Social Networking – Why Isn’t It Working?

In a speech at last week’s Legislative Conference in Washington, D.C., the IIABA Chairman, Tom Minkler, told the agents who attended that Generation Y, or the Millennials, who as a group are larger than the Baby Boomers, are “redefining consumerism” by relying on social media and other electronic or digital sources to get information and make their buying decisions.  He thought their approach was also fast becoming the new normal for most consumers.  (Click here for more on Mr. Minkler’s speech.)

Clearly, one of the places to which today’s consumer looks for information about products and services is social media.  Most everyone is familiar with Facebook and Twitter and there is LinkedIn for the more business to business oriented.  To these must be added Google+, which is seeking to combine many of the aspects of the other three.  In a recent post, a social media strategist for Project CAP, Tom Hodson, discussed the four major mistakes that agents are making in their use of social media.  First,  too much time is devoted to talking only about insurance related issues.  He makes the important point that, “Social media sites are not a soapbox to talk about yourself, your business and your knowledge. Rather, they’re a way to connect with people on a human level–to talk with people, not at them.”

Since too much time is being spent talking about insurance issues, not enough time is spent talking about the people who make up the insurance agency, especially the agent.  Agents need to distinguish themselves from the direct writers and captives that want to sell insurance to the same audience.  One way to do that is to let that audience know what kind of person the agent is by talking about what he or she does in the community, local or other events of interest to the agent, and important milestones in his or her life.

Another problem, which is understandable given all the demands on an agent’s time, is that the agent posts on only one social media platform, both to save time and because it’s easier to remember only one method for how to make posts.  The more platforms on which an agent makes posts, the more likely the agent is to be found by a Google or other search by someone interested in the products and services offered by that agent.  Mr. Hodson recommends that agents use four to six social media platforms, with the most important ones being those discussed above.  There are apps that allow a post made on one platform to automatically appear on the other platforms on which the agent has a presence. (Click here to view a post about those apps.)

Finally, Mr. Hodson makes the point that “Effective social networking requires regular posting and interacting.”  He recommends that agents post at least three times a week, every week, and has some suggestions for how that can be done using content aggregator sites, such as Trusted Choice for insurance issues and Mashable for items of general interest.  If you just don’t have the time, IIAG has a service, Agents Go Digital, that will do most, if not all, of the above for you.

Insurance Certificates – Latest Developments

In a post in early December last year, I discussed a website portal created by the Georgia Insurance Commissioner’s Office that contained basic information about insurance certificates and examples of actions that would violate the new law on insurance certificates and the regulation subsequently issued by the Commissioner’s Office, as well as an e-mail link to report suspected violations of that law and regulation.  In that post and an article in the Spring 2014 issue of the Dec Page Quarterly magazine, I expressed surprise at one of the examples of illegal conduct contained on the website portal.  The Insurance Commissioner declared it to be illegal to include in the Description of Operations section of the ACORD 25 certificate ”any information other than a brief explanation of the operations of the insured; this section is not to be used for describing the insurance policy.”   This statement was reinforced by the declaration that it was illegal to request that a summary of any provision of the insurance policy in question be included in the insurance certificate, if that summary varied in any way “from the precise and complete language of the provision” in question.

The above statements were contrary to the common practice of using the Description of Operations section to provide information about the insurance policies referred to in the certificate.  In addition, limiting the information that could be provided in that section to “a brief explanation of the operations of the insured” was contrary to the wording found on the ACORD 25 form for that section which includes references to the locations and vehicles covered by those policies.  The instructions issued by ACORD for this form also state that this box can be used for “additional comments or special conditions that may exist upon the policy” in question.

It is my understanding that IIAG representatives have been in touch with the Insurance Commissioner’s Office about the above inconsistency and that some changes will be made by that Office to the above examples of prohibited practices.  When those changes will be made and their exact nature are unknown at this time, so stay tuned for further developments.  In the meantime, I have advised my clients that it is permissible to use the Description of Operations section to describe the locations and vehicles covered by the insurance policies in question and to refer to any endorsements or other additions to those policies that may affect their coverage, copies of which documents should be attached to the certificate.  At this time, I would advise against including in that section any description of the effect of the documents that are attached to the certificate.

 

Are Digitally Scanned Signatures on Documents Legally Binding?

In my post last week, I wrote about a bill passed by the Georgia General Assembly during this year’s session that formally authorizes the electronic delivery of insurance policies, as well as other types of documents, including cancellation and nonrenewal notices. Later that week, I received a call on the Free Legal Service program that I run for IIAG members in which I was asked if there was any statute that governed the binding effect of digitally scanned signatures on documents.  I was not able to find any such statute that applied to Georgia transactions.

The Georgia Uniform Electronic Transactions Act, which is referred to in the bill that was recently passed, governs the legal validity of “electronic records” and “electronic signatures.”   Unfortunately, the definition of “electronic signature” does not appear to cover a digitally scanned signature.  An “electronic signature” is defined as an “electronic sound, symbol, or process attached to or logically associated with a record and executed or adopted by a person with the intent to sign the record.”

In the absence of any statutory authority, it would be a matter of agreement between the parties to a transaction as to whether a digitally scanned signature would be considered binding on them.  Many of the contracts I see and now prepare contain clauses that address this subject and state that a digitally scanned signature page will be binding on the party whose signature is on the page.  If there has been no such agreement among the parties, a court will generally require the production of an original executed signature page, unless there is an acceptable reason for the inability to produce such a document, in which event a copy of the signature page would be acceptable proof of the execution of the document in question.  However, this general rule would not apply if a specific statute governed the transaction in question and required the production of the original signature page in order for the document in question to have legal validity.

In light of the above state of the law in Georgia, if you do not want to have to obtain an executed original signature page of a document, that document should include a clause that states a digitally scanned or telefax copy of a signature page will be treated as binding on the person whose signature appears on that page.  If you don’t want to have to change your existing documents, it would also be acceptable to have the other party agree in a separate document, which preferably should be signed by them but could be an e-mail sent by them, that a digitally scanned or telefax copy of all documents that may be signed by that party will be binding on them.   Of course, you should check with your insurance companies and other providers on their policies concerning the acceptability of digitally scanned or telefax signature pages for their applications and other documents, as they may have reasons for wanting their agents to obtain executed original signature pages of such documents.

 

What Did the Georgia General Assembly Do This Year?

Many of you may know that the Georgia General Assembly adjourned for the year at midnight last Thursday, March 20, 2014.  While Gould Hagler of the IIAG thought that what the General Assembly did as far as insurance related issues was not “especially exciting”, I thought that one of the bills he mentioned in his Capital Report the next day as having been passed was good news for Georgia insurance agents and another creates a potential E&O exposure for such agents.

The latter bill authorizes the cancellation of any insurance policy that permits an audit if the insured fails to submit to or allow an audit after having been contacted twice by the insurance company about the need for an audit.  While this may be welcomed by some agents, the requirement in the bill that the insured’s agent must be included in the contact efforts may lead to E&O exposure if the agent does not attempt to contact the insured upon receiving such a notice from the insurance company.  This would be especially true if the agent knew that the address being used for the insured by the insurance company was not correct or that the insured was unlikely to receive the notice for other reasons.   This new law will be applicable to all insurance policies that are issued or renewed on or after July 1, 2014, if not vetoed by the Governor.  In order to protect themselves from this potential E&O exposure, Georgia agents should consider including in their paperwork for insureds with policies that permit an audit a statement that they will assume no responsibility for notifying the insured of any attempts by the insurance company to contact the insured about scheduling an audit.

The good news for Georgia agents was the passage of a bill that confirmed the validity of the electronic delivery of insurance policies, if the procedures specified in the Georgia Uniform Electronic Transactions Act were followed.  I wrote an article in 2011 for the IIAG’s Dec Page magazine that came to that conclusion with one potential problem.  This bill removes that potential problem and also permits the electronic posting of insurance policies by the insurance company in lieu of the actual delivery of the policy to the insured, if certain requirements are met. (See Section 4 of the bill for those requirements.)

The bill goes even farther by authorizing the electronic delivery of other documents, including, but not limited to, cancellation or nonrenewal notices, that had been required to be mailed in the past.  The bill imposes several conditions on the electronic delivery of such notices and other documents that do not apply to the electronic delivery of insurance policies. These conditions are also contained in Section 4 of the bill.  The bill states that these conditions are in addition to those imposed by the federal Electronic Signatures in Global and National Commerce Act.  This means that the requirements of that Act regarding the electronic delivery of notices and other documents in consumer transactions must also be followed.  Those requirements are extensive and are explained in my Dec Page magazine article.  This bill will become effective on its signature by the Governor or the Governor’s failure to veto it within 40 days after the end of the General Assembly’s session.

Producer Compensation – A Trap For The Unwary

Many of my clients prefer not to go to the trouble of creating a written employment agreement for their producers.  I think it is always better to document the more important aspects of an employment relationship, as memories tend to fade over time and can become “convenient.”  In addition, any restrictions an employer may want to place on the competitive activities of an employee after the relationship ends must be in writing and signed by the employee to be enforceable against the employee.  For this reason, I always advise my clients to have their producers sign restrictive covenant agreements, at a minimum.

A call I received a couple of weeks ago on the Free Legal Service Program that I provide for IIAG members reminded me of another subject that should always be addressed in writing with a producer.   The caller has just terminated the employment of a producer, and the producer had asked about being paid the agreed on share of commissions for the insurance policies that had been sold by her before the date of termination, even for those policies for which the agency had not yet received payment.  The caller had agreed to pay for those policies on which the commission was received during a short time period after the termination date, but after speaking to an attorney, the producer asked to be paid the agreed on share of all the commissions that the agency would receive for those policies regardless of when they might be received.

The caller thought this was unfair since the agency would have to assign another producer to the accounts to handle them going forward and perform the servicing duties that the terminated producer would have otherwise been expected to perform.  Unfortunately, for the caller, under Georgia law, in the absence of an agreement to the contrary, a salesperson is entitled to receive the agreed on compensation for “all sales procured” by him or her before the date their employment is terminated, regardless of when the employer may receive payment for the goods or services sold.   Thus, a producer would be entitled to be paid the agreed on share of the commissions received by the agency for all insurance policies or other products sold by the producer before the date their employment was terminated, in the absence of any agreement to the contrary.

The Georgia courts have established three conditions that must be met before the above rule will apply:

  1. The sale must have been completed (i.e., everything done to entitle the employer to receive payment for the product sold) prior to the employment termination date.  If the employer or employee is required to do anything else to complete the sale, which action has not occurred before the employment termination date, the employee has no right to receive compensation for it.
  2. In addition, if the employer’s right to receive compensation for the sale depends on future actions of the buyer or a third party, which are within the sole discretion of the buyer or such third party, there has been no completed sale, if those actions do not occur before the employment termination date.
  3. If the employer can prove that the employee understood that the right to receive compensation for a sale depended on further actions by the employee after the sale was completed (e.g., the servicing of the account), the employee would not be entitled to receive compensation after the employment termination date for any sales that were completed before that date.

The courts have held that the right of a salesperson to receive compensation after their employment is terminated for work done prior to termination will be governed by any agreement reached on that subject, even if the agreement states that the employee is not entitled to receive any compensation after the termination date.   To avoid the “convenient memory” problem, it would be better if this agreement were documented in some way and that document was signed by the employee.  Otherwise, the content of any agreement reached would be the subject of a “swearing contest” that could only be resolved by a judge or jury, at a cost to the employer in time and money that could have easily been avoided.

I know that many small business people take pride in the fact that they run their businesses using handshake agreements with their employees and others, as it demonstrates they trust the other party to those agreements.  There is nothing wrong with that approach, as long as the business owner understands what can happen if that trust turns out to have been misplaced.  The compensation of producers is one area that can result in unpleasant consequences for an agency owner who runs their agency in that manner.

 

 

 

 

What Rules Govern The Electronic Storage of Insurance Records?

In keeping with the theme of last week’s blog post, I thought it would be a good idea to inform my readers of the requirements that govern the electronic storage of insurance records.  The electronic storage of such records, combined with the ability to quickly search such records on an agency’s management system, can result in increased efficiency within an agency’s office, and when access to that system from outside the office is possible, can provide significant additional benefits to its producers and other employees who frequently work outside the office.  By creating this capability, an agency will have achieved the MoClo of SoMoClo.

The requirements for the electronic storage of records are found in Georgia’s Uniform Electronic Transactions Act (the “Act”), which applies to all transactions that occurred on and after July 1, 2009 and any electronic records first created on or after that date.   The provisions of this Act are explored in some detail in an article I wrote regarding what must be done in order for an insurance policy to be delivered electronically.  (If a bill that is currently pending in the Georgia legislature is enacted into law, the reservations expressed in that article about the ability to deliver an insurance policy electronically will have been resolved.)  If the requirements of the Act are not followed, then an electronic record will have no legal validity and any requirement that record be kept will not have been satisfied.

All Georgia insurance agents are required to keep certain records regarding each insurance transaction in which they are involved for a period of at least five years after the transaction is completed or the term of any contract (i.e., the policy) involved in that transaction expires, whichever is longer.  In addition, for E&O exposure purposes, agencies and agents should be keeping these and other records for a minimum of six years after the expiration of the insurance policy in question.  (Click here for an article that discusses these subjects in detail.)

The Act permits the electronic retention of any record required by law to be retained if the electronic record “(1) accurately reflects the information set forth in the record after it was first generated in its final form as an electronic record or otherwise; and (2) remains accessible for the retention period required by law.”  In this situation, “remains accessible” means that you are able to create a hard copy from the electronic record that is identical to the original hard copy document at all times during the required time period.  This would include any signatures on the original document.  The Act permits the Georgia Insurance Commissioner to adopt regulations that impose additional requirements on the electronic storage of records subject to his jurisdiction, but to date, no such regulations have been adopted.

Given the length of the above  time periods and the fast changing nature of the electronic storage of documents (it was not that long ago that were using floppy disks for this purpose), agencies and agents should make sure that the storage process used will allow the documents to be “readily accessible” for those time periods.  The Act permits the use of third party services (e.g., in “the cloud”) to electronically store documents.  However, if an agency or agent intends to store their records “in the cloud” and thereby, fully embrace MoClo, there are security considerations that will need to be addressed in order to satisfy the responsibility to keep confidential personally identifiable information of an agency’s or agent’s customers.

What Are SoMoClo and SMACK and Why Are They Important to You?

The acronyms SoMoClo and SMACK refer to the increasing intersection of various relatively new technologies and how they allow any business to become more efficient.  According to a report from Vertafore, an insurance agency’s ability to integrate these new technologies into their business practices will be key to attracting a new generation of producers.  The report points out that, according to the IIABA, within the next 10 years half of the current insurance workforce will reach retirement age.  If even just a majority of those workers do actually retire, that will leave a large hole in many insurance agencies that will have to be filled by younger generations.

The Vertafore report contains a good general description of the significant differences between the three generations that are now of working age, Baby Boomers (born between 1946 and 1964), Generation X (born between 1965 and 1980). and Generation Y (born after 1980).  In order for any business to continue to be successful, it is necessary to understand and appreciate these differences.  One of the major differences between the Baby Boomers and Generation Y and to a lesser extent Generation X is the central role that technology has assumed in the lives of younger people.  It has become their primary means of social interaction and they are used to conducting much of their activity over the internet.  Another significant difference is that the younger generations are more focused on getting the job done than on how many hours they are in the office working.

So an agency that does not have the ability to allow its employees to work out of the office on their own schedules, while being connected to the office, will not be a place where the members of Generation X and Y want to work.  That’s where SoMoClo and SMACK come in.  The former term refers to the intersection of social media, mobility and the cloud and the latter to the intersection of social media, mobility, and big data analytics.  How these intersections of technology are changing the way that agencies can, and some have argued must, do business going forward was the subject of an article in the January issue of IA Magazine.

In the IA Magazine article, a Kansas personal lines agency owner explained how he was able to use SoMoClo technologies to run his agency from China for two years, without any of his customers knowing he was there.  Those technologies also let him  run what amounts to a virtual agency, as all of his support staff work from their homes.  The use of SMACK technologies permits the collection and analysis of huge amounts of data about an agency’s target customers and the development of a more targeted marketing approach that uses LinkedIn and other social media to deliver customer specific marketing messages.  The ability to access this and other data remotely allows a producer to give an answer to a customer or potential customer’s question quickly and easily.

I would be interested to know what my readers are doing in these areas.  Please feel free to share your experiences with me and my audience.

Do CSR’s Have to be Licensed – Update

In November, I wrote a post on the above question that concluded to be safe any CSR or other employee of an agency who had contact with a customer regarding the renewal of their insurance policy should obtain an agent’s license from the Insurance Commissioner’s Office for the type of insurance in question.  Last week during a conference call with the attorneys for independent insurance agents associations in some other states, I asked the question in more general terms, what activities required an insurance agent’s license.  As a result of the discussion that followed, I learned about some informal guidance that had been issued by the National Association of Insurance Commissioners (“NAIC”) in connection with the Producer Licensing Model Act that had been adopted by that organization in 2000.

The guidance is in the form of a matrix that characterizes various actions by persons in an insurance agency as requiring or not requiring an insurance agent’s license to perform.  It goes into some detail about what particular actions associated with the solicitation, sale, and negotiation of an insurance purchase and the servicing of an existing insurance policy can be performed by a person who does not have an agent’s license and which actions require such a license.  While the guidance is only informal and not intended to be a definitive statement, the provisions of the Model Act that are relevant to that subject are almost identical to the corresponding provisions in the Georgia Insurance Code.  I have posted the guidelines on my website for easy reference. (Click here to see them.)

The Michigan Department of Insurance and Financial Services has posted similar guidelines for telemarketers and CSR’s online.  These guidelines are even more specific than those of the NAIC regarding particular tasks that can and cannot be performed without a license.  The pertinent provisions of the Michigan Insurance Code are very similar to those found in the Georgia Insurance Code, but again these guidelines should not be taken as definitive by Georgia insurance agencies.  However, they, along with the NAIC document, do offer guidance that Georgia agencies would do well to consider in the conduct of their business activities.

 

Stated Value Policy: What is it and How it Can be a Trap For the Unwary

One of the many reasons that I enjoy working with my insurance agency clients is that I am always learning something new about the insurance business.  One new thing that I recently learned involved what are known as “Stated Value” or “Valued Policy” insurance policies.  They are policies that provide coverage for buildings in a specified amount, which amount will be paid upon the complete destruction of the building without any requirement on the part of the insured that it prove the building was actually worth the policy amount.

Whether or not a policy will provide the above type of coverage is determined by a state’s Insurance Code.  Georgia has such a statute in its Insurance Code.  If the requirements in it are met, the policy in question is automatically a “Stated Value” one.  To be such a policy, it must be issued to one or more individuals for a one or two family residential building or structure located in Georgia.  The “Stated Value” coverage is only for a total loss of the building or structure due to fire.  Any other cause for the loss will not entitle the insured to receive the policy amount without having to prove the building or structure was, in fact, worth that amount.  Of course, there would be no coverage if the insured or one acting on their behalf was criminally responsible for the fire or fraudulently obtained the policy.  There are three other exceptions that involve the existence of multiple policies on the same building, a blanket policy that covers two or more buildings for a single amount of insurance, and a builder’s risk policy for the building.

Even if there is “Stated Value” coverage, the Georgia statute permits a reduction in the policy amount for ”any depreciation in value occurring between the date of the policy or its renewal and the loss” and permits the insured to recover only the “actual loss sustained” up to the policy amount if the ”loss occurs within 30 days of the original effective date of the policy.”  One enterprising Georgia homeowner tried to convince the Georgia appellate courts that the addition of a replacement cost rider to his homeowner’s policy should result in an increase in the “Stated Value” of the policy to the amount that it would cost to rebuild his home.  The homeowner’s argument was rejected by the Georgia Court of Appeals in a very short opinion.

The existence of a “Stated Value” policy in Georgia provides a possible E&O exposure for the unwary insurance agent.  As noted in my blog post a few months ago on the duties owed by insurance agents to their customers, although normally an insurance agent owes a primary duty to the company he or she represents and has no duty to the insured, an insurance agent can create a duty to the insured by agreeing to perform a service for the insured that was not included within the services he or she was expected to perform on behalf of the insurance company.  Assisting a customer in determining the value of their residence or even worse suggesting to the customer what value they should use for the face amount of their homeowner’s policy will most likely expose the agent to liability if the “Stated Value” of the policy turns out to be less than the actual value of the residence on the policy date and there is a loss.  For this reason, an insurance agent should be very careful about what is said to the customer about this subject and should include a disclaimer of responsibility for the determination of the face amount of such a policy in their application process.

Must an Employer Pay Its Employees If The Office Is Closed?

With another winter storm heading our way, I thought it would be a good idea to remind my readers of what an agency’s obligations are with respect to the payment of its employees when the office is closed due to severe weather or any other reason.  This issue was the subject of an article that I wrote for the Summer 2011 issue of the Dec Page Quarterly, a magazine published by the Independent Agents of Georgia.  At that time, parts of Georgia were experiencing significant flooding problems.  Now it’s ice and snow, but the principles remain the same.

The answer to the question posed in the title of this post depends on whether an employee is classified as an exempt or non-exempt employee for purposes of the Fair Labor Standards Act.  An exempt employee is one who does not have to be paid extra if they work more than 40 hours in any one work week.   A nonexempt employee is one that must be paid at a higher rate for any time worked in excess of 40 hours in any one work week.  How you determine whether a particular employee is a nonexempt or exempt employee is beyond the scope of this post, but generally speaking exempt employees must have some management responsibility or the ability to exercise discretion in making significant decisions related to the conduct of the employer’s business.  In addition, an exempt employee must be paid on a fixed salary basis in an amount that equals at least $455.00 per week and that salary cannot be reduced based on the quality or quantity of the work performed by the employee during any one work week.   All other employees are considered nonexempt employees, who must be paid at least the minimum wage, but only for the time they actually perform services on behalf of the employer.

Thus, if an agency’s offices are closed for any reason and a nonexempt employee does not perform any services for the agency from home, such an employee need not be paid for the time period the offices are closed.  This is true regardless of whether the nonexempt employee is being paid a salary or on an hourly basis by the agency.  If the agency’s offices are closed for a full day for any reason and an exempt employee does not perform any services on behalf of the agency from home on that day, such an employee’s salary may be reduced by the equivalent of one day’s pay.  If either type of employee performs any services on behalf of the agency on a day that its offices are closed for any reason, they must be paid.  The nonexempt employee need only be paid for the time they actually performed services, but the exempt employee must be paid for a full day.  This is true even if they have been told not to do any work.

For those in the northern part of Georgia, stay warm and drive safely these next couple of days.