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Dr. Jack Nordhaus – News of the Day

Latest insurance industry news, with commentary.

NEWS OF THE DAY March 14, 2014

Jack Nordhaus Jack Nordhaus , 3/14/2014
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“Never let the fear of striking out get in your way."  
Babe Ruth



Here are some steps you can take to keep your agency--or a client’s business--running in the event of a divorce, death, disability or other life event.

By Laura Mazzuca Toops,

March 11, 2014 •  

It’s a sad but true statistic: 50% of U.S. marriages end up in divorce court, a number that has held steady over the past decade in spite of bad economic times, according to the CDC’s National Vital Statistics System. Although the numbers represent a decline in overall divorce rates from the high of the late 20th century, it’s rising in some demographics--specifically, among baby boomers.

While the personal impact of divorce can be devastating, splitting up a marriage can also disrupt a spouse’s business—especially the typical independent insurance agency, which tends to be privately held and frequently intertwined with the family.

In the case of a divorce, a privately held business can represent a major portion of the marital estate and become subject to division in the settlement. Business owners who don’t plan for this eventuality the same way they would any other personal catastrophe could seriously damage their agencies as the result of a divorce settlement.

Luckily, there are things you can do to protect your business—not just from the ill effects of a divorce, but from any other personal catastrophe, says Tim Cunningham, managing director of OPTIS Partners, a Chicago-based specialty investment banking and consulting firm focusing on insurance distribution.

Here are some steps you can take to keep your agency--or a client’s business--running in the event of a divorce, death, disability or other life event:

Pay a professional to value your business regularly—and fairly. This is a basic first step in any sort of long-term agency planning, even if you’re a single-owner agency, Cunningham stresses. Regular periodic valuation of your business by an industry-specific professional firm has the collateral benefit of establishing the value in case of a divorce. It is also essential in transactions with shareholders, to provide collateral for a lender, and in estate planning. Although there are dozens of amateur “formulas” floating around, such as multiples of revenue or commission, don’t rely on these home-remedy estimates to value your agency. “A fair valuation by a qualified professional is good business planning and it may help bulletproof you in a divorce,” Cunningham says. “Value the firm fairly and regularly, even if you’re a sole shareholder.”

If a divorce is inevitable and you’re dividing up a marital estate, the value of your busines will become an issue. Both spouses will likely have their own valuation. “Then it becomes a case of dueling experts," Cunningham says. "Many judges in divorces have a very poor grasp of business issues. If you’ve had a valuation done periodically  and your method has been consistent, your lawyer can argue to the court that this is a fair value.”

Draw up a pre- or post-nuptial agreement. Although not a lot of people do pre-nups before tying the knot, they should, says Cunningham. Among other things, a good pre-nup will clearly specify that a spouse’s business is completely separate from the marital property in case of divorce. It’s never too late: For business planning purposes, spouses can have a lawyer draw up a post-nuptial agreement.   
Use shareholder or similar agreements to manage claims on the business by a spouse if there is a divorce. This approach makes sense if the agency has two or more equity owners—again, because the issue of ownership is germane not only to divorce, but also clarifies matters in the event of a partner’s death, disability or retirement, Cunningham says. If there are multiple shareholders, each should have a separate employment agreement, including non-compete language and details about agency value and how it is to be valued and treated in the event of a divorce—another reason to have the agency professionally valued regularly.   

Run your business like a business. The family agency isn’t personal property, so “treat it like a business,” Cunningham says. Make it clear that the business is your employer by paying yourself and the other owners a market salary based on their contributions and keeping business and personal finances strictly separate.


Live Insurance News

By Logan Bayan 


Flood insurance rates are expected to begin fluctuating throughout the U.S. this year. Reforms are taking hold of the National Flood Insurance Program due to new legislation which is delaying significant increases in premiums for the time being. However, the Federal Emergency Management Agency (FEMA), which oversees the program, continues to revise the flood maps that will have a dramatic impact on rates .

The legislation allows rates to increase no more than 18% a year, compared to previous annual rate hikes of up to 600% 

The bill would slowly reduce the subsidies supporting the program, which more and more lawmakers see as a financial burden that has been losing money for several years.  Congress might well eliminate the program. In some states, Flood insurance might soon be opened up to the private sector.  



By Amy Mcilwain

Business Insurance


You already know that it’s important to optimize your LinkedIn profile. But your presence on other platforms might also need optimizing.

So before you start tackling that in-depth Twitter marketing campaign or paying to promote your tweets, make sure you have your bases covered. Here’s a checklist for optimizing your Twitter profile:

1.  Profile picture. Your profile picture/avatar is going to be the first thing people see. Use a company logo or be creative and use a picture of a person or character. Just make sure that whatever image you use, represents the agency as a whole. If possible, use a colored background to help your brand stand out in your prospect’s feed.

2.  Twitter handle. Your Twitter handle is the same as your Twitter URL, so it should be an obvious choice that reinforces your brand identity. If your company name is already taken, you can be creative with abbreviations, but we recommend you stay away from underscores.

Now that you have a Twitter handle, promote it. Incorporate it into all your marketing materials so that your prospects and clients will know where to find you.

3. Agency bio. This is your chance to introduce yourself. The challenge is to use only 160 characters. Write a clear, concise bio that describes your brand, products or services. If you have an opportunity to throw in a few keywords, go for it. Twitter also gives you the ability to include live links in your bio, so you can drive traffic to a specific product page or another social profile.

Use URL abbreviations for these links, so you don’t waste precious characters.
As you strive to improve your Twitter efforts, make sure that your great content is searchable and looks professional. Optimizing your profile will make growing your audience much easier.


Insurance Journal

By Denise Johnson 

 March 7, 2014

After a catastrophe hits, mobile units filled with adjusters are on site to evaluate property damage. Flash forward five years and an insured may never meet the property adjuster handling his or her claim. Instead, a drone is sent to evaluate damage within hours. Claims are closed at breakneck speed as adjusters handle a much higher volume – and insurers see fewer Workers Comp claims because adjusters remain safely ensconced in their cubicles.

Although this scenario might seem too futuristic to imagine, according to industry experts it’s a very real possibility that insurers will be using drones in a number of ways within a few years.

Currently in the U.S., drones are used to enhance public safety, support agriculture, help the environment, monitor the climate, and mitigate and monitor disasters.  The Association of Unmanned Vehicle Systems International (AUVSI) has been lobbying the FAA to revise its regulations freeing up air space for unmanned vehicles and allowing for greater government and commercial uses of drones. Internationally, a number of countries use drones to assist in law enforcement and help monitor weather and disasters.

Grant Goldsmith,  president of Overwatch, a provider of high risk insurance for international contractors that’s a division of Avalon Risk Management, says that he has already been approached by insurers interested in using drones for claims work. One company representative told him that an ex military person now employed in the claims department suggested the use of drones, after Superstorm Sandy claims overwhelmed the carrier.

Jason Wolf, a property defense attorney and shareholder at Koch Parafinczuk & Wolf, sees drones being used for aerial surveys of property damage to insured roofs. “You get to see everything. You may not even need to go up on the roof. You can see every single inch of the entire property, just with the touch of a few buttons,” Wolf said.

He also expects insurers to use drones to after a catastrophe. “I envision a time when, after a catastrophe, an adjuster pulls up to a neighborhood, opens the trunk of his car, presses a few buttons on his tablet – and the drone does an immediate survey of everything and streams it all right to his tablet. The adjuster knows exactly where to go first and what’s most significant within minutes. The insurance company has a sense of everything that needs to be done in a very short amount of time and a minimal cost,” Wolf said.

As far as who will operate the drones, Wolf said adjusters will likely see their skills expanded again. “I think it raises a good point about how adjusters’ skill sets have had to change over the years from the days when they did everything by hand to when they had to learn how to use a laptop and so on and learn how to use computer estimating programs. I would think they would have to be well versed in using drones. I believe t the technology is going to be so simple that anyone will be able to do it, 

Goldsmith, on the other hand, thinks there will be separate, experienced drone operators. “In the companies that I’ve talked to that are thinking about introducing a drone into their claims process, that idea often comes from an ex military person who has firsthand experience operating or using a drone overseas,” Goldsmith said.

Privacy Issues

Although drones could be used in a variety of claims and underwriting functions, there are potential privacy and legal issues that haven’t been sorted out yet.

“One of the biggest concerns that people toss out there is privacy. Well, that’s not a problem with a drone survey,” Wolf said. “You’re going to have the drone survey, take a look at the entire house and record the video for you or allow you to look at it in real time. What’s the privacy concern there?”

Goldsmith thinks the privacy issue has already been addressed within the commercial aircraft industry. With small private aircraft or helicopters, if you’re doing something in your backyard that’s within public view of a passing aircraft, you don’t have a reasonable expectation of privacy – and a number of Supreme Court rulings have upheld this rule.” 

An invasion of privacy could just as easily occur with an onsite visit by a field adjuster. “If they’re looking at the exterior and they happen to peer in the window and see some sort of activity that could be construed as a privacy intrusion, I don’t know how different that is than the adjuster being there when the homeowner or the property owner is at work and whoever’s home isn’t answering the door,” Wolf said. “I think a lot of that is really just overblown, as long as there’s notice given and the insured knows what is going on.”
Both experts expect there will be a testing period for insurers to sort out issues and concerns. “Obviously, there needs to be some sort of testing, a beta testing period, and you need to get buy in from not just the adjusters but from the C suite, so to speak,” Wolf said. 

Although usage of a drone could lead to Property Damage and Bodily Injury claims,  this isn’t much different than an adjuster driving to a property inspection. “To the extent that two drones collide, see that being no different than two cars colliding. Someone’s at fault, and there might be collateral damage, so to speak,” the Florida attorney said.

Goldsmith said the risk of a collision is small. “When you’re talking about operating something hand held, within line of sight on a blue sky weather day that’s not really larger than a model aircraft and it’s not going beyond their line of sight for hours, that’s a very small risk.”
Drone Testing

The Federal Aviation Administration (FAA) has testing sites  for drones in Alaska, Nevada, New York, North Dakota, Texas and Virginia 

“I think that the next logical step for the insurance industry is to develop a platform of how you would want to use an unmanned system, let’s say, in claims, and then put that thesis of use to practical, operational practice in one of these FAA operations centers,” Goldsmith said.
He advises interested insurers to contact wan FAA testing site so they can flesh out best practices and weather conditions for drone usage. “The testing sites right now are not real busy and are looking for customers,” Goldsmith said.

Insurers contacted for this article declined to discuss whether they plan to use drones in their operations in the future.

Whether a company could operate drones for business now is up for debate.

“If you asked me today whether or not it is illegal or against the FAA’s rules to take an unmanned system out and shoot aerial photography of somebody’s roof or a loss adjustment below 400 feet, I don’t know that I think that’s illegal. I don’t know that I think the FAA is going to come down on you for that. I think you could do it today,” said Goldsmith. “If you’re using it for your own purposes, as a company or as a private individual, and you’re not out as a vendor essentially flying services for a fee, I don’t think you’re in violation of the FAA’s ruling that you are operating it under a service for fee agreement and so that’s not authorized. I never say ‘illegal’ because there’s technically not a law that says you can’t do it. There’s just a rule that says you shouldn’t do it.”

According to the FAA website, no approval is needed to fly a model aircraft under 400 feet, although these flights are not for business purposes.

“The bottom line is that you can’t get this genie back in the bottle. There are plenty of people operating drones on a pseudo authorized and unauthorized basis now,” Goldsmith said.
Experts said it’s unlikely that drones will replace adjusters.

“Could drones ever replace humans?” Wolf said “Could a drone come out to an auto accident and be dispatched from a central headquarters? That’s a little bit pie in the sky, no pun intended. Automation has replaced a lot of other things, but the human touch will always be important.. I think it’s exciting to see what’s going to happen and to see this play out.”