long-standing, persistent problem in the market is the correct approach for modernizing insurance regulation.

“The Big ‘I’ commends FIO for its call on Congress to pass NARAB II. This bill is a perfect example of how to mod-ernize insurance oversight without encroaching on state regulation,” continues Symington. “We welcome FIO’s support for NARAB II and look forward to working with Congress on this targeted approach.”

3.

IBHS Commends DHS Report Highlighting the Importance of Building Codes

TAMPA, FLORIDA – The U.S. Department of Homeland Security (DHS) recently released a report entitled Including Building Codes in the National Flood Insurance Program [http://www.fema.gov/media-library/assets/documents/85960], which discusses the feasibility of including model building codes in the National Flood Insurance Program (NFIP). The study will be used by Congress to consider whether to make adoption and enforcement of model building codes mandatory for communities participating in the NFIP program.

“The Insurance Institute for Business & Home Safety (IBHS) supports the adoption of strong, uniform building codes throughout the country to increase the resilience of our communities and the safety of our homes and businesses,” said Julie Rochman, IBHS president and CEO.

The DHS report includes a number of very strong statements about the importance and cost-effectiveness of building codes including the major finding that “the overall impacts of including building codes as part of NFIP would be positive in helping to reduce physical losses and other hazard losses, which in turn positively affect land use planning and the regulatory climate.”

“Another key aspect of this report is that it highlights the importance of enforcing codes as a complement to technical requirements in order to make sure the expected building safety standards are actually incorporated into homes and commercial structures,” Rochman explained.

“We know that communities with strong, well-enforced building codes fare better than those with weak or no codes when disasters strike,” Rochman said. “Property damage is reduced, home and business owners are able to recover faster, the local economy and tax base are maintained, and the amount of government disaster aid is decreased in communities that have adopted and enforce strong codes before catastrophes strike.”

“Building community resilience is the most effective way to make our nation stronger in the face of continuing natural disasters,” noted Rochman. “DHS is a leader in this area and has just announced a new program called Resilience STARTM, which will assign a range of stars to homes that meet specific resilience standards, much the same way ENERGY STAR assigns energy efficiency ratings to appliances.”

Together with IBHS and other private sector partners, DHS will work to engage homeowners, builders and contractors in communities at high risk for certain natural disasters to take proactive steps to enhance the resilience of the homes in their communities. DHS is currently accepting applications from builders, contractors, and homeowners to participate in the Resilience STAR Home Pilot Project at: http://www.disastersafety.org/resilience-star. The deadline for submitting applications is January 17, 2014.

# # #

About The Insurance Institute for Business & Home Safety (IBHS)

IBHS is an independent, nonprofit, scientific research and communications organization supported by the property insurance industry. The organization works to reduce the social and economic effects of natural disasters and other risks on residential and commercial property by conducting building science research and advocating improved construction, maintenance and preparedness practices.

More bits4.

Zurich North America names team to create world-class North American Headquarters

Clayco, Goettsch Partners and CannonDesign awarded contracts to develop, design and build

Schaumburg, Ill., – Zurich North America announced it has entered into agreements with Clayco, Goettsch Partners and CannonDesign for the development and design of their North American headquarters in Schaumburg, situated on 40 acres at Meacham Road and I-90.

“We want our new, state-of-the-art campus in Schaumburg to be a source of pride for both the community and our employees,” said Mike Foley, CEO of Zurich North America Commercial. “We look forward to working with this elite team of designers, architects and builders who will help bring our vision to life.”

The new Zurich North American Headquarters is designed to reflect the company’s global reach and world-class stature. The architectural character of the 735,000-square-foot complex reinforces an image of reliability and success through its bold simplicity in form, a timeless material palette, and its commitment to sustainability. Composed of three primary “bars” that

are offset and stacked, the arrangement creates unique spaces for collaboration, opens views of the surrounding landscape, optimizes solar orientation for amenities, and provides programmatic flexibility not found in typical office buildings. The top “bar” of the complex soars eleven stories and cantilevers toward downtown Chicago, providing visual identity along the interstate while projecting the strength and future focus of the company.

Each firm will serve a role in developing, designing and/or building the various components of the campus. The development, design and construction of the headquarters will be led by Clayco, as developer and design-builder. The headquarters core and shell, along with the parking facility, will be designed by Goettsch Partners. The interior of the headquarters will be designed by CannonDesign.

Zurich currently employs approximately 2,500 people in Schaumburg and also has an office in downtown Chicago. The new campus will align with Zurich’s commitment to building sustainable communities with a focus on energy and operational efficiencies, wellness and will include input from employees to create the best workspace for the future. To keep up to date on the developments on the headquarters go to www.zurichna.com/zna/hq

Zurich employs about 60,000 people worldwide serving customers in more than 170 countries.

5.

Frank Linardi, Jr. CFO-Chesapeake Employers(TOWSON, Md.) —Frank Linardi, Jr., CPA, has been promoted to Chief Financial Officer for Chesapeake Employers’ Insurance Company. As CFO, Mr. Linardi oversees all financial activities for the organization including preparing financial reports, summaries and forecasts for business growth. He also tracks the general economic outlook for Maryland business as it relates to Chesapeake Employers. Additionally, Frank oversees the actuarial and Chief Risk Officer reporting duties for the company. Prior to his promotion, Mr. Linardi was Vice President of Finance and Controller. He has been an employee of the company for more than 12 years. He has nearly 30 years of financial experience in the insurance industry.

Sharon Rowell-AVP Marketing Chesapeake EmployersEffective November 30, 2013, Sharon Rowell will be the new Assistant Vice President of Marketing and Business Development for Chesapeake Employers’ Insurance Company. In this new position, Ms. Rowell will be responsible for setting the company’s marketing strategy, developing the marketing plan and managing the day-to-day functions of the Marketing and Business Development department. Prior to accepting this position, Ms. Rowell was Director of the Strategic Business Unit (SBU) for the past four years. Her previous experience with Chesapeake Employers also includes being Director of the Premium Audit department for 10 years.

Amy Gates-Director-Chesapeake EmployersAmy Gates was recently promoted to Director of the Strategic Business Unit (SBU) for Chesapeake Employers’ Insurance Company. In this position, Ms. Gates is responsible for overseeing the day-to-day operations of the SBU, which is a dedicated team of insurance professionals serving government, municipal, public entity and direct customers of Chesapeake Employers. Ms. Gates joined the company in 2001 as a Claims Adjuster after working for several years at Liberty Mutual in New Hampshire. She became a Claims Supervisor in 2004 and worked in that capacity until recently.

Chesapeake Employers Announces Promotions for CFO, AVP, and Director

NAIC Releases Annual Homeowners Insurance Report

WASHINGTON, D.C. — The National Association of Insurance Commissioners (NAIC) today released its 2011 Homeowners Insurance Report, providing data on market distribution and average cost by policy form and amount of insurance.The report includes countrywide and state-specific premium and exposure information for non-commercial dwelling fire insurance and for homeowners insurance package policies. It also contains descriptions of the data and a discussion about the way certain economic, demographic and natural phenomena impact the price of homeowners insurance.The data in the report includes written exposures (earned

house years) and aggregate written premiums by state and countrywide for the 2011 data year. It contains three tables that show individual state and countrywide exposures by policy type, individual policy form, as well as amount of insurance coverage, which is divided into ranges with percentages of total exposures provided for each range.Data from the report was collected from insurance statistical agents for all states except Texas and California, both of which supply data directly to the NAIC. Some data from residual market mechanisms are now included in the report.The entire report has, among its many features, a state by state breakdown of this information. To purchase the report, go to http://www.naic.org/store_pub_statistical.htm#dwelling (publication code: HMR-ZU-13).

6.

1.

Firm Adding Agents and MGAs to Distribute NetBOP in Four States, Including Kentucky, Maryland, Pennsylvania and Virginia

Columbia, S.C.,– Dovetail Insurance, the leading supplier of cloud-based insurance product delivery services, announced today that it is expanding its distribution of NetBOP in Kentucky, Maryland, Pennsylvania and Virginia. NetBOP is an ‘A’ rated Business Owners Policy (BOP) insurance product developed for businesses with fewer than 50 employees.

While Dovetail Insurance currently distributes NetBOP in all 50 states, it is adding to its roster of agents and MGAs in four central states to distribute the product. Using Dovetail’s powerful portal, agents can quote, bind and issue policies in real-time.

“We understand the needs of the small business market, and have packaged an ‘A’ rated insurance product for agents and MGAs, that serves a broad range of small business classes and enables the producer to deliver a best-in-class experience for the insured.” said Dennis Rabon, Executive Vice President, Dovetail Insurance.

“Using our portal agents can rate, quote, bind, and issue in less than 10 minutes. We focus on combining the latest technology with ease of doing business,” Rabon added.

NOTE: Agents and MGAs interested in distributing NetBOP should contact Chris Crawford at 1 (877)-NOW-NETComp or ccrawford@netcompins.com.

# # #

About Dovetail InsuranceDovetail Insurance is a leading provider of cloud-based insurance product delivery services for property-casualty insurance carriers, MGAs and brokers. Founded in 2006 and backed by FirstMark Capital, Dovetail offers insurance program development and administration, back office services for policy administration, MGA services, and deployment of insurance programs using advanced technologies. For more information, visit www.dovetailinsurance.com.

Dovetail Insurance Expands Distribution of ‘A’ Rated Business Owners Policy (BOP) Product in Central U.S.

2.Ease the Way with TravPay!Pay-As-You-Go billing option now available for Big “I” Markets workers’ compensation.

What Is TravPay?Travelers is a leader in the Commercial Insurance marketplace. We understand the needs of business owners and are committed to providing best in class billing solutions for our customers. The TravPay pay-as-you-go billing option provides business owners with an important option to better manage their cash flow during their daily operations. Traditional workers compensation policies require the business owner to estimate their annual payroll and then pay installments throughout the year. TravPay allows business owners to pay their workers compensation premiums in real-time as they run their payrolls, ensuring

that they pay exactly what they owe after each pay-period. TravPay requires no down payment as it allows business owners to pay their workers compensation insurance as they go. No more trying to estimate annual payrolls at the beginning of each year or audit surprises at the end of the year! A pre-recorded webinar discussing the benefits and logistics of the TravPay for workers’ compensation billing option is available under the “Publications” tab once you log into Big “I” Markets. For more information on TravPay go to http://www.iiaba.net/webfolder/na/tft/web%20archives/08_13_13/travpayfaqsjun2013.pdf. or post a message in your client’s Quote Detail on Big “I” Markets.

HIPAA Omnibus Rule will have Big Impact on

“Business Associates”HHS & Attorney Generals

can Impose Fines Directly on “Business Associates”

HHS & Attorney Generals can Impose Fines Directly on “Business Associates”

By the ACT HIPAA Work Group

Note: This article is an educational piece to alert agencies to the requirements of HIPAA, the HITECH ACT and the HIPAA Omnibus Rule and to assist agencies in complying with these laws. It is extremely important for agencies to carefully review the applicable laws and regulations and to decide independently on the appropriate course of action for their firms. If specific advice is desired, the services of an appropriate, competent professional should be sought.

The HIPAA Omnibus Rule went into effect on September 23, 2013 and promised to bring a much higher degree of enforcement attention on independent agencies and brokerages which are “Business Associates” under HIPAA. HHS is now required to conduct periodic audits of both Covered Entities and Business Associates for compliance with HIPAA, and the state attorney generals are authorized as well to bring HIPAA related actions. Note there is no need for there to have been a breach of Protected Health Information (“PHI”) to trigger such an audit and enforcement action. It is a matter as to whether the Business Associate or Covered Entity has properly implemented the HIPAA compliance requirements.

Who is a Business Associate under HIPAA? Agencies which sell ANY health insurance products (medical, dental, vision, long term care, Medicare supplements) for companies like Blue Cross/Blue Shield, Humana, Aetna, Principal, Delta Dental, etc. are likely to be Business Associates and their agent agreements will include provisions that require them as Business Associates to comply fully with the HIPAA Security Rule, as well as with the portions of the HIPAA Privacy and Data Breach Rules that are applicable to them.

The 2009 HITECH Act made these HIPAA Rules directly applicable to Business Associates, rather than just via contract with Covered Entities and rendered Business Associates subject to the same civil and criminal penalties and fines that Covered Entities have experienced for

failing their audits in recent years.

A “Business Associate” is a person or entity that performs certain functions or activities that involve the use or disclosure of PHI on behalf of, or provides services to, a Covered Entity. For it to be PHI, the health information has to include elements that can be used to identify the individual to which the information belongs. “Covered Entities” include health plans, health care clearinghouses and certain types of health providers.

HIPAA does not apply to medical information relating to life insurance, worker’s compensation, auto insurance or other casualty insurance, however, these types of medical information are also highly sensitive and need to be carefully secured by the agency. These other types of medical information are typically protected by other federal and state privacy and data breach notification laws.

Even if an agency is not subject to HIPAA, it will find the resources mentioned in this article to be helpful tools in doing its risk analysis and formulating its security plan and procedures, so that it is compliant with the Gramm-Leach-Bliley Act (GLBA) and other federal and state privacy and data breach notification laws with regard to the protected personally identifiable information (“PII”) that it does handle.

Impact of HIPAA Omnibus Rule on Business Associates

The HIPAA Omnibus Rule, effective on September 23, 2013 gave full force and effect to the significant new HIPAA Privacy and Security compliance requirements contained in the 2009 HITECH Act, which amended HIPAA. Here is what the rule means for Business Associates:

• Business Associates are now subject to the same comprehensive Privacy and Security Rule requirements as Covered Entities, as well as to relevant sections of the HIPAA/HITECH Breach Notification Rule. Below we reference an online tool California has developed to assist organizations in complying with the many requirements (con’t on page 20)

of the Security Rule.

• HHS and state attorney generals may now impose substantial fines against Business Associates who do not comply with HIPAA/HITECH. Where there is HIPAA “Willful Neglect” – “conscious, intentional failure or reckless indifference to the obligation to comply” – HHS is obligated to investigate violations and the potential penalties become very severe.

• Business Associates are required to execute Business Associate Agreements with any subcontractors which are given access to their PHI. For example, if the Business Associate stores PHI on an online system managed by a vendor, then the Business Associate will need to execute such an agreement with the vendor. HSS provides sample Business Associate Agreement provisions.

• See “Health Care Providers, HIPAA Privacy and Security Compliance and the Effects of the 2013 HIPAA Omnibus Rule,” by Paul Hales, for an excellent overview of the many additional changes included in the new Omnibus Rule.

Key Areas of Emphasis for Business Associates

According to Paul Hales, HHS has focused its enforcement actions on covered entities to-date and has cited them for “inadequate or no risk analysis and risk management programs, inadequate or no contingency plans [to protect the PHI in the event of loss or disaster], inadequate and incomplete policies, procedures, documentation and ineffective workforce training.” Note there does not need to be a data breach to trigger an enforcement action; however, if there is a data breach, you can bet that HHS and state attorney generals will be looking at all of these areas.

The HIPAA Omnibus Rule, effective September 23, provides for an expansion of these enforcement actions to Business Associates. HHS’s past actions provide a good roadmap for the kinds of things they will be looking for from Business Associates as well. We recommend that Business Associates:

• Conduct a Risk Analysis, which requires the organization to “conduct an accurate and thorough assessment of the potential risks and vulnerabilities to the confidentiality, integrity and availability of electronic protected health information held by the entity.”

• Then implement a HIPAA/HITECH Risk Management Program, which incorporates “security measures sufficient to reduce risks and vulnerabilities to a reasonable and appropriate level.”

• Complete compliance gap assessments to ensure that your Risk Management Program has addressed

all applicable sections of the rules. The Security Rule explicitly requires this gap assessment, called an Evaluation (45 CFR §164.308(a)(8)), and its simply good business practice to perform the same type of compliance gap assessment for the Privacy and Breach Notification rules.

• Develop policies and procedures to implement the HIPAA/HITECH Risk Management Program and cover all applicable standards and implementation specifications in the Privacy, Security and Breach Notification rules.

• Train employees on the policies and procedures at least annually and clearly define the disciplinary consequences to employees if they fail to adhere to the agency’s security policies. Maintain accurate records of the training that has been performed.

• Document, document, document, so that you can demonstrate that you have taken all of these steps.

• Execute a Business Associate agreement with any vendor that has access to your PHI by September 23.

Tools to help Business Associates ComplyHopefully, many agencies will be able to build upon the security plan and procedures that they have already established. In addition, HHS has created the seven part HIPAA Security Series which outlines the administrative, physical and technical safeguards that the HIPAA Security Rule requires, coupled with the requirements relating to the organization, policies and procedures, documentation, conducting a risk analysis and creating a risk management plan.

California has created a great resource for Business Associates to use – HIPAA Security Rule Toolkit – to help them comply with the HIPAA Security Rule. It provides a checklist of all of the requirements and provides a field for the organization to document what the entity has done to comply with each requirement. Note that the requirements include creating a continuity plan, so that PHI is preserved in the event of a disaster or potential loss of the data.

Cornell University Law School provides another excellent summary of the required HIPAA administrative, physical and technical safeguards which apply equally to Covered Entities and Business Associates. (Click “PREV & NEXT” on the tool to move among the different safeguards.)

Some Additional Key Areas for Emphasis

As the agency develops its Risk Management Program, here are some important areas to emphasize:

• Identify and document where all the PHI “lives” in

(con’t from page 19)

(con’t on page 21)

your organization –- whether paper, electronic or orally communicated.

• Keep the HIPAA Minimum Necessary Requirement of the Privacy Rule in mind, which requires the entity to limit access to PHI to only those employees who need to see the information and to limit disclosure of PHI to the minimum necessary to accomplish the purpose.

• Minimize the amount of Protected Health Information (PHI) that the agency sees or retains to the maximum extent possible. If PHI must be retained in your system, encrypt the data or put it in a password protected PDF. Check with your vendor to see if it is already providing “encrypted data at rest” – which would be a big plus.

• Always use secure email when transporting PHI by email.

• Make sure back ups of PHI are encrypted and kept in a safe and secure place.

• Keep PHI off of laptops, tablets, smart phones, thumb drives, etc. where there is a high risk of loss or theft. Develop and implement your Bring Your Own Device (“BYOD”) policies and procedures which should include your mobile device management plan. (See the ACT article, “Bring Your Own Device” Opportunities & Risks.)

• Regular monitoring of systems and traffic for unusual activity and auditing employees for adherence to the agency’s security procedures are critical to HIPAA compliance.

• Document the process you will follow if there is a breach of PHI in your Risk Management Program, making sure the process complies with the Breach Notification Rule, which requires Business Associates to notify the Covered Entity without unreasonable delay and in any event, no later than within 60 days. Review your agency agreements to see the time period your insurers require for notifying them of breaches – which is likely to be much shorter. The Covered Entity then has obligations to notify the affected individuals, HHS, and the local media (if the breach affects 500 or more people).

This article was produced by ACT’s HIPAA Work Group. ACT (Agents Council for Technology) is a part of the Independent Insurance Agents & Brokers of America, Inc. Please contact Jeff Yates, ACT’s Executive Director at jeff.yates@iiaba.net with questions and comments. ACT’s website is www.iiaba.net/act. This article reflects the views of the author and should not be construed as an official statement by ACT.

Additional ResourcesBecause of the complexities of HIPAA, agencies may want to engage a firm to assist them with their risk analysis and the development of their HIPAA compliance program. Some of the firms offering independent agencies and other businesses with consulting, tools and sample policies and procedures for HIPAA compliance are:

Bob Chaput, Clearwater Compliance, LLC, bob.chaput@ClearwaterCompliance.com, 800-704-3394

Bill Larson, Profit Protection Risk Management Consulting, profitprotectionmanagement@gmail.com, 801-341-2044

Judi Newman, Phaze II Consulting, Inc., judinewman@aol.com, 239-481-6001

Bob Chaput of Clearwater Compliance has recorded an excellent webinar, “What Business Associates Need to Know about HIPAA,” which includes the impact of the new Omnibus Rule.

Additional written resources for Business Associates include:

Clearwater Compliance, “Preparing for the HIPAA Security Rule Again; now, with Teeth from the HITECH Act!”

ID Experts, “HIPAA Final Omnibus Playbook: Business Associate Edition”

In addition, ACT has created a prototype Agency Information Security Plan to provide a starting point for agencies. Note that agencies will need to add HIPAA specific requirements to this plan, as well as their policy for managing and securing mobile devices. For more information on managing mobile device risks, see ACT’s article, “Bring Your Own Device” Opportunities & Risks.

ACT has also developed resources encouraging agencies to use TLS for secure email with business partners.

(con’t from page 20)

JAN/FEB

1/8/2014The Basics of Flood Insurance Annette Winston9:00 AM - 11:00 AM

1/8/2014The Basics of Flood Insurance Annette Winston1:00 PM - 3:00 PM

1/9/14E&O Risk Management: Meetingthe Challenges of ChangeStanley Lipshultz9:00 AM - 4:00 PM

1/13/14 - 1/17/14Property/Casualty Pre-Licensing Course - 5 daysJoe Conroy, ACSR8:30 AM - 4:30 PM

2/10/14Homeowners Insurance - ACSR Module #1Joe Conroy, ACSR9:00 AM - 3:30 PM

2/19/14Principles of Insurance - AAI 81ANancy Nicklow, CPCU, AAI, CRIS9:00 AM - 4:30 PM

2/20/14Commercial Property Insurance - ACSR Module #6 Don Dudey, CPCU9:00 AM - 3:30 PM

2/25/14Cyber SecurityVince Phillips9:00 AM - 1:00 PM

Education Corner

ALEXANDRIA, Va., —The Independent Insurance Agents & Brokers of America (IIABA or the Big “I”) has released its 2013 Best Practices Study which found an increase in agencies with specializations, expansion of technology investment and an increase in profitability across most of the study’s six revenue groups.

“The results of this year’s Best Practices Study reveal several positive findings for the independent agency system,” says Madelyn Flannagan, Big “I” vice president of agent development, research and education. “Most study participants have grown their business and invested in staff and technology.”

Other findings from the 2013 Best Practices Study include:

• Specialty or Niche Markets: Specialization has increased across agencies of all sizes.Developing an expertise or proficiency in a certain industry or product has shown to facilitate targeted leads and referrals, improve retention and provide a competitive edge for an agency.

• Technology Investment: Many of the Best Practices agencies plan to invest in technology for the

BIG “I” 2013 BEST PRACTICES STUDY RELEASEDStudy shows agencies with a specialty or niche have significantly increased.

(con’t on page 23)

coming year. The top investment choice for agen-cies with revenue under $5 million will be in internet marketing and social media, while agencies with revenue over $5 million ranked investments in agency management systems first. Internet marketing and social media investments ranked fourth for the larger agencies, perhaps because many of these firms have already ventured into these fields. Across all revenue groups, the average number of agency staff mem-bers who devote time to social media activities is 1.3 employees and that accounts for approximately 10% of their time.

• Service Staff Productivity: This year’s study took a new approach to measuring service staff productivity. Rather than identifying the average book of business serviced per account executive (AE) and customer service representative (CSR), the study combined all service positions—AE, CSR, proces-sor, marketer/placer and claims—by line of business, and did not include administrative staff members like accountant or receptionist. This change provided clearer access to the total number of people the typi-cal Best Practices agency use to service the revenue in its commercial, bonds, personal, group life-health and individual life-health books of business. The study also provides a salary range for each of the four ser-vice staff positions.

• Organic Growth: As expected, organic growth has continued to improve dramatically since last year’s study. The average growth rate in total com-mission and fee revenue was 9.4% (up from 2.1%) for agencies with net revenue of less than $5 million, and 9.8% (up from 4.5%) for agencies with net revenue of more than $5 million.

• Growth Strategies Worked: Between 2007 and 2010, when the soft market and an extremely weak economy made positive growth nearly impossible, Best Practices agencies continued to invest in growth strategies that would allow them to achieve organic growth and obtain a competitive edge as conditions improved. The results of those strategies—which in-clude hiring new producers and equipping them with new tools and resources, enforcing more producer accountability, focusing on specialty/niche areas and expanding marketing/advertising activities—has paid off.

• Profitability: Strong revenue growth improved profitability. Although last year’s study results identi-fied that growth was stronger than it had been in

years, profit margins remained stubbornly flat thanks to waning contingent income growth. That trend has now reversed. This year’s results show that con-tingent income has grown an average of 21.8% for agencies with revenue totally less than $5 million, and an average of 10.7% for those with revenue of more than $5 million. At the same time, agencies did a much better job of controlling expenses so that oper-ating profits grew faster than contingent income. The result? Smaller to mid-sized firms enjoyed an average ProForma EBITDA margin of 29.3%, while the larger firms averaged 22.7%.

• Value Creation: Last year proved to be a solid year of value creation. The Rule of 20 scores, a simple growth and profitability balancing equation that provides a quick way to determine whether or not agency is creating value for its shareholders, were the highest they’ve been in several years. Small to mid-sized agencies earned an average score of 24.1, while agencies over $5 million earned 20.8. Generally speaking, an outcome of 20 or higher—regardless of growth and profitability—indicates that the agency’s shareholders can expect to earn 15-17% per year through stock price appreciation and/or shareholder distributions.

“The 2013 results indicate that Best Practices agen-cies continue to grow and increase profitability, the key components of agency value,” says Robert Rusbuldt, Big “I” president & CEO. “Overall, we are pleased, but not surprised, that the independent insurance agency system remains strong and stable.”

Every three years, the Big “I” collaborates with Reagan Consulting to select “Best Practices” firms throughout the nation for outstanding management and financial achieve-ment in six revenue categories (less than $1,250,000; $1,250,000 to $2,500,000; $2,500,000 to $5,000,000; $5,000,000 to $10,000,000; $10,000,000 to $25,000,000; and more than $25,000,000). Agencies are nominated by either a Big “I” affiliated state association or an insurance company and qualified based on operational excellence. Financial and benchmarking information for the participat-ing agencies are also reviewed and updated.

The Best Practices Study was initiated by the Big “I” in 1993 as the foundation for efforts to improve agency per-formance and create higher valued agencies. The survey and study of leading independent insurance agencies docu-ments the business practices of these “best” agencies and urges others to adopt similar practices.

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Carla M. McGee, ACSR, at (410) 766-0600 ext. 100 learn more about this and other Fireman’s Fund PRO GARD advantages.

Some insurance policies get better with age.

The Big “I” offers its members access to Fireman’s Fund PRO GARD® Errors and Omissions coverage that waives your deductible if your agency has been claims-free and continuously insured by Fireman’s Fund f ive years.

Contact or carla@iiamd.org to ®

Coverage is subject to the terms, conditions, and exclusions of the actual policy, which forms the contract between the insured and the insurance company. Available coverages, credits, and options may vary by state. ©2013 Fireman’s Fund Insurance Company, Novato, CA. All rights reserved.