THE NAVIGATOR. Seedsmen s Errors & Omissions Insurance. Spring 2016

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1 THE NAVIGATOR Spring 2016 Seedsmen s Errors & Omissions Insurance By Linda Deiss Vice President RPS Executive Lines In 1959, the first Seedsmen s Errors and Omissions policy was born as the creation of certain underwriters at Lloyd s of London in England. The policy was originally developed in cooperation with the American Seed Trade Association and is currently sponsored on a global basis by the International Seed Federation. Who exactly needs this coverage? Anyone who is involved in the growing, conditioning, or distribution of seeds. Mistakes can be made at any stage in the seed process. An error in the selection, conditioning, packaging or testing of seed can contribute to the loss in whole or in part of a customer s crop. What kind of errors could occur? The variety of seeds supplied by the insured could result in a claim because the resultant crop is a lesser value than what should have been produced. An example of this would be if cherry tomatoes were produced when the customer was expecting beefsteak tomatoes. The insured s representative made incorrect disease resistant claims about the seed sold. As a result the crop is lost to a soil-borne fungus. In the process of cross pollinating to make a specific hybrid seed, seedsmen could select the wrong seed parents which often results in poor germination or an unusually large number of off-types. When the error is realized, it is too late to replace them with good/true-to-type seed, and the grower will lose part, if not all, of their harvest. Seeds are damaged in treating but it s not known until the seeds don t germinate properly.

2 Seedsmen s Coverage is not product liability coverage. Rather, it covers claims resulting from failure of the seed sold to conform to the variety or other specified qualities, or to be suitable for the purpose specified due to an error, negligent act or omission by the company or its employees. It does not cover Bodily Injury or Property Damage. There are 6 main categories of claims: 1. Mechanical error mislabeling, mixture of the wrong variety of seed, inadequate laboratory testing for germination 2. Overzealous distribution over representation of the seed product verbally or in a seed catalog, promising things that are out of the producer s control (disclaimers of warranty and limitation of liability clauses should be used) 3. Disease Control problems seeds can be susceptible to disease; this can be controlled by disease control treatments and by not planting in areas known to be infested 4. Germination deficiencies the seedsman needs to perform careful grow-out testing; state and federal seed testing labs should oversee these 5. Misapplication claims resulting from the seed failing in a given area 6. Miscellaneous problems improper or inadequate pollination, failure to rid the field of undesired varieties, and carelessness in harvesting Nurserymen s Errors and Omissions is a related coverage. It s a similar product but for insureds involved in growing, treating or distributing Nursery Stock. RPS also offers coverage for Crop Consultants. This covers an insured who makes recommendations for fertility, pest management, seed variety, inoculants, irrigation scheduling, equipment selection, planter calibration, and similar services. A new addition is a Drone Extension Endorsement for Crop Consultants. This endorsement gives the insured up to $25,000 per period of insurance to cover losses as the result of accidental property damage, trespass, bodily injury or breach of privacy to a third party caused by the insured s operation of a drone in the course of the insured s performance of professional services. There is no deductible on this extension but any claim payments made would fall within the policy limit. Drones: Developing Insurance Needs By Brian Reihl Casualty Broker RPS Lexington The aviation market was soft in 2015, with new carriers continuing to enter the marketplace. With this soft market, the historic players in the industry have been adapting with the times and changing technology. Specifically, 2015 saw the rise of the unmanned aerial systems (UAS) or drones. With their low cost and high efficiency they have found a niche within the agriculture, energy, real estate, and construction sectors. The aviation market is ready to help operators that have safe operational practices in place such as not operating over crowds of people, operating within FAA set distances of airports, and utilizing operators that have experience with operating these aircrafts. The most common models of aircraft that we are seeing include the Da-Jiang Innovations Science and Technology Co. (DJI) Phantom, Inspire, and S1000 systems ranging from $1,000 to $4,000 in value. These systems are user friendly and have the ability to utilize high quality video that was once only provided by heavy cameras attached to helicopters and light fixed wing aircrafts. While smaller drones have been the emphasis in the real estate and construction sectors, those inside of the agriculture and energy sectors require more robust flight systems that have the ability to fly over large spans of land for crop surveying, powerline inspection and oil transmission line inspection. These advanced systems often utilize custom software and

3 camera equipment that drive the cost upwards of $20,000. As these systems are far more sophisticated, the software controlling them allows these aircraft to fly semi-autonomously with the use of GPS. Smaller drones average $1,000 to $1,500 in premium for $1M Combined Single Limits (CSL) of liability as well as full physical damage of the aircraft and the support systems that are used in conjunction with the operation of the aircraft (including but not limited to cameras, gimbals, launch equipment, remote controls, etc.). In 2016, the FAA is looking to establish new rules for commercial operators. Some changes could include an initial aeronautical knowledge test at an FAA-approved testing center with a retest every 24 months, operator clearance by the TSA, and a minimum age of 17 years old. In addition to the changes with the operators, the flights themselves will have new restrictions like maximum operational speed of 100 MPH, maximum operational height of 500 feet above ground level, flights restricted to daylight hours, and visual line of sight operations, to name a few. It will be an interesting year as the industry and regulations change, and the aviation market is prepared to adapt as it has in decades past. RPS will keep the channels of communication open with all of the underwriters to ensure our retail partners have access to the best products available in the marketplace. Property Market Update: First Quarter 2016 By James Rozzi, CPCU, ASLI Area Senior Vice President RPS San Francisco I hope that Q1 has been good to all of you and this newsletter finds you well. I was reading Dr. Seuss Oh, The Places You ll Go! to my ten-month-old the other day and I couldn t help but reflect a bit on the message that book has to offer. While it is no doubt a children s book and should not be a guide for solving real world problems, it certainly allows us to think ahead and reflect on what the future may have in store for us. We live in an interesting time in the P&C insurance business and in the world as a whole. The information age and the access to technology at our fingertips was supposed to make things easier but in a weird way, for every advantage it has created it has also yielded a new set of challenges; both good and bad. Insurance is a great example of this, because carriers and brokers are much better at modeling CAT risk and tracking loss data. We have also spent a great deal of time and money creating very advanced return on equity based rating tools that should allow carriers to price risks at an acceptable level. Despite all of these tools and technological advancements, rates continue to drop and there does not seem to be an end in sight. My advice today would be to focus on what you know and what you can control. The year ahead will be an uncertain one and while we all are trying to predict the future, the most important thing we can do today is be creative, stay on top of

4 the market, and take care of our clients! If you do this, I am sure the results you will deliver at the end of the year will be exceptional. State of the Market At the end of 2015 I would have told you that we were nearing the bottom and the level of rate reductions in the market were going to ease. My prediction last December was that the market would be down somewhere between 5% and 10% throughout 2016 and I estimated that most accounts would see high single digit reductions. As I look at the last three months I can confidently tell you those high single digits are the norm but there are plenty of outliers and we have seen larger accounts ($500M+ TIV) with increased competition yield rate reductions that are once again in the 10% to 20% range. In some rare cases, aggressive new capacity from the likes of Berkshire, Velocity, and a few others have driven year over year rate reductions in excess of 30%. The results we are seeing are clearly an example of carriers deviating from the technological tools to price risk in an effort to achieve growth, maintain renewals, or capture more market share. Conventional wisdom would tell you that there is a certain price for every CAT risk that carriers would never go below because they are all using the same modeling systems; but in application, we have seen the exact opposite. We seem to be an industry of cannibals who have slowly picked away at each others business only to decrease margins and ultimately price risk at a systemic level that cannot be sustained much further without adverse consequences on overall rate stability. The consolidation of carriers and brokers with continued M&A activity easily points to the fact that in this market, only the strongest will survive. Furthermore, until capacity shrinks and the institutional investment vehicles that are supplementing new capacity find alternate sources to generate their desired returns, we are likely to continue in the same fashion we have been operating in for the last few years. It is not all doom and gloom, because ultimately, it is a buyers market and the savings being passed to clients is saving businesses money. This therefore allows them to better protect risk while increasing profits to further invest in their own respective emerging markets. The easier it is for large companies to operate, the better it is for the consumer and all of our individual livelihoods. At the end of the day, everyone is looking for a deal, and the insurance world seems to be offering them daily. If you are an insurance buyer, this market will provide some great opportunities to lower costs, enhance coverage, and even lock in pricing with multi-year programs. If you are on the carrier side, it will be nice to know that there are signs that rate reduction activity will slow to a point where we may be looking at a relatively flat market heading into 2017, provided that we make it through the rest of 2016 without any material CAT activity. At a more macro level, there are clear signs that rate reduction activity is slowing down. If you look at treaty reinsurance renewals, most are being renewed in the mid to high single digits, and at this same time last year, we saw rate activity in the lower double digits in the reinsurance marketplace. We have also been watching the financial results of some major P&C carriers as they closed out their books at the end of What we saw was that combined ratios rose from the high eighty percent and low ninety percent level to the high ninety percent range. This ultimately means that there is not much fat left to cut before carriers start losing money on their writings and these results come absent of any material CAT activity. When you connect the dots, you can clearly see that as attritional loss ratios continue to rise and investment results remain stagnant, the market will be poised for an aggressive rebound. If we see any meaningful CAT activity or a major economic shift, the market could be at a point where we could go to sleep at the bottom of the soft market and wake up at the top of the hard market. Hab Corner The market is not differentiating by asset class the same way it used to. Hab used to be a dirty word when speaking with insurance carriers, because many struggled to write this business profitably and at terms and conditions that worked for both the client and their insurance providers. Hab is now an asset class that many are targeting as a new source of growth because prior to 2015, it was still a limited carrier environment. These days, there are new programs showing up daily and markets are targeting this business in a wide array of geographies. The hab world today is a niche space with regional programs, and standard carriers doing things that will clearly cause them to run for cover when their ill thought out business plans don t deliver as intended. Now, more than ever, I would encourage every client to be weary of new programs and untested capacity. The phrase buyer s remorse comes to mind when I think about some of the offerings I have personally vetted for various clients. Stable capacity is the key to this space and working with people who have a track record of putting together programs that meet client needs and satisfy carrier concerns will yield the best long term results. Be a differentiator as a client and work with people who want to help you make your risk more attractive to capacity providers. We buy insurance in case something goes wrong and you can write a college dissertation on what can and will go wrong in the hab world. As a result, running away from incumbent capacity to save a few bucks for a carrier who is new to the space can be likened to doing a deal with the devil because no matter what, you will wish you had a do over.

5 The hab world will mirror the rest of the market in Good accounts that differentiate themselves from the rest will see high single and low double digit reductions. Poor performers will still see relatively stable and flat renewals, and depending on which carrier takes them on, they may be looking at a different picture with much worse results if history repeats itself. Hit List 1. Secured a 10% rate reduction on a long term renewal with $200M+ of TIV in San Francisco and Seattle. Coverage was placed on a manuscript form for this apartment risk with guaranteed renewal rates that are tied to the client s loss ratio. This is an All Risk Including Flood and EQ account. 2. Secured a 9.8% rate reduction on a $225M+ schedule of apartments in the bay area. This is a DIC account and coverage was placed on a two year term basis with no loss ratio limitation. 3. Secured a 15% rate reduction on a $5B+ schedule of single family homes throughout the country. Coverage was placed on an All Risk Including Flood and EQ basis with a manuscript form. 4. Bound coverage on a $1B schedule of garden style apartments in CA, TX, and AZ. Coverage was placed with a manuscript form on an All Risk Including Flood and EQ basis above a $25k deductible utilizing the RPS Hab Facility and an AOP buy down. The deductible was approximately $0.15 ground up. 5. Bound coverage on a $130M schedule of older apartments in San Francisco. Coverage was placed in the RPS Hab Facility with a manuscript form and was secured using a combination of All Risk Including Flood and EQ and DIC Flood and EQ capacity.

6 First Quarter 2016 Casualty Update By Adam Mazan Area President RPS Southern California As the first quarter of 2016 closes, the year is shaping up to be another competitive one in the casualty marketplace. The soft rate environment is continuing, the exposure base remains relatively flat (expected GDP growth for the US in 2016 is 2.5%), and there continues to be abundant capacity with aggressive underwriting. Carriers 4th quarter and 2015 year end results showed a common theme: net written premiums are down, investment income is down, yet combined ratios have improved. Many carriers are reporting combined ratios in the high 80 s to low 90 s, and when coupled with the aggressive growth goals these carriers have for 2016, the current state of a buyer s market isn t changing anytime soon will see some underwriting changes and small pockets of a firmer market as carrier actuarial departments focus on maintaining low loss ratios to counterbalance the low rate environment. Two examples of this are in the multi-family and trucking classes of business. A few significant writers of multi-family liability business have changed their underwriting guidelines to help control their loss ratio on the class. These carriers are no longer offering first dollar coverage but rather pushing deductibles and SIRs while limiting the percentage of affordable housing in any given portfolio and increasing minimum premiums. A trucking class carrier who is typically found in the lead excess layer has opted to pull out of the trucking market entirely. There are several carriers ready and willing to replace the non-renewing carrier, however, insureds should expect their premiums to increase 10%+ from what their expiring premiums were. Casualty brokers can expect additional situations similar to the two described above on classes of business that have a long tail and that have been written at aggressive rates for the past several years. The good news for buyers is the abundant capacity, and opportunistic approach carriers are taking should minimize pricing increases and keep the liability segment competitive. The evidence suggests that the soft market is the new normal for now, and I believe that the probability of success in the soft market is the same as in a hard market, only the strategies differ. Collaboration and teamwork have always been a cornerstone at RPS, helping us grow to the organization we are today and what is going to fuel our growth for the years to come. Our dedication to and partnership with our clients has been and will continue to be a key factor. This partnership has allowed RPS to create proprietary programs for several different classes of business. In 2015 alone we launched proprietary Brokerage Casualty products for: Bars and Taverns Educational Institutions Residential Wrap Ups Nutraceuticals & Life Sciences An Umbrella & Excess Facility By keeping our focus on new and unique solutions for our clients and their buyers, RPS will have many more products to come in We are excited for what the rest of the year holds!

7 Recent Casualty Successes Manufacturing Chiropractic Equipment Manufacturer General Liability $1/2/2 Trailer Manufacturer General Liability $1/2/2 E-Cigarette Manufacturer General Liability $1/2/2 Diving Supplies Manufacturer General Liability, Umbrella, Excess $1/2/2 + $2M Brake Manufacturer General Liability $1/2/2 Grill Manufacturer General Liability, Umbrella $1/2/2 + $5M Construction Elevator Contractor General Liability $1/2/2 Steel Erector General Liability $1/2/2 Home Builder General Liability $1/2/2 Townhome Project General Liability, WRAP $1/2/2 Fire Sprinkler Contractor General Liability $1/2/2 Roofing Contractor General Liability $1/2/2 Demolition Contractor General Liability $1/2/2 Casino Project General Liability, Excess $1/2/2 + $10M Other Truck Operation Umbrella $2M Bus Operation Umbrella $5M Sand And Gravel Hauler Umbrella $1M Apartment Owner And Operator General Liability $1/2/2 Restaurant Chain General Liability $1/2/2 Expressway Umbrella $10M County In Arizona Excess $60M In general, Environmental Insurance can be separated into two categories: Environmental Insurance: Filling The Gaps By Patrick Reilly Area Vice President RPS St. Louis Recent headlines have signaled a slight flux in the environmental insurance marketplace. However, pricing and coverage terms remain competitive. What is Environmental Insurance? Most GL policies, in one form or another, exclude Pollution Liability. The answer to those exclusions is Environmental Insurance. 1. Environmental Impairment Liability (EIL) Also known as Site Pollution Coverage is written to apply to specifically listed locations. This policy typically provides coverage for first-party cleanup costs, business interruption, loss of rents and extra expenses. 2. Contractors Environmental Liability Also known as Contractors Pollution Liability (CPL) Coverage is written for pollution events arising from the operations of the contractor. How is coverage underwritten? Both forms require a coverage specific application. EIL Underwriters need information regarding preexisting conditions, which could include Phase I and Phase II site environmental reports, nature of the insured s operations and the use and size of the property. Coverage is typically written on an annual policy basis and is available on a multi-year policy.

8 CPL Underwriters need information regarding the insured s operations including projected revenues and details of previous and future projects. Coverage can be written on an annual basis or project specific basis. What does it cover? Bodily Injury and Property Damage with insuring agreements comparable to Commercial General Liability Cleanup Costs Defense Costs Can be included in limit of insurance, a separate limit or defense in addition to limit Options can include transportation, non-owned disposal sites, business interruption and reputational damage. Who needs Environmental Insurance? Building Contractors Emergency Response Contractors and Consultants Industrial Cleaning Contractors Environmental Contractors and Consultants Underground Storage Tank Owners Recycling Facilities Engineers and Consultants Real Estate Agents Financial Institutions In 1995 there were approximately 10 carriers offering Environmental Insurance. Today nearly every major insurer has an Environmental division and they are aggressively marketing for that business. Contractors Pollution Liability and Underground Storage Tank Liability continue to be two of the leading lines of coverage, primarily because of contractual requirements being issued by general contractors, project owners and governmental entities. Environmental Contractors and Consultants can potentially take advantage of the competitiveness of the insurers offering a combined GL, Pollution and E&O coverage form, now offered by more than a dozen carriers. Additionally, at least 10 carriers are offering a combined GL and Products Pollution coverage form. These insurers are targeting manufacturers and distributors and the combined coverage form helps to potentially eliminate coverage gaps that can exist with the standard CGL. Additional coverage extensions can include Pollution Legal Liability, Contractors Pollution Legal Liability and Pollution from Transported Cargo. Contact your local RPS office today for more information about our products and services. Two Pierce Place Itasca, IL Contact_Us@RPSins.com RPSins.com Risk Placement Services YOUR wholesaler of choice!