IIAG Annual Convention – What You Missed

The 120th annual meeting of the Independent Insurance Agents of Georgia was held earlier this month.  It began earlier than usual with a two hour legislative panel on Thursday afternoon followed by morning meetings on Friday and Saturday, which ended an hour earlier than usual.  However, the information and networking opportunities provided were as valuable as always.

The legislative panel acknowledged that the 2017 session of the General Assembly was not as productive as it could have been, mainly due to political reasons.  2018 is an election year and several members of the House and Senate were positioning themselves for runs for higher office, in particular the governor’s office. This led to the failure to pass some laws what were considered to be non-partisan and broadly supported, including a bill to reform Georgia’s adoption code and to permit the Insurance Commissioner’s Office to enforce the payment to agents by health insurance companies of the commission rates that are specified in their filings with that Office.    Unfortunately, it does not look like things will get any better in 2018.

On Friday morning, Harrison Brooks of Reagan Consulting spoke about trends affecting the insurance industry.  Mergers and other acquisition transactions hit an all time high in 2016, and 2017 is off to an even better start.  This activity is primarily due to the record amount of money being spent by private equity firms to buy insurance agencies.  Such firms purchased over half of all agencies sold in 2016.  The prices being paid for best practices agencies averaged eight times earnings before interest, taxes, depreciation, and amortization (EBITDA), with the potential to earn three times more over an earn out period after the sale closes.  However, almost as many new agencies have been formed in the past five years as have been purchased, so the industry remains in balance.

For those agencies looking to grow by acquisition, Mr. Brooks recommended looking locally, within a 30 minute radius of your current location.  He advised looking for other agencies that have good leadership, younger producers and/or other staff, serve a different geographic area, and have developed a specialization that gives them a competitive advantage.  If can’t afford to buy another agency, Mr. Brooks suggested looking for good producers at other agencies, the younger the better.

Another big trend affecting the insurance industry is the rise of what is referred to as “InsureTech.”  In recent years, over $6 billion has been invested in technology companies like Lemonade that purport to offer a new or more efficient way to buy insurance.  This investment has been made in four main areas:  health insurance, auto insurance (pay by the mile), on demand insurance (individual items insured for specified periods of time), and peer to peer insurance (Lemonade).

In Mr. Brooks’ opinion, InsureTech was the greatest threat to independent insurance agencies that rely heavily on personal lines business, but small commercial lines competition would soon be coming.  His advice for agencies was to upgrade their ability to conduct business electronically, especially on mobile devices.  There are many resources available for agencies who want to do so; IIABA’s Agents Council For Technology, Insurance Digital Revolution, and CB Insights being some.

Mr. Brooks also had some things to say about how independent insurance agencies can determine if they are on the right track in terms of growth and the hiring of new producers.  His comments on those topics will be the subject of my next post.

What You Don’t Know About a New Employee Can Hurt You

As employers, agency owners need to be aware of the ways they can get in trouble due to the actions of their employees.  Many owners are probably aware that they can be held liable for acts of their agency’s employees committed while performing their duties on behalf of the agency.  This legal concept is known as vicarious liability, or respondeat superior.  It is the reason why all employers should adopt policies regarding the use of cell phones by their employees while driving a motor vehicle on agency business. (click here to find out what happened to a Georgia employer whose employee was looking for their cell phone when they ran into the back of another motor vehicle)

However, vicarious liability is not the only way that an agency can be held liable for the acts of its employees.  Such liability is possible even when the acts constitute a crime, as Avis Rent a Car recently found out.  In early May, a judge in Gwinnett County found that Avis was liable for $38.5 million of a total of $54 million in damages awarded by two juries to two persons who were injured when an Avis employee stole a rental car and then ran into them.  Even though the employee was engaged in criminal conduct when the accident occurred, Avis was held liable for the consequences of that conduct because it failed to properly check the background of the employee before he was hired.

If Avis had done so, it would have found the employee had been convicted of stealing cars and eluding the police.  As the employee himself told one jury, “Just like you won’t have a sex offender watch kids”, you don’t hire a person who has been convicted of stealing cars to take care of cars.  The legal concept underlying Avis’ liability is known as negligent hiring, and an employer can also be held liable for negligent supervision or retention of an employee.

If you ask a potential new employee for references, all the references provided should be checked.  A criminal background check should be run, if the employee will have access to agency or customer funds or other property.   Appropriate corrective action should be taken, if the employee does something or fails to do something that could have resulted in injury to a customer or other third party or their property.  If it happens again, it may be time to consider ending the employment relationship.

The law in this area focuses on what a reasonable person in the position of the employer would have done under the same circumstances.  That should be the guiding principle for agency owners in hiring and supervising their employees when injury to customers or other third parties is possible due to an employee’s act or failure to act.

 

 

Summer Interns – It’s That Time of Year Again

With Memorial Day weekend, the unofficial start of summer, fast approaching, it’s a good time to go over the rules regarding the use of interns.  Nothing of significance has changed since my post on this subject last year, but it never hurts to refresh one’s memory, as a business that violates these rules can find itself in trouble with the U.S. Department of Labor (the “USDOL”) and potentially, the IRS.

The issue that poses the biggest risk of trouble for an agency is whether an intern will be compensated and if so, how much compensation they will be paid.

If an agency does not want to pay an intern for their services, the burden is on the agency to prove that the intern is a “trainee”, who does not have to be paid anything for their services, and not an “employee”, who must be paid at least the minimum wage for their services.  The same burden must be met if the agency wants to pay an intern less than the minimum wage for the hours worked by the intern.  That burden is higher for an agency or other profit-making business because the USDOL, which is responsible for enforcing the minimum wage law, will presume that such an intern is an “employee”.   The USDOL has issued a Fact Sheet in which it establishes six criteria that must be met to prove an intern is a “trainee.” (Click here for an article I have written that discusses those criteria.)  The bottom line is that if the agency derives any significant benefit from the services of an intern, that intern will most likely be considered an “employee” by the USDOL for purposes of the minimum wage law.

It does not matter that the intern willingly agreed to perform the services in question without pay or for less than the minimum hourly wage, as the United States Supreme Court has held that an individual can not waive their rights under the minimum wage law. Thus, an intern could decide, up to three years later, that maybe they should have been paid the full minimum wage for all the services they performed for the agency.  A successful claim could result in the intern receiving up to twice the amount of compensation they should have been paid and will result in the agency paying the intern’s attorney fees and other expenses of litigation.

For an agency that is considering hiring someone who is under 18 years of age, both the federal and state governments impose restrictions on the types of activities in which such a person can engage and for how long each day, regardless of whether they are a “trainee” or an “employee.”  The main difference between the two sets of restrictions is that Georgia law requires a person under 18 to get an employment certificate, or work permit, from the school they last attended or the local county school superintendent.  (Click here for a fact sheet from the USDOL on this subject and here for a summary of the restrictions imposed by federal and state law from the Georgia Department of Labor.)  For agency owners who want to give their children a taste of what it’s like to work in the agency, only the restrictions on prohibited occupations will apply.

A summer internship can be beneficial for both the intern and the agency, but to avoid trouble, the agency needs to know and follow the above rules.

BEST WISHES FOR A SAFE AND ENJOYABLE MEMORIAL DAY WEEKEND.

Employment Termination Notice Periods – Are They Enforceable?

There was an article a few months ago on HR Daily Advisor about what to do if an employee quits their job without giving any prior notice.  In the absence of a written agreement to the contrary, there is no requirement that either an employer or employee give prior notice of their intention to terminate the employment relationship.  That is the basic meaning of “at will” employment.  Either side can terminate the relationship at any time for any or no reason (as long as the reason is not one prohibited by law).

As the article points out, when an employee quits without notice, it can cause many problems for the employer, some of which may result in extra expense.  When I prepare employment agreements for my clients, I always ask if they want to require the employee to provide prior notice before they can terminate their employment.  Having such notice can allow for a smoother transition by giving the employer time to find a replacement, or reallocate duties among the remaining employees if no replacement will be made, before the employee leaves.  For those employees who are in sales and have significant customer contact, it can give the employer time to contact the customers who will be effected and introduce them to another contact person at the employer.  This will give the employer a better chance of maintaining the customer relationship after the employee leaves.

So what are an employer’s options if an employee quits working without providing the contractually required prior notice?  While that would be a breach of contract by the employee, the employer’s options are limited.  The 13th Amendment to the U.S. Constitution and Georgia law prohibits forcing the employee to continue working during the required notice period.  However, the employer would have a cause of action against the employee for any expenses it incurred as a direct result of not being given the required prior notice and may be able to use the employee’s breach of contract to avoid paying any compensation that would otherwise be due the employee after the termination of their employment (e.g., bonus or severance pay).  This does not extend to withholding payment of compensation for work that has already been done.  The proverbial “last paycheck” should not, as a general rule, be withheld from the employee, as the employer would risk violating the Fair Labor Standards Act and related Georgia laws.

An employee who fails to give the required notice can still be considered an employee of the employer during the required notice period.  As such, they will have a duty not to do anything that would be harmful to the interests of the employer.  This duty can be used by the employer as a basis to prevent sales employees or others who have significant customer contact from contacting its customers during the notice period or to sue such employees who do act contrary to the employer’s interests during that period.  It is generally easier to prove a violation of this duty than of a non-solicitation or non-disclosure covenant.  However, to make use of this duty, the employer must be willing to pay the employee their normal compensation for the notice period.

While an employer’s options for dealing with an employee who does not give the required prior notice of termination are limited, the existence of such a requirement can be helpful to the employer in the vast majority of cases where employees abide by the requirement.

Gamification – What Is It and How Can It Help Agencies?

My last post concerned the use of raffles by insurance agencies and agents to promote the making of referrals.  I thought it was an innovative idea, and one that makes use of the insights into human behavior that are the basis for what is known as gamification.  Gamification is the application of the principles and techniques used by game makers to develop popular games to encourage desired behavior in non-game activities.  Research has shown that creating a competition among a group of people for a reward for desired behavior increases the engagement of those people in the desired behavior beyond just offering the reward.  This is due to our natural desire to compete and the joy that comes with winning a competition.

Staging sales contests among salespersons with the winner receiving a reward of some type (e.g., bonus, trip) is a long standing practice among sales oriented businesses.  However, there is nothing to prevent the application of such a strategy to an agency’s other employees or its customers or potential customers to encourage them to engage in a desired behavior.  Holding a raffle is a very simple application of gamification research, which has confirmed that most people would prefer to gamble on getting a bigger prize than take a sure thing if the prize is something they value.

In the case of the raffle described in my last post, the agency could have opted to give a gift card or other reward with a relatively small value for every referral made, but the research indicates more people would participate (i.e., make a referral) if the potential reward for doing so was desirable enough.  In this case, that reward had a value of several hundred dollars.  The nature of the reward can also be used to encourage the members of a specific target market to participate.  In the agency raffle I wrote about, the prize was a much sought after tech gadget.

Even attorneys are not immune from gamification principles.  Just last week, I signed up to make a blood donation to the Red Cross in response to an offer to be entered into a drawing for a $1,000 shopping spree.  I normally make a blood donation every three or four months, but decided to break that pattern and give sooner due to this offer.  These type of promotions have become commonplace in today’s world for the simple reason that they work to engage more people in whatever behavior is desired than other types of promotions.

Earlier this year, American Modern Insurance Group applied gamification principles to a program designed to educate its agents about its specialty residential insurance products.  Instead of holding seminars or webinars, the company created weekly contests that required its agents to answer questions about how its products would apply to unusual situations.  The agents were awarded points for correct answers and the speed with which those answers were given.  Those agents with the most points at the end of the contest period will be entered into a drawing to be named the “Most Confident Agent in the World”, and each successfully completed weekly contest earns an agent an entry into a drawing for a cash prize. (Click here for an article on this program.)

The possibilities for applying gamification principals and techniques to the promotion of an agency, the education and training of its employees, and the improvement of its business processes are limited only by one’s imagination.  If you are interested in learning more about how those principles and techniques can be used for those purposes, click here for a whitepaper that addresses just that topic.

 

Raffles – Can They Be Used to Encourage Referrals? (Updated)

A recent caller to the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia asked the above question.  His agency was thinking about running a promotion that gave a raffle ticket for each referral made to the agency during a specified period of time.  The winner would receive a prize having a value of well over $100.00.  With my previous posts on this subject, I thought I had thoroughly covered all aspects of it.  However, I failed to take into consideration the creative ability of independent insurance agents when it comes to thinking of ways to generate more business for their agencies.

The short answer to the above question is YES, if certain requirements are followed.  Those requirements are found in the Georgia Insurance Code and the Georgia Criminal Code.  First, as my regular readers are no doubt well aware, the Georgia Insurance Code prohibits the sharing of commissions with any person or entity that is not properly licensed by the Georgia Insurance Commissioner’s Office.  This means that any fee or other consideration given in exchange for a referral cannot be conditioned on the referral resulting in the sale of an insurance policy or related product.  Under a change to the Insurance Code that took effect on July 1, 2016, agents and agencies are also prohibited from giving “prizes, goods, wares, store gift cards, gift certificates, sporting event tickets, or merchandise” having a value of more than $100 to any customer or potential customer in any one calendar year.

Thus, under the Insurance Code, a raffle can be used to encourage people to make referrals to an insurance agency, as long as the referral does not have to result in the sale of an insurance policy or related product and if the raffle is limited to customers or potential customers of the agency, the value of the prize cannot exceed $100.00.

What does the Georgia Criminal Code have to do with the above question?  Under that Code, a raffle is considered to be a form of gambling, like the Georgia Lottery, and is prohibited with certain exceptions.  The one exception that is relevant to the type of raffle proposed by the caller to the Free Legal Service Program requires that the raffle be conducted as an “advertising and promotional undertaking in good faith solely for the purpose of advertising the goods, ware, and merchandise” of the business in question.  In addition, the raffle cannot require its participants (i) to “pay any tangible consideration” to enter it, (ii) to purchase “anything of value” from the business, or (iii) to “be present or be asked to participate in” any type of sales or other presentation, and (iv) the prize awarded must be something other than cash and cannot be awarded based on the playing of a game on a computer or mechanical or electronic device at a place of business in Georgia (this last requirement was omitted from the original post).

The type of raffle proposed by the caller to the Free Legal Service Program satisfies the requirements of the Georgia Criminal Code because the only thing a person had to do to be eligible to participate in the raffle was supply the name and contact information of a potential customer for the agency’s products and services, which were made known to the participant, and the prize was not cash.  Since there was no requirement that the referral made result in a sale by the agency and it was not limited to customers or potential customers of the agency, the requirements of the Georgia Insurance Code were also met.

 

Recording Customer Telephone Calls – A Good Idea But Is It Legal?

In a recent post on his blog, Steve Anderson recommended that insurance agents take advantage of the new telecommunications technology that makes it relatively easy to record all incoming and outgoing telephone calls.   He suggested that making such recordings could become the primary means by which an agency documents its contact with its customers and potentially, its insurance companies.  This would save time by eliminating the need to type information about such calls into the agency management system.  There are software products that will integrate recorded telephone calls with those systems and associate the recordings with the appropriate customer and policy.  If you still want to have the security of an electronic “paper trail”, there are many transcription services available that can create such a trail much faster than your office staff.

Please see his blog post for Mr. Anderson’s thoughts about other advantages to the recording by an agency of its telephone calls with its customers and the steps an agency should take before implementing such a procedure.  However, one very  important aspect of telephone call recording was initially overlooked by Mr. Anderson; its legality.  Under federal law, it is illegal to make such recordings without the consent of at least one party to the conversation.  But each state is free to impose greater consent requirements, and it is the requirements of the state in which each party to the call is located that will govern the legality of its recording with respect to that party.  In checking the laws of Georgia and the states that surround it, I found that all but one of them require the consent of only one party to the recording of a telephone call.  Florida was the only state that imposed a greater consent requirement.  Under its law, all the parties to a telephone call must consent to its recording.

If all your agency’s customers are located in Georgia, Alabama, Tennessee, South Carolina, or North Carolina, there is no need to obtain the consent of those customers to the recording of their telephone calls.   However, if the agency decides to record all such calls, to avoid any potential issues with its customers or other parties over the recording of their telephone conversations without their knowledge, it would be a good idea to include an announcement before any incoming call that it will be recorded. Such an announcement can be programmed into many of the new telephone systems to play when the call is first answered and before any of the agency staff actually speak to the caller. It should protect the agency from violating the law of Florida and any other states that require the consent of all parties to the recording of telephone calls by allowing the agency to argue that the caller’s proceeding with the telephone call after hearing the announcement amounted to its consent to the recording of the call. That is apparently the conclusion drawn by many large companies, as such an announcement is routinely played when calls are made to their customer service centers.

If you want to be able to safely record outgoing calls, the agency staff will need to be trained to begin each such call with an announcement that it will be recorded and ask the other party if that is acceptable.  Such a procedure is advisable as the violation of the law on the recording of telephone calls is a crime, and in Georgia and most of the surrounding states, it is a felony.  Some of those states also give the other parties to such calls a right to sue for damages, if the law is violated.

What Rights Do Customers Have to Information in Agency Files?

The above question was recently asked of me by a caller to the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia.  In particular, the caller wanted to know if they could refuse to provide loss runs to a former customer whose policy had been cancelled for non-payment of premium.  This customer owed the agency money, and the caller wanted to condition delivery of the loss runs on payment of the money owed.

The short answer to the question depends on two things.  First, whether the information sought by the customer is related to a commercial or personal lines policy and second, if related to a personal lines policy, what type of information is being sought.  As you might suspect from the short answer, there is no law or regulation applicable to Georgia agents or agencies that requires them to provide a commercial lines customer with information or documents maintained by them about that customer or the policies issued to that customer.  Such information and documents belong to the agent or agency, and they can control the circumstances under which their commercial lines customers can have access to their files.  Of course, such a customer can always go to the insurance company that issued the policy in question and ask for information about it from the company.

If the customer is asking to have access to information and documents related to a personal lines policy, under Georgia law, they have a right to be given access to certain kinds of information about them that is kept in an agent or agency’s files.  This right is found in the same law that governs the giving of notices to customers about the information gathering and privacy policies of agents and agencies (click here for a post about that law).  Under it, a personal lines customer has the right to request access to “recorded personal information” about the customer in an agent or agency’s files.

The request must be made in writing and “reasonably describe” the information the customer wants to review.  If that information is “reasonably locatable and retrievable”, the agent or agency must do several things within 30 days after receiving the customer’s request.  One of those things is permit the customer to “see and copy, in person” the information requested or have a copy of that information mailed to the customer, whichever the customer wants.

The information that a personal lines customer has the right to “see and copy, in person” or obtain by mail is “any individually identifiable information gathered in connection with an insurance transaction from which judgments can be made about an individual’s character, habits, avocations, finances, occupation, general reputation, credit, health, or any other personal characteristics.”  This right even extends to persons who only submitted an application for insurance and never obtained a policy from the agent or agency.  There is an exception for “privileged information”, which is any information the relates to a claim for insurance benefits or a civil or criminal proceeding involving the customer that was “collected in connection with or in reasonable anticipation” of such a claim or proceeding.

If the caller to the Free Legal Service Program had been asking about the claims history of a personal lines customer, the answer to the above question would have been completely different from the one I gave that caller.

 

Has Your Website Been Hacked?

Mine has.  Some of my readers may have noticed that I have not posed anything for the past couple of weeks.  That is because I discovered about 10 days ago that this website had been hacked.  Anyone who clicked on a search result for it was being redirected to an online gambling website.  It is somewhat ironic that my last post before this discovery was about cyber security and the important role an agency’s employees play in protecting it from a data breach.

Unfortunately, I have no one to blame but myself for what happened to this website, but fortunately, there was no data breach as a result, just some embarrassment.  My mistakes were those of the kind I have been warning about in my cyber security posts.  I did not keep the software running my website, WordPress, or its plug-ins up to date and I did not monitor it for possible problems, by occasionally checking to make sure it could be found correctly using the various web search engines.

I also did not know that there is another way to access my website besides the way I do when I want to make a post or change something on it.  It is something called FTP access, which is what is used by programmers to change the code that runs the website.  I thought I was doing great by having a difficult to crack password (letters, numbers, & special characters) for my entry to the website, but failed to realize there was another way to access it.  That access point is apparently the way someone found to add code to my website that would result in people looking for it using search engines to end up at an online gambling website instead.

Please don’t get lazy like I did.  The consequences of doing so could be far greater than they were for me.  Keep the software running your agency’s website, as well as any of its special functions, up to date, and regularly check whether it can be found using the various web search engines.  Also, find out who has FTP access to your website and limit it to just one account for the people who are responsible for maintaining it.  Doing so will avoid some embarrassment, and potentially much more severe consequences.

 

Payment of Referral Fees – Additional Considerations

In October of last year, I wrote a post that summarized my opinion on the question of when and how an insurance agent may pay a fee to an unlicensed person for the referral of a potential customer to the agent by that person.  That post was written from the perspective of whether and when the Georgia Insurance Code would permit the payment of such fees.  It did not take into consideration, any other laws or regulations that may be applicable to the person to whom the referral fee was to be paid.

A recent call to the Free Legal Service program that I run for the members of the Independent Insurance Agents of Georgia made me think about such other laws and regulations.  The caller mentioned that an agent he knew had been told that it was illegal to pay a referral fee to a real estate agent or mortgage broker under the Real Estate Settlement Procedures Act (“RESPA”).   That Act prohibits both the payment and the acceptance of “any fee, kickback, or Thing of Value” in connection with “business incident to or a part of a real estate settlement service involving a federally related mortgage loan.”  The criminal penalty for the violation of this prohibition is a fine of up to $10,000 and up to one year in prison, and the civil penalty is payment of three times the amount charged the borrower for the settlement service in question, plus attorney fees and other costs of litigation.  Both the payer and the recipient of a prohibited referral fee are subject to these penalties.

The RESPA prohibition on fees, kickbacks, and things of value applies only to residential mortgage loans for real property designed principally for “the occupancy of from one to four families.”  It also applies only to services that are “incident to or a part of” the settlement of such loans.  The statute refers specifically to title insurance and services performed by real estate agents or brokers as being covered by this prohibition.  Nothing is said in the statute or regulations about the provision of property and casualty or any other kind of insurance to the borrower of a covered loan.

However, if the existence of such other insurance coverage is required by the lender of a covered loan in order for the loan to be “settled”, a good argument can be made that the provision of such insurance is “incident to or a part of” the settlement of the loan.  If a charge for the cost of such insurance is included on the settlement statement for the loan, this good argument becomes a convincing argument.  For an agent who is considering paying a referral fee to real estate agents, mortgage brokers, or lenders for the names of home buyers who may need property and casualty or other insurance coverages to obtain a loan, it would be a good investment to pay an attorney for a legal opinion on whether the payment of such a fee is prohibited under RESPA.

For a referral fee arrangement with any other person, it would be a good idea to ask that person if their activities are subject to any laws or regulations that may prohibit the payment of such fees.  As the above makes clear, just because it may be legal under the Georgia Insurance Code to pay a referral fee does not mean it’s permissible under all other laws and regulations.