MAIA News: In this Issue... March 21, MAIA News: RMV News: MassDOT Board Approves RMV Fee Increases 2. E&O Update

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1 MAIA News: Warning... An MAIA member has recently told us about a bad experience his agency has had with a company called Cost Effective Marketing of Laguna Hills, CA. After providing this company with a deposit, the agreed upon work never got underway and s and telephone calls to the company have gone unanswered for months. So, if your agency is solicited by this company we would suggest that you take a pass. Legislative Update... MAIA Vice President of Government Affairs and General Counsel Dan Foley has provided the following update on Beacon Hill activities: March 19th was Joint Rule 10 Day meaning that all Committees that still had bills pending before them must take action one way or the other report bills out Favorably, Ought Not to Pass, place in a Study or ask for an Extension to do more work on the legislation. The status of the MAIA bills as a result of the Committee s actions are: S-463 Group Market Plans (Study); S-486 Certificates of Insurance (Favorable redraft); S-464 Special Insurance Brokers continuous affidavit (Study); S-465 Liability Coverage for Non-owner-occupied Dwellings of 1 to 4 Residential Units in the Fair Plan (Favorable MAIA s Priority bill); S-480 Insurers Insolvency Fund to $600,000 (Study); S-481/H-887 Property Damage Threshold for Major and Minor Accidents (Study); S-482/H-885 Non-Payment of Insurance Premiums From Escrowed Funds (Study); H-886 Repeal of the Anti-Arson Application (Favorable in House Third Reading Committee). In this Issue... March 21, 2014 MAIA News: Warning! 1 Legislative Update 1-2 RMV News: MassDOT Board Approves RMV Fee Increases 2 E&O Update Don t Let Your Agency Get Sunk by an E&) Claim Involving Watercraft 2-3 Flood Insurance News: Homeowner Flood Insurance Affordability Act Signed Into Law 4-5 DOR News: Directive 14-1: Document and Title Prep. Fees Charged by Dealers Are Taxable 6 Thanks Company 6 Partners The two bills relative to amending the Anti-Rebate laws that MAIA Opposed, H-869 and H-966, were placed in a Study. Previously, the Financial Services Committee reported out Favorably H-880, filed at the request of the Division of Insurance, that would tie the completion of producer s CE requirement to the producer s license renewal date and require that as part of the CE requirement a producer would have to complete a course or seminar on Ethics training for 3 CE credits. This bill has passed the House and is awaiting action by the Senate. Three bills dealing with Non-Competition Agreements -- S-846, H-1715 and H are under an Extension by the Labor and Workforce Development Committee. The committee also placed in a Study the two bills that would create a prospective loss cost system of rate filings for Workers Compensation, S-888 and H (continued on page 2)

2 2 MAIA News... continued from page 1 Another WC bill that MAIA testified in Favor of, S-885 that would provide that if a WC policy is being cancelled for nonpayment, if the insured pays the amount premium owed on or before the effective date of cancellation, the policy shall be reinstated, was given Favorable report a few weeks back and is currently in the Senate, Ways & Means Committee. As always, we will keep you posted as the session moves forward. Now we have our work cut out for us especially with getting S-465 passed. Member Milestones... The Massachusetts Association of Insurance Agents (MAIA) is pleased to announce that Deland, Gibson Insurance underwent an intensive review in order to be re-certified as a Five Star Insurance Agency. The Five Star Award of Distinction is awarded by MAIA to an independent insurance agency that successfully completes a fitness review which examines an agency s five key imperatives: Customer Focus, Management/Leadership Excellence, Human Resource Excellence, Process & Product Excellence and Future Success. Frank Mancini, President and CEO of the Massachusetts Association of insurance Agents, stated Deland, Gibson Insurance strives to be better than its competitors and wants to be one of the best Agencies in the state. The Agency has continued with many of its previously found strengths and has many continuous improvement initiatives in process and demonstrated that they are still a Five Star Agency Designee. They have value added services that focus on risk reduction, they spend a considerable amount of time in educating their clients and provide the right set of services to their diverse client base. The Deland Gibson Difference is their differentiator, it sets them apart and gives them a competitive advantage in many situations. Charlie Gibson, President of Deland, Gibson Insurance said We have a strong management team and staff that collectively have a great deal of experience, capabilities and talent. We understand the marketplace and lead initiatives that will position our agency for long term success. Our staff care about each other, the Agency and our customers. With these people as our backbone, as we grow and change into a more accountable firm that realizes every individual is responsible for the overall success of the Agency, I feel our potential is limitless. Currently there are only 27 Independent Agencies in Massachusetts and Rhode Island that have received the coveted Five Star Agency Designation. DOT/RMV News: MassDOT Board Approves Fee Increases to Support Investment... The Massachusetts Department of Transportation Board of Directors has voted to approve an increase to three Registry of Motor Vehicle Division fees that will allow MassDOT to close a projected $55 million budget gap and make needed improvements to the Commonwealth s transportation system. Transportation reform requires a collective approach to improving the Commonwealth s transportation system, said Registrar of Motor Vehicles Celia J. Blue. The RMV fees collected will support road and bridge projects, improved customer service and allow MassDOT to properly fund its operating expenses. Transportation finance legislation passed by the Legislature in 2013 required MassDOT to generate its own source revenue to help fund future budgets. Under the plan approved by the Board, non-commercial vehicle registration fees will increase from $50 to $60. There will be no change to commercial registration fees. Annual motor vehicle inspections will increase to $35, up from $29. The inspection fee was last increased in One dollar of the increase will be retained by the inspection station that conducts the inspection. The road test fee, a one-time fee for the majority of drivers, will increase to $35, up from $20. Portions of the road test revenue will help support improved customer service for first time drivers. MassDOT anticipates the new fee structure will generate approximately $55 million to $63 million in Fiscal Year MassDOT will host public hearings on the fee increases this spring. The new fees will go into effect July 1, E&O Update: Don t Let Your Agency Get Sunk by an E&O Claim Involving Watercraft by Curtis M. Pearsall, CPCU, AIAF, CPIA President Pearsall Associates, Inc. and Special Consultant to the Utica National E&O Program The calendar says spring is on its way, so there is a strong likelihood that many customers will be looking to get out on the water at the earliest possible opportunity. As a result, these customers will be contacting your agency to make sure their watercraft coverage is in order. Important questions to consider include: Will the watercraft be insured on the Homeowners policy or via a standalone policy? Do your customers know the differences? How about the agency staff? How knowledgeable are you on what those differences are? (continued on page 3)

3 E&O Update... continued from page 2 Now is a great time to brush up on those differences so your customer can make an educated decision. Know the Differences While there is a good chance the premium for this exposure under a HO policy will be less, there is also a good chance the coverage will be less. As the saying goes, you get what you pay for. Agents must be aware of any limitations or exclusions in the homeowners policy regarding issues such as the engine size and length of the watercraft. If the watercraft is eligible for coverage under the homeowners policy, liability protection may be provided, yet typically physical damage coverage is not. This is potentially an important issue based on the watercraft s price. Statistics indicate that in 2012 there were 5,870 thefts of various types of watercraft in the United States, so this is a definite exposure. As one could imagine, jet skis were #1 (23%) on the theft list, followed by runabouts (16%), utility (fisherman/sedan types), cruisers and then sailboats. In addition, when insured under a homeowners policy, there may not be any coverage for injury to passengers and others, or any coverage for the trailer and accessories. Once again, this could be a potentially significant exposure. Yet these two exposures are just a few of the differences. To ensure your customers are more adequately covered or to at least give them the option to consider alert them to the benefits of insuring their boat or yacht with a specialty carrier. Here are some additional coverages and exposures that are often automatically included or included for a fee with the specialty carriers: Roadside assistance if the insured s vehicle becomes disabled while towing his or her boat. Coverage for fishing equipment and other personal effects such as water skis. Fuel spill coverage. (Your clients may be legally liable. Do they have the necessary coverage?) Wreckage removal. Medical payments (even for water skiers). E&O claims involving watercraft have involved a variety of issues including: Territorial restrictions This can involve specific territories, such as Cuba. In addition, some watercraft policies have limitations that exclude coverage in certain types of water (fresh water vs. salt water) or sizes of water (rivers and lakes vs. larger bodies of water such as the ocean). Hull coverage Claims have arisen because the coverage wasn t written on an agreed-value basis. Agreed value is certainly broader than actual cash value. Insufficient limits Major accidents can occur. Secure high limits and schedule this policy under the umbrella. Not understanding the binding guidelines relating to the age of the vessel What are the specific survey requirements? March 21, 2014 Attention to detail is critical when insuring this type of exposure. Consider the following claim and how it could have been avoided: The agent wrote a marine policy for a longtime customer to cover the customer s yacht. The previous policy was with Company X. The agent went through another broker to secure replacement coverage with Company Y. The insured informed the broker that the yacht was stored in the water. The broker completed the application and indicated that the yacht was on land. The policy was issued with a warranty that the vessel was dry docked. The yacht sank while at dock during a storm and the carrier denied coverage. The agent had received the policy, recognized the problem with the warranty (dry vs. wet dock) and had intended to discuss it with his client and broker. However, the policy sat on the agent s desk for two weeks and then the loss occurred. Thus, the client never saw the policy. The claim was for $1,300,000. While the broker certainly has some liability, the agent is also to blame for not acting on the discrepancy. The case was settled for $750,000, with the agent responsible for 50% of that amount. Tips to Consider Such E&O claims can be avoided. Consider these tips: Completing the application Sit down with the customer to review each question and explain the coverages in detail. If the customer does not choose the broadest protection, get his or her sign-off for the declined coverages. After the application is completed, require (don t simply request) that the customer thoroughly review the application s questions and answers and, if everything looks in order, require the customer to sign the application. Receipt of the policy The agency should review the policy to ensure it matches what was requested. Whether you personally deliver the policy or mail it, include a cover letter advising the client to review it to make sure everything is in order. As evidenced by the claim example above, this should be handled promptly as time could be an issue. Education and training Both your staff and your customers can benefit. The goal is to be certain the staff understands all of the coverages and how they apply. Spend a few minutes in the next week to review your agency s approach to insuring the various types of watercraft. Include this as a topic in your next newsletter for customers and as a topic on your website and social media blog or posting. Spell out the benefits of a specialized policy as compared to securing the coverage via the homeowners policy. It s also a great topic to include in your personal lines reviews to ensure that customers know the differences Before the phone starts ringing off the wall, be sure to take the time to get up to speed and learn the finer points of insurance for watercrafts. This could ensure that your agency doesn t go down with the ship in the event of an E&O claim. 3

4 4 Flood Insurance News: Homeowner Flood Insurance Affordability Act Signed into Law... Within the next several days President Obama is expected to sign into law H.R. 3370, the Homeowner Flood Insurance Affordability Act of This law was passed after only a few months of debate and consideration in Congress, which represents a remarkably fast revision by Congress of the more onerous pricing provisions in the Biggert-Waters Flood Insurance Reform Act of 2012 (Biggert-Waters). Enactment of the Homeowner Flood Insurance Affordability Act marks a tremendous victory for IIABA. In September 2013 IIABA Government Affairs staff was given clear direction from volunteer leaders to advocate for a comprehensive and reasonable solution to the two most problematic provisions of Biggert-Waters (Sec. 205 s bought/sold provision and Sec. 207 grandfathering ). The Homeowner Flood Insurance Affordability Act of 2014 was sponsored in the House by Reps. Michael Grimm (R-NY) and Maxine Waters (D-CA) and in the Senate by Sens. Bob Menendez (D-NJ) and Jonny Isakson (R-GA). The legislation, amongst other things, repeals both Sec. 205 s bought/sold provision and the entirety of Sec. 207, which will help to provide relief from the sticker-shock associated with Biggert-Waters. The Big I was at the forefront of these deliberations at every stage throughout the process and was the only major producer trade association to advocate for this legislation. The House of Representatives passed H.R on March 4, 2014 by a vote of The legislation was taken up quickly by the Senate and passed, without any changes, on March 13, 2014 by a vote of Impact of Homeowner Flood Insurance Affordability Act on Agents Important Information: FEMA has not yet issued any guidance on H.R and none of the provisions will be implemented until such guidance is released. Big I staff have been in contact with FEMA, and they have indicated they will implement the new law as quickly as possible. The Big I plans to share more implementation details as they become available. We also plan to host webinars on the impact of the law on agents and their customers, and will host a special briefing on the new law immediately following the Issues Briefing at the 2014 Legislative Conference. OF CRITICAL NOTE: Pending further guidance from FEMA, the Big I strongly encourages agents and brokers to continue with any and all renewals before there is a lapse in coverage and to NOT wait on implementation of this new law before proceeding with renewals. Failure to renew a subsidized policy and to pay the full premium will result in a lapse of the policy, which under the new law continues to be a trigger for a total and permanent loss of the subsidy. While we understand some renewal premiums (those that have seen their subsidy removed already due to one of the triggers found in Biggert-Waters described below) could be substantial, the new law will allow for a refund of such premiums. In nearly every case it will be far better to overpay a premium today in order to keep a policyholder s subsidized rate and then later get a refund than to let the policy lapse and lose the policyholder s subsidy FOREVER. While further information will be forthcoming as implementation proceeds, the below represents the provisions that will likely have the most profound impact on agents and brokers: Repeal of Certain Triggers for Loss of Subsidy In addition to other pricing provisions which remain intact, Biggert-Waters Section 205 immediately (with no phasein) removed all subsidies for pre-firm properties for: any new policy purchased on or after 7/6/12, any NFIP subsidized policy that lapsed for any reason, or any policy for a property bought/sold (real estate transaction). The new law repeals rate increases caused by three triggers : 1. All properties sold after July 6, 2012 (the implementation date of this bought/sold provision of Biggert-Waters). New homeowners and business owners will continue to receive the same treatment as the previous owner. 2. All properties that purchased a new policy after July 6, All properties that had a lapsed policy, provided that the lapse was a result of the property no longer being subject to the mandatory purchase requirement. Again, while we are still awaiting guidance from FEMA, it is important for agents to know that under the new law a pre-firm property WILL lose their subsidy immediately if the property allows their policy to lapse (for any reason or any length of time) and the property is still covered by the mandatory purchase requirement. Finally, it is important to note that the repeal of these immediate triggers applies to all policyholders, including second homes and commercial properties. However, these second homes and commercial properties will continue to have their subsidies phased out at a rate of 25% per year over the previous year s premium until actuarial rates are realized pursuant to the remaining provisions of Section 205 of Biggert-Waters. Refunds Issued to Policyholders Policyholders (residential and commercial) who immediately lost their subsidized rate under Biggert-Waters, bought such policy, and now qualify for the subsidized rate per the repeal of certain triggers will receive a refund. FEMA is in (continued on page 5)

5 Flood Insurance News... continued from page 4 March 21, charge of disbursing this refund, and it will likely take at least a year (if not longer) before all of these refunds are issued. The timing and process of the issuance and delivery of these refunds is certain to be top-of-mind for many independent agents and their clients. As this is implemented, we will be sure to pass along important details. Grandfathered Policies By way of background, when flood maps change, some policyholders would see an increase in premium due to a zone change and/or the base flood elevation (BFE) changing. Grandfathering allowed the old zone and/or BFE to still be used if continuous NFIP coverage was maintained (throughout all ownerships) prior to the map change. Grandfathering can result in very significant savings to policyholders. Section 207 of Biggert-Waters eliminated grandfathering when a community adopted a new flood map. When a new map was adopted the new rates would be phased in 20 percent per year over a five year period until the full rate was reached. Section 207 of Biggert-Waters was not planned for implementation until 10/1/14. The Homeowner Flood Insurance Affordability Act completely repeals Section 207 of Biggert-Waters, thus totally restoring grandfathering. Annual Rate Increases Prior to Biggert-Waters, the maximum annual increase for NFIP policies that are re-rated was 10 percent. Biggert- Waters changed that maximum amount to 20 percent. The new law states that for any property class the maximum is 15 percent, while any one specific policy can only see a maximum annual increase of 18 percent. Most properties are rated by class and will be subject to the 15 percent limit. Additionally, the bill also requires a 5 percent minimum annual increase on pre-firm primary residence policies that are not at full risk. This annual increase will be applied until the property is at actuarial rates. Finally, there is guidance in the law stating that FEMA must strive to minimize the number of policies with annual premiums that exceed one percent of the total coverage provided by the policy. For example, a house insured for $200,000 should not have a premium over $2,000. However, this language is NOT a requirement; FEMA must only strive to do this. Annual Premium Surcharges An annual surcharge of $25 will be applied to all primary residential policies and $250 will be applied to all nonresidential policies and non-primary residential policies. The funds will be deposited in the NFIP reserve account created by Biggert-Waters to build a cushion for future catastrophic losses. Installment Payments for Premiums The new law will allow monthly installment payments for premiums at the option of the consumer. Deductibles Under Biggert-Waters, pre-firm deductibles for risks with building coverage of more than $100,000 were to increase from $1,500 to $2,000. For similar post-firm risks, the deductibles were to increase from $1,000 to $1,250. These changes remain, but the new law also creates an optional deductible of $10,000 for residential properties. If chosen, a disclosure indicating that the policyholder is responsible for the out-of-pocket losses must be included with the policy. Home Improvement Fairness Biggert-Waters phased-out subsidies for pre-firm properties that were substantially improved. While historically the threshold to cross substantially improved was 50 percent of Fair Market Value (FMV), Biggert-Waters changed this to 30 percent FMV. The new law changes the threshold back to 50 percent FMV. Reimbursement for Map Appeals The new law allows FEMA to utilize the National Flood Insurance Fund to reimburse policyholders who successfully appeal a map determination. Biggert-Waters provided FEMA the authority to reimburse homeowners for successful appeals of map findings, but Congress has never appropriated funding for this purpose. Flood Insurance Advocate The law establishes a Flood Insurance Advocate within FEMA to answer current and prospective policyholder questions about the flood mapping process and flood insurance rates. The Flood Insurance Advocate will be responsible for assisting property owners through the map appeals process, and improve outreach and coordination with local officials, community leaders, and Congress.

6 6 DOR News: Directive 14-1: Document and Title Preparation Fees Charged by Motor Vehicle Dealers... The Department of Revenue has just issued the following directive regarding dealer document preparation fees. We have included the entire text of the directive below: Introduction: In many motor vehicle sales transactions, the motor vehicle dealer charges the retail customer a separately stated document preparation fee and title preparation fee relating to paperwork necessary to complete the sale including the title and registration. Issue: Are separately stated document preparation fees and title preparation fees charged by a motor vehicle dealer in connection with the sale of a motor vehicle subject to tax? Directive: Separately stated document preparation fees and title preparation fees charged by a motor vehicle dealer in connection with the sale of a motor vehicle are part of the sales price subject to sales tax, regardless of whether they are paid at the time of the sale or financed. Discussion of Law: Massachusetts imposes an excise upon all retail sales of tangible personal property and telecommunications services in Massachusetts by a vendor unless otherwise exempt. The statutory definition of sale includes any transfer of title or possession, or both, for a consideration including leases or rentals of tangible personal property. Where applicable, the excise is imposed at the rate of 6.25 percent of the sales price of the property or services sold. G.L. c. 64H, 1, 2. A complementary 6.25 percent use tax is imposed on tangible personal property and telecommunications services purchased from any vendor for storage, use or consumption in Massachusetts. G.L. c. 64I, 1, 2. The taxable sales price in a retail sale is generally the total amount paid by the purchaser to the vendor as consideration. In a sale of tangible personal property, the taxable sales price includes any services that are a part of the sale. G.L. c. 64H, 1. The general rules for calculation of tax on sales of motor vehicles are contained in the Department s sale tax regulation on Motor Vehicles, 830 CMR 64H That regulation defines the sales price of a motor vehicle as the total amount or value paid or exchanged by a purchaser as consideration for the transfer of title to or possession of a motor vehicle, trailer, or other vehicle, whether valued in money or otherwise, less any vehicle manufacturer s excise tax imposed by the United States. Document preparation fees are not specifically discussed in the Department s regulation. However, like the mandatory acquisition fees in connection with a motor vehicle lease discussed in DOR Directive 01-5, document preparation fees are paid by the retail customer to the dealer as consideration for the transfer of title or possession of the motor vehicle. Generally, document preparation fees refer to the dealer s preparation of paperwork including the Motor Vehicle Purchase Agreement and the RMV-1, without which a retail sale cannot be completed.[1] These are not optional services; the sale cannot be completed without them. Thus, whether or not separately stated, any charges from a dealer for document preparation fees and title preparation fees are services that are a part of the sale and, as such, are included in the sales price subject to tax. MAIA Note: A bill that would have cappted document preparation fees to $75 was sent to a Study.