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May 2008 Newsletter

LETTER FROM LANDERS

Harry's Signature

So, I’ve got three cubic yards of compost in my yard. My fruit trees (seven apple, four peach and one pear) are heeled into the side of the compost pile, waiting for the contractor to finish cutting the trees and pulling the stumps on the site that is about to become my orchard. Two weeks of rain have delayed the job. You can’t work heavy equipment in the mud. So, the good news is that my peach trees have blossomed. The bad news is that they’re not in the ground.

I’ve been thinking about how, when I first started my insurance career in 1973 with a retail agency in Massachusetts, the industry was in the midst of a soft market. I was able to produce new business without too much difficulty and I somehow thought that perhaps that might have something to do with my own abilities. A few years later, in 1976, I started working in the surplus lines end of the business and met with some degree of success in placing coverage for difficult risks at exceedingly high premiums. I must have a real talent. Nah, it had nothing to do with me. In those years I didn’t even have an appreciation of the market cycles of the insurance industry. As a young producer in a soft market, it didn’t take much effort to be able to come up with a cheaper price for better insurance – it was just a gift from the marketplace. Later, when we experienced the first malpractice and products liability crises and prices skyrocketed, I just happened to be in the right place, at the right time – a well, established surplus lines brokerage firm. I suppose that the years have taught me that there are marketplace forces bigger than we are and sometimes they bring us prosperity. The key is that we have to be properly positioned to reap the rewards and that means lots of hard work during the in-between years.

Part of the preparatory work that we all do is continuing education. State licensing laws now make minimal demands of us all, but we try to find ways to use education as a tool to improve our professional capabilities beyond those minimums. I recently attended AAMGA’s University Weekend program in Philadelphia. Noah McMurray is off to Nautilus Insurance Company’s Underwriting Meeting in Scottsdale. Calin Cole is enrolled in NAPSLO’S Excess & Surplus Lines School. And so it goes.

By the time you read this, our updated version of landersunderwriting.com should be up and running. Same useful applications available for download, but with a fresh look. We hope you like it.

MORTGAGE FIELD SERVICESSAY WHAT?

Credit Morir Sonando - Creative Commons

One of the effects of the recent and ongoing collapse of the home mortgage business has been tremendous growth of what is known as “mortgage field services”. What, you may ask, are mortgage field services? It takes in a lot of territory, but, for our purposes, they are primarily independent contractors who work with mortgage-holders to act on their behalf in inspecting and maintaining properties that have been foreclosed on. The services provided may be as simple as inspections of the property in which brief, check-list reports are completed to let the mortgage company know whether the property is actually vacant, the state of maintenance, the characteristics of the neighborhood and other such details.

Sometimes mortgage field services will provide more hands-on assistance in which they perform work to preserve the value of the property, so as to maximum the mortgage company’s ability to recover funds through a sale. This can involve tasks including boarding of doors and windows, debris removal, winterization of plumbing, changing locks, lawn maintenance, pool draining, snow removal and water damage repairs. This work might be very much like what a handyman would perform.

If you haven’t been asked to provide insurance for a mortgage field service business, we suspect that you will, before long. Banks and other financial service companies have a heavy demand for these services and, as a result, there are lots of new start-ups. Some of them may even be the very same individuals whose general contracting firms have gone out of business due to the housing downturn. And banks are insisting that the mortgage field service firms provide them with certificates of insurance. Depending upon the specific nature of the work, they may want to see both general liability and professional liability. And, would you believe it, Landers Underwriting is prepared to offer those coverages. We welcome your inquiries.

AVOIDING TROUBLE WITH CERTIFICATES

Certificate of Insurance

We continue to hear more tales of difficulties involving Certificates of Insurance lately. The particularly troubling ones involve wholesalers who refuse to issue certificates on policies that they’ve written, insisting that their retail producers issue the certificates themselves. What, you may ask, is wrong with this? You can probably issue them faster yourself, anyway. What’s wrong is that the certificate must be signed by an “authorized representative” of the insurer. If a wholesale broker tells you that you can sign a certificate on behalf of one of their insurers, don’t take their word for it. Ask for a copy of a letter from that insurer specifically stating that you’re their authorized representative. A letter from the wholesaler is meaningless, if the wholesaler doesn’t have the authority to name authorized representatives on behalf of the insurer. We’re betting that you’ll never see such a letter.

So, what’s the harm is just issuing the certificate, anyway? What could go wrong? Probably nothing – unless something goes wrong. What if you make a mistake in issuing the certificate? Say, the policy is written on a claims-made basis but, out of habit, you check the “occurrence” box, rather than the “claims-made” box. And, say, a loss occurs and the certificate-holder insists that they never would have done business with your client, had they known that coverage was written on a claims-made basis, and they relied on the information contained in your certificate. Do you think the wholesale broker will be bailing you out? What are the chances that the insurer will support your defense? Chances are, their response will be that, not only was the certificate incorrect, but that you acted improperly in issuing it in the first place, as you’re not an authorized representative of the carrier.

What to do? Our suggestion is that you add certificate issuance service to the list of criteria that you use in determining what wholesale broker you choose to do business with. If a wholesaler won’t issue certificates for your clients on a timely basis, perhaps it’s time to find a new wholesaler. Knowing the importance of timely certificate issuance, requests get high priority at Landers Underwriting. We can get them issued most promptly and accurately, if you’ll email your requests to us. That way, we can just cut and paste the name and address of the certificate-holder onto the form. We’ll affix an electronic signature and email the completed certificate back to you to pass along to the interested parties.

SELL EPL

Inapproptiate Office Behavior

When it comes to writing Employment Practices Liability, we’ve got to tell you that it takes time to sell. We’ve found that it averages about 6 months from the time we provide a quotation until coverage is bound. Most purchasers have not had the coverage in the past and it’s not something that’s already in their insurance budget. As we continue in the current soft market, it may be time for producers to sell this coverage with renewed enthusiasm. If premiums for other lines of coverage are decreasing, isn’t this a perfect opportunity for your client to purchase EPL without increasing their total insurance premiums?

Anecdotal evidence seems to be an effective sales tool for EPL coverage. Prospects become buyers when colleagues tell them about horror stories involving totally unfounded claims of employee discrimination. The employer is often found to have no liability, but goes through legal bills in the five-figures in the process of defending themselves.

Some buyers react to tales from accountants about contingencies that infect otherwise solid financial statements due to ongoing uninsured employment practice claims. Seminars at industry association meetings in which tales of colleagues’ and competitors’ EPL travails are recounted seem to spur sales. Newspaper clippings outlining judgments and settlements involving employment practice claims can make your client a believer. The fact that the Equal Employment Opportunity Commission recorded nearly 76,000 charges in 2006 alone and obtained more that $274,000,000 in settlements for claimants tells us that this is a big deal.

Landers Underwriting provides access to markets capable of responding to the EPL needs of firms ranging from the single-employee non-profit to the publicly-held firm employing thousands. We use both admitted and non-admitted companies to give us the tools to be flexible in form and pricing. If you have a prospect, a telephone call is particularly welcome so we can guide you to the most appropriate application.

In short, be persistent with your clients. This is important coverage that needs to be sold.

STATE OF THE (HOMEOWNERS) MARKET

Credit Dom Dada - Creative Commons

After years of saying “no” to literally every Protection class 10 submitted, Chubb Masterpiece program has finally revised the guidelines for their Masterpiece homeowners program. Protection class 10s are the new PC 9s, and PC 9s just got a lot easier. While PC 10s are not going to be waved on through, they are now debatable.

As many of you know, the Masterpiece program delivers a high-end product tailored for the needs of owners of high-value homes. We’ve long been in a tough spot in the sense that people with a lot of money to build their dream house often choose to build that house in the middle of nowhere, where they can have lots of land and a high level of privacy. In other words, protection class 9s and 10s.

If you’ve got a $2,000,000 home that is 12 miles from the nearest fire department, that’s probably going to be a “no”. But something that is 6 or 7 miles or so is now open to discussion. Supporting lines of coverage, such as valuable articles, auto and personal umbrella can often help turn a “maybe” into a “yes”. Central station alarms make a big difference, since fast response time is often the difference between a containable fire and a total loss.

Other good news with this program right now includes rate cuts for most of Virginia and Maryland (although a very few coastal counties, including Virginia Beach, will experience rate hikes).

As for high end homes that don’t have adequate protection or are otherwise ineligible for coverage with Chubb, talk to us about them, too. If you’re having difficulty finding a market, we may still be able to place them with Lloyd’s, although that should be considered a market of last resort, when admitted carriers just won’t respond positively.

WHEN IS A CLAIMS-MADE FORM AN OCCURRENCE FORM?

Credit Charles Roffey - Creative Commons

It’s a fact that individual Directors & Officers can be liable for claims long after they leave a board. With United States Liability Insurance Company’s non-profit Directors & Officers Liability form, individual former Directors & Officers automatically receive an unlimited extension of coverage of protection from claims if the new board elects to cancel or non-renew their coverage. This notable feature provides the advantages of occurrence coverage under a claims-made policy and protects the personal assets of former Directors & Officers.

Advantages:

Want an example of how this could play out? Imagine this scenario: During a treasurer’s term of service on her trade association board, she accepted a large monetary donation intended for creation of best practices manuals for all of the members. The new enhanced manuals were never created due to time and staffing shortages. A newly elected board used the funds for their annual conference instead. Eighteen months after completing her service, the treasurer was named in a suit alleging misappropriation of funds that were intended for the manuals. The former treasurer discovered that the new board had also failed to renew its Directors & Officers policy. Even though she had diligently maintained insurance coverage throughout her term of service, she was, through no fault of her own, left with the liability of the suit. Oops.

Landers Underwriting offers you and your customers access to U.S. Liability’s D&O policy for non-profit organizations. Applications are readily available at landersunderwriting.com.

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