Tag Archives: bonilla

Challenges for Today’s Agencies

In recent months, I have been networking with insurance sales leaders in the Northeast U.S., having conversations about their experience building insurance agencies and sales teams.

See also: Agency Succession Plans: Do It Now!  

The following patterns surfaced as we discussed the current agency and sales team’s challenges and opportunities:

1. Insurance agency and team leaders report that staffing and recruiting is their top challenge. Agency owners report staffing their offices to be most challenging, in particular regarding producer roles. Insurance sales team leaders, such as self-employed professionals with Primerica, report challenges with recruiting team members who are credible and have the qualities to succeed.

2. Lead generation was another challenging area.  One of the sales team leaders indicated that he has found referrals to be the best way to find prospects.  He reported that he routinely obtains 10 or more referrals from his customers.

3. Mindset and having the ability to stay the course was mentioned as another area of challenge.

See also: Could Your Agency Pass a Risk Audit?  

4. Finally, some mentioned retention. The problem of retention surfaced when we discussed new recruits experiencing difficulty in dealing with rejection. Further training on business building and on how to build relationships with prospects was mentioned as a potential solution.

What do you think about these challenges? Do they reflect the challenges that you find in building your business?

4 Ways Insurance Is Disrupting Itself

Coming from the Insurance Executive Conference earlier this month in New York, I am extremely excited by what I heard regarding where the industry is heading.

I attended both the life insurance and P&C tracks, picking up the following insights about how the industry is disrupting itself before others can:

  1. Insurance carriers are embracing change.
    Anwar Haneef, partner at IBM Watson, said, “We have not seen much disruption in the insurance industry in the last 100 to 200 years” and acknowledged that new technologies have the potential of changing that. Jeffrey Killian, vice president of in-force service and operations at New York Life, stated, “We could become Blockbuster (Video) if we don’t go through the change.”
  1. Insurance carriers are focusing on their customers in a new way. For example, Gerald Patterson, senior vice president of retirement and investor services at Principal Financial group, spoke of Principal’s move away from thinking about customer service to focus instead on the customer experience. Principal tries to provide value to the customer and understand that young consumers expect the same technology from insurance carriers that they experience with other service providers. He also stressed the importance of embedding experimentation in your customer experience on a regular basis.
  1. Insurance carriers are embracing technology and planning for a different future.
    At the highest level, for example, Jane Chwick, former partner in charge of global technology at Goldman Sachs, provides technology expertise as a board member of the relatively young company Voya Financial. Patterson mentioned that he has recently spent time visiting Silicon Valley and attending Fintech conferences.

Killian acknowledged that realizing a company’s vision of customer experience requires investment and pointed out that Principal is committed to making the right investments to accomplish this. He remarked “We have invested a lot in Lean Six Sigma. It’s amazing how much energy you can unlock through these processes.”

Joe Beneducci, chairman, president and CEO of Prosight Specialty Insurance, said, “Technology is a catalyst that affords us options.” Life insurance executives discussed their expectation that the analytics movement will affect carriers’ entire value chain. They also saw predictive analytics enable insurance carriers to be learning organizations.

West Hunt, vice president and chief data officer at Nationwide, discussed the capability of scaling human expertise through cognitive computing. At the same time, the rise of robo-advisers and their potential threat to the business was mentioned. Finally, the recent trend toward digital and what it means to the industry was raised. Technology was discussed all over the conference.

  1. Further opportunities to leverage technology were identified. Colleen Risk, senior analyst at Celent, mentioned the opportunity insurance carriers have of enhancing their websites to provide transaction capabilities for consumers, such as changing beneficiaries. Recent research by Celent showed that less than 25% of life insurance carriers are doing e-delivery of contracts. Other opportunities include: making data available throughout the company, producing strategies to sustain customer loyalty, developing a compelling message for life insurance and educating Millennial consumers.

I was happy to participate in the conference and felt energized by the discussion of new topics that position the industry to continue to thrive into the future.

What do you think? Post your comments below!

California Law on Uber et Al.: Model for All States?

On Sept. 17, California Gov. Jerry Brown signed into law AB 2293 (Bonilla) regulating insurance coverage for  transportation network companies (“TNCs,” such as Uber, Lyft and Sidecar). Two purposes of the bill were: (1) to fill a possible gap in coverage caused by an exclusion in personal automobile policies and (2) to allocate responsibility between TNCs and personal automobile insurers for insurance coverage issues. The statute attempts to achieve its purposes by creating a “firewall.” When a driver is logged on to the TNC network, the insuring responsibility is on the TNC policy.  When a driver is logged off, responsibility is on the personal automobile insurer. Think of “Log On” and “Log Off” as bookends.

One might expect this statute to become a model for other states struggling with similar issues. Unfortunately, some infelicitous language in the statute may undermine the desired clarity. The mischievous phrase is “in connection with.”

Once a driver logs on, but before being matched with a fare (referred to as Period One), the statute requires a TNC policy of 50/100/30 (in other words, $50,000 of coverage for bodily injury per person, $100,000 for bodily injury per accident and $30,000 for property damage). The statute also requires an additional policy of $200,000 to cover any liability arising from a participating driver “using a vehicle in connection with a transportation network company’s online-enabled application or platform within the time periods specified in this subdivision . . . .”  [Emphasis added in all cases].

Assume a driver, while logged on, decides to drive over the river and through the woods to his grandmother’s house. A TNC could legitimately argue that this driving is no longer “in connection with a transportation network company’s online-enabled application or platform.” By taking a detour, the driver has abandoned the TNC work.

If so, does the personal automobile insurance cover an injury caused on the way to grandma’s? Apparently not. Section 5434(b) of the new statute says the TNC policy covers the period from Log On until Log Off, or until the passenger exits the vehicle, whichever is later. For ease, think of this as the bookends again. Subdivision (b)(1) then provides that the personal auto policy “shall not provide any coverage” unless the policy expressly provides for that coverage “during the period of time to which this subdivision is applicable.” So, personal auto cannot provide “any coverage” within the bookends. These provisions may have created a gap within the bookends large enough to drive an SUV through.

What about driving outside the bookends? Is that clearly covered only by the driver’s personal auto policy?

The statute requires the TNC to advise the driver “that the driver’s personal automobile insurance policy will not provide coverage because the driver uses a vehicle in connection with a transportation network company’s online-enabled application or platform.” Thus, the statute permits (and perhaps mandates) personal automobile policies to exclude coverage for driving “in connection with . . . .”

When is driving “in connection with?” The “Case of the Yoga and Yoghurt” provides a good analogy. The basic rule is that collisions that occur while “coming and going” to and from work are not the responsibility of one’s employer. Simple commuting is not within the “scope of employment.” When, however, a person uses her automobile for work purposes, the rule completely changes. Judy Bamberger, an employee of an insurance company, used her car during work to visit clients and carry out other work-related chores. On her way home, she decided to stop for yoga and yoghurt. As she made a left turn, she collided with a motorcyclist. Is the employer responsible? “Yes.”

In Moradi v. Marsh USA, Inc., 210 Cal. App.4th 886 (2013), the court of appeal held that her driving fell within the scope of her employment because, since she used her car in her work, going to and from work conferred an “incidental benefit” on the employer. Put another way (although the court did not use these words), it was in connection with her employment.

It would seem to follow that if one must use a car in an activity (such as TNC driving), then going to or from that activity is “in connection with” the activity. Because Period One (Log On) is part of a TNC’s “online-enabled application or platform,” driving to a surge zone with the intention of logging onto the app upon arrival is driving “in connection with” driving during Period One. If this analysis is correct, it again undermines the clarity of the App On/App Off bookends.

It seems clear what the drafters had in mind, so this ambiguity could be remedied by clearly defining the meaning of “in connection with” – perhaps next legislative session. In the meantime, those considering using California’s law as a model may want to avoid importing this ambiguity.

Insuring Uber et Al.: A Rollercoaster Ride

The Santa Cruz Board Walk includes an old-fashioned rollercoaster ride named the Big Dipper. Establishing appropriate insurance requirements for transportation network companies (TNCs) such as Uber, Lyft, SideCar and Ride Share has been like a ride on the Big Dipper.

The California Public Utilities Commission (CPUC) has jurisdiction over TNCs as “charter party carriers” — carriers for hire that, unlike taxis, must prearrange their rides. The Big Dipper ride began when the Consumer Protection and Safety Division of the CPUC sent cease-and-desist letters to some TNCs in 2010 and again in 2012.

After studying insurance issues related to TNCs, in September 2013 the CPUC required TNCs to carry insurance providing as much as $1 million of coverage per incident while “providing TNC services.” This phrase proved to be troublesome. There are three “periods” for TNC driving. Period One is when the driver turns on the TNC app (“log-on”) but does not yet have a match with a passenger. Period Two is when there is a match. Period Three is when a passenger is in the car. Although there is evidence in the record that the CPUC intended “providing TNC services” to cover all three periods, including Period One, it was not clearly stated in the rule. In addition, TNCs were uncomfortable extending $1 million in coverage to drivers merely because they were driving around while logged on.

Then came New Year’s Eve, 2013. An Uber driver killed a small child and injured the child’s mother and brother while driving during Period One. Because there was neither a passenger nor a match with a fare, it was possible that the driver was not “providing TNC services” and, therefore, was not covered by Uber’s insurance policy. It was likewise possible that the driver’s personal insurance would not apply. Because the driver was logged on, the accident fell within the policy’s exclusion for commercial or livery use (although in this case the personal auto insurer provided coverage up to the policy’s limits). If neither Uber’s policy nor the personal policy covered the accident, the driver would have been uninsured — an unacceptable outcome for the driver, the injured parties and public safety.

At least one TNC carried a “contingent” policy of $50,000 for an individual injury during Period One. The policy was triggered, however, only if the driver’s personal carrier declined coverage. This could lead to some odd results. If the driver had only $15,000 in coverage, and the driver’s carrier accepted responsibility, the injured pedestrian could look only to $15,000 in coverage. If the driver’s insurer declined to cover the accident, the pedestrian could look to the $50,000 coverage of the TNC policy. In any event, there was no legal requirement that the TNC have coverage for Period One, and either $15,000 or $50,000 did not approach the $1 million the CPUC thought it had required.

Following the New Year’s Eve accident, both the CPUC and the California legislature rushed to fill this possible “gap.” The president of the CPUC proposed requiring a minimum of coverage of $100,000 for one injured person, $300,000 for more than one person and $50,000 for property damage (a 100/300/50 policy) of “excess” insurance for Period One, but the legislature arrived first.

Although several bills were introduced, AB 2293 (Bonilla) is the only bill that made it to the finish line. Initially, the bill sought only to build a “firewall” between personal insurance and TNC driving. The bill exempted personal auto insurance from covering driving while a TNC driver was logged on. Personal auto insurers argued that this driving is often more dangerous than ordinary personal driving, so, if personal auto insurers were responsible for the risk during Period One, the additional costs would be passed on to other auto owners. This might raise rates and would be a subsidy to commercial TNC enterprises.

The TNCs asked that their insurance limit during Period One be limited to 50/100/30, perhaps concerned that the CPUC wanted to require more coverage (recall that the CPUC was initially of the opinion that its $1 million requirement extended to Period One), To bolster their argument, the TNCs pointed to the limits adopted in a similar Colorado statute. The bill in California was amended to include the 50/100/30 limit for Period One.

Stakeholders pointed out that these limits were woefully inadequate to cover the injuries from the New Year’s Eve accident. The limits would also be inadequate to cover many other accidents.

The Bill was amended. Now, coverage for Period One would be $750,000 per incident (a 750/750/750 policy). This is the minimum coverage the CPUC has applied to limousines for 20 years or more. In addition, for losses exceeding $750,000 the TNC was to “assume all liability of the participating driver.” Liability, in effect, was limitless.

Now we are at the top of the ride. Hang on.

The TNCs were very unhappy with this turn of events. There was also concern whether such policies were available and, if so, affordable. TNCs are very popular with consumers, and few people wanted to appear to stifle this area of transportation innovation (with the exception, of course, of taxi drivers).

The bill was amended again. Period One coverage would now be 100/300/50, with $1 million of excess coverage. In addition, the drafters deleted the requirement that the TNC assume all of the driver’s liability.

More lobbying, more horse trading and more diplomacy resulted in yet another amendment. The new limits were lowered to 50/100/30 (remember the limits in the Colorado law?), but with an excess policy of $500,000. It was unclear, however, whether the excess policy covered the driver or only the TNC. With these lower limits, drivers might have found that their personal auto insurance would not cover them, yet their TNC coverage would be inadequate. This would put their personal assets at risk.

It occurred to the drafters that there was little point in adopting a bill unless the governor, who had not yet taken a position, would sign it. After consultation with the governor’s office, the bill was amended for the final time. Period One maintained the minimum TNC coverage of 50/100/30, but the additional, excess policy was lowered from $500,000 to $200,000. The amendment also provided that the $200,000 excess policy must specifically cover the driver in addition to the TNC.

The bill carried forward earlier requirements for Periods Two and Three. The bill requires $1 million in liability coverage for Periods Two and Three and requires $1 million in uninsured/underinsured motorist coverage for Period Three. The bill directs the Department of Insurance to collaborate on a data-based study and report back to the legislature. To allow insurers time to create policies or endorsements to cover all of these requirements, the new limits are to take effect on July 1, 2015. If one is to be injured by a TNC driver during Period One, it may be best to consider postponing the injury until then.

The final bill also did something else. During final amendments, two words were added — “at least.” Period One coverage, including the $200,000 excess coverage, must be “at least” those limits set out above. Because AB 2293 specifically permits the CPUC to continue exercising its rulemaking authority “in a manner consistent with” AB 2293, if the CPUC were to adopt higher limits (for instance, the $750,000 limit it applies to limousines), these limits would be “consistent” with limits “at least” those outlined above.

So we complete our first Big Dipper ride where we began — with the CPUC. Two words — “at least” — are the CPUC’s ticket to reboard the Big Dipper. When the time is right, perhaps there will be yet another dizzying ride. Please lower the bar snugly across your lap and keep your hands and feet inside.

‘Sharing Economy’ Has Tricky Insurance Issues

Imagine the unimaginable – you accidentally injure a passenger or pedestrian with your car. How much insurance do you carry to protect them or yourself? Like many, you may carry only $15,000 per individual injury (the minimum, unchanged since 1967, required by California). If your income is low enough to qualify, you may carry a Low Cost Auto policy with only a $10,000 limit. Such minimum limits are a compromise. Insurance is expensive, and states try to balance the utility of car use against insurance costs that, if too high, would reduce that utility. You may, of course, carry higher limits. Or, perhaps, you are like approximately one in seven California drivers, and you illegally drive with no insurance.

Now assume that you are among the many auto owners who have joined the “sharing economy.” You use a smartphone app to match yourself and your car with others willing to pay you for a lift. Uber, Lyft, Sidecar and others (“Transportation Network Companies,” or TNCs) offer these apps, share the fees with you and make this popular service available to thousands.

Again, imagine the unimaginable – a collision injuring your passenger or a pedestrian. Keeping in mind that any insurance cost is ultimately passed on to the passenger, how much insurance should be required for a TNC driver?  $10,000? $15,000? $50,000 (the maximum required for private autos in any state and the minimum required in California if you allow others to rent your auto)? Or perhaps $106,841 (the value in 2014 dollars of $15,000 in 1967)? $750,000 (the minimum required of limousine companies)? Some other figure?

Put another way, the question about how much insurance to carry is asking: How much should those who benefit from the sharing economy share the burden when the activity damages them or others?

Unlike most driving for personal reasons, TNC driving generates cash flow. To many, it seems only fair that some of that be used to extend additional protection to those injured by the activity. What should trigger the additional protection – when one turns on the TNC’s app to seek a fare, when a “match” is made or when a passenger enters the vehicle? Also, who should carry the insurance – the TNC, the TNC driver or some combination?

Currently, these questions are debated among legislators, regulators (such as the California Public Utilities Commission, or CPUC), TNC operators and others. Requiring lots of insurance by setting a high limit may chill innovation; setting the limit too low unnecessarily burdens injured parties or others (e.g., taxpayers, who support Medi-Cal or Medicaid and may end up paying for expenses not covered by private insurance) and may unfairly create a disadvantage for competing sources of transportation that may be subject to higher insurance limits.

Raise the price of insurance, and the price of a ride goes up. (This issue is hardly unique to TNCs. Congress is also debating whether to raise the federally mandated $750,000  truckers’ minimum insurance limit.) Not only might an increase in insurance costs for TNCs stifle a popular and convenient form of transportation, but it may lead some less safe drivers back into their vehicles (e.g., teenagers, intoxicated drivers, impaired drivers, poorly insured drivers, uninsured drivers or drivers with unsafe driving records). This, in turn, may lead to the unintended result of even more unnecessary injuries and deaths.

Much of the debate about TNCs is colored by a New Year’s Eve accident in San Francisco that occurred when a TNC driver with his app on (there is some evidence he may have been looking at it) struck and killed a pedestrian and injured several others. This is a tragic accident, but it also gives the debate an emotional overtone that may make it difficult to strike the correct balance. This accident could also have happened while a non-TNC driver was texting or talking, and there may have been minimal or no insurance available in that case.

In this author’s view, comprehensive legislation or regulation shaping the future of TNCs is premature. These fast-moving innovations are new enough that insurers, legislatures and regulators have been caught on the back foot. At the same time that policy makers are moving forward with regulations, insurers and TNCs are developing new products and strategies to address these issues.

While there is no shortage of those eager to express their opinions (perhaps this author included), there is little credible data on which to base sound policy decisions. Here are some of the many open questions:

–On average, how much would different limits add to the cost of a 10-mile ride? Ten cents? Ten dollars?

–How much will new insurance products cost?

–As the use of TNCs expands, will overall accident rates rise, or will they fall?

–If you drive to a ballgame with your daughter and a fare, will your daughter’s injuries be covered if you have an accident? (Your liability would not be covered under most personal auto policies – surprise!). Put another way, what terms and conditions will appear in any new insurance products or endorsements?

–Does the display of a TNC’s trade dress (essentially, its visual appearance) create ostensible or apparent authority should a passenger suffer injury? Would liability extend to an injured passenger who hailed a car displaying the TNC’s trade dress, even though the driver did not engage the TNC’s app so he could keep the entire fare? If the TNC is liable, could it seek reimbursement by claiming indemnity against the driver?

–If you drive 12,000 miles a year, but 2,000 of those miles are driven as a TNC driver and are insured by some form of TNC policy, should your personal auto insurer base your rate on 12,000 miles or on 10,000 miles? If the latter, how are the different miles to be confirmed?

–If you carry higher limits on your personal auto policy (e.g., $300,000 plus a $1 million umbrella), will the protection for you and anyone you injure drop to a lower TNC policy limit when you act as a TNC driver?

–One current bill in California (AB 2293 — Bonilla) provides that the TNC must assume ALL of the driver’s liability, without limit. By contrast, the CPUC’s proposed rules do not provide for unlimited liability. When is it appropriate to impose liability on the provider of an app as if users of apps were employees or agents of the app provider? Would the operator of an app that matches homes with those who want accommodation (e.g., Airbnb) be liable should a guest trip on an unsafe carpet or step? Would the operator of an app that matches car sellers and buyers be liable for an accident during a test drive? Would an app marketing tickets be liable if the bleachers collapse or the cruise line runs aground?

–Should liability turn on whether the app provider is more than passive? If so, what more is required? A profit motive? This would sweep up many apps. What if the app provider imposes rules on its users (e.g., vetting drivers for their safety record, adopting a zero-tolerance alcohol policy and reviewing ratings by customers)? If so, then forcing app providers to assume unlimited liability may discourage them from taking measures that could enhance safety. For these reasons, this liability provision in AB 2293 could have enormous implications and should be carefully considered.

–If, under AB 2293, the operator of the app is liable without limit, what purpose is served by mandating policy limits? If the operator of the app has sufficient net worth, it would be liable regardless of any policy limits that might be imposed.

–How, if at all, should one weigh the evolving existence of near-universal healthcare under the Affordable Care Act (Obamacare)? Covered parties who suffer injuries will at least have access to healthcare without limit and regardless of fault. Depending on any number of factors, the bulk of these health costs may fall on health insurers, liability insurers, the public or some combination.

Who knows answers to any of these questions? Without answers to these and related questions, it is likely that regulating in a partial vacuum will strike the wrong balance. Like emergency physicians, legislators and regulators should stabilize the patient but “Do No Harm.”

In the meantime, the public deserves protection. There should be no gaps in coverage (whatever trigger or limits are chosen). To keep rates reasonable and predictable, insurers also need clarity with respect to which insurers are responsible.

Prudence, however, suggests that any current legislation or regulation should have a firm sunset date. Otherwise, like barnacles, awkward legislation sticks and impedes progress.

During this initial period, the legislature should require (not just request) that the Public Utilities Commission and the Department of Insurance gather appropriate data and report back to the legislature before the legislation or regulation reaches its sunset. Regulators and legislators may, then, make informed, data-driven decisions that strike the most appropriate balance among all of the legitimate interests.