A tale of two tats

Susan Preston didn't start her insurance career thinking shewould be on a first-name basis with many of the tattoo legends, butthat's exactly what happened. Today her business, Professional ProgramInsurance Brokerage (PPIB), based in Novato, Calif., has 18employees and impressive growth driven by its specialties: tattooartists and piercers, permanent cosmetics, medispas, beauty salonsand day spas, laser centers and its newest program, medicalmarijuana growers. In 2011, PPIB's business is up 32 percent fromlast year.

In case you haven't noticed, tattoos in the U.S. have gonemainstream. Ed Hardy-branded products can be found in every retailstore. TV shows like “L.A. Ink” have made stars of tattoo artistslike Kat von D. According to a Harris poll conducted in 2008, 14percent of Americans now have one or more tattoos; and according tothe Pew Research Center, 36 percent of Americans aged 18 to 25, and40 percent of those 26 to 40, have at least one tattoo.

But when PPIB began writing program business for tattoo shops,hers was the only insurance business working with this specialty.Today, hundreds of tattoo and piercing shops are PPIB's largestclass of business, driven by a custom-designed program underwrittenby Lloyd's of London.

Preston began her career working for a wholesale and retailagency in San Francisco, where she received excellent advice fromA. Mason Blodge, owner of the Cambridge General Agency (nowdefunct), who urged her to “always seek to do something different;anyone can write an apartment building, a grocery store or personalauto.”

See photos of PPIB president Susan Preston gettingher very own tatoo.

“I was more drawn to the wholesale business and nonadmittedmarkets to try and find things that were more innovative,” shesaid. “You could design your own applications and policyendorsements.”

Working on a marketing piece for the agency designed to generatebusiness for beauty day spas, facial and hair salons, Prestonlearned about cosmetic tattooing for eyebrows and eyeliner andincluded it in the marketing brochure. “The minute the brochure hitthe street, somebody called me and said, 'I'm going to be sendingyou lots of business if you can insure this,'” she said.

The burgeoning cosmetic tattoo business turned out to be a solidgrowth market, and Preston set up her own agency in 1993,specializing in salons and spas, including cosmetic tattooing.

A few years later, one of her customers pointed out that if shecould write a policy for cosmetic tattooing, she should be able todo it for traditional tattooing as well. “Nobody else was doing itat the time,” she said.

Preston studied the market and the field forabout 6 months and developed a program for tattoo shops. Sheapproached underwriters in the London market, finding them moreresponsive and innovative. Because PPIB was the only agency writinga tattoo shop-specific program at the time, her decision coincidedwith the growth of the tattoo trend in the early 1990s.

One year later, a body piercing shop called her asking her aboutcoverage. Once again, Preston took 6 months to study the industry,learn about piercings, and presenting the London market with aprogram which even today still sets the standard for the bodypiercing industry.

In the early 2000s, most insurers were getting out of offeringlaser coverage for hair removal and facials. PPIB paid a doctorfrom Texas to spend 3 days in its office teaching about the laserbusiness and how to properly underwrite and insure it. Althoughthat industry still has a lot of claims, “because we spent so muchtime understanding the market, we've done relatively well in thatmarketplace,” she said.

Related:Read the article “App Attack” by Melissa Hillebrand.

PPIB works closely with its customers on risk management.Because tattoo shops must adhere to state-mandated standards forcleanliness and hygiene, most of the actual claims issues involvetypical small-business risks like slip-and-fall (there's a lot offainting in tattoo work). A few of the more interesting claims PPIBhas experienced include:

• A pole dancer tearing out her nipple piercing at work
• A tattoo of the Mexican flag applied backward on a customer'sentire back
• A dominatrix unable to “take control” of her profession due tolaser burns from a laser hair removal center
• A deer running through a medispa facility and frightening thepatrons
• A medical marijuana supplier who dropped off the product in alunch box, then claimed it was stolen
• A patient at a medical marijuana dispensary tripped; the clerklaughed at him and was sued for “humiliation.”

The uniqueness of these risks makes it especially important fora broker to fully understand the businesses before attempting tospecialize. For PPIB's latest specialty, medical marijuana, Prestonfound a Sacramento-based broker who was an expert in the fieldregarding insurance risks involved in the practice. “He came to uswith ideas on how to design a unique program, which worked verywell for us,” she said. This made it easier to present endorsementsto underwriters that are unique while offering a general liabilityproduct, product liability, property coverage and coverage forfinished stock. PPIB also put together a program for indoor crops,and transit, and also designed and copyrighted the endorsementsthat give some amount of legal fee coverage for dispensaries thatare shut down by city, county or state authorities. “It's a uniqueendorsement that meets the specific needs of the industry andallows our brokers to go out and sell something special,” shesaid.

PPIB is working on three new programs, among them a weight-losscenter program.

The music man

Peter Anderson came to insurance from a completely differentdirection than Susan Preston. A musician by training, he startedhis career as a semi-professional singer and member of the BostonSymphony Orchestra chorus. He got into insurance because he “neededa day job,” and moved from selling life insurance toproperty-casualty in 1980, “wanting to build an asset, not just acommission list.”

Anderson started his own generalist retail agency in 1983 andsold it in 2008 to launch Anderson Group International LLC, based in FortLauderdale, Fla., which focuses exclusively on musical instrumentinsurance. “And based on the results, I wish I had done it yearsearlier,” he said. “Agencies need to find a niche and exploit it;it's the wave of the future.”

Working exclusively with OneBeacon, the agency has theunderwriting pen for the program, sets rates and refers back to theunderwriter based on authority granted to him. OneBeacon has accessinto Anderson's quote module, which streamlines the quoting andbinding process.

The agency already has doubled and nearly tripled its revenuessince 2008. Starting with revenues in the low six figures in June2008 as a part-time sideline at the original agency, it is nowapproaching mid six figures in revenue. “We fully intend to get to$1 million in commissions and fees in the next 3 to 4 years,” hesaid.

Related: Read the Phil Gusman's article “Specialty Premium GrowthOutpaces Other Lines.”

Working with professional musicians taught Anderson what theyneed in the way of insurance for expensive musical instruments. Oneof his original agency's first related accounts was the BostonSymphony Orchestra, which was the genesis of the niche, in1991.

“Their musical instrument policy was renewing and they weredissatisfied with their current carrier; it all started there,” hesaid. “There was a tremendous need for coverage because musicalinstruments are excluded on the standard homeowners' policy. That'swhere we saw the niche and the opportunity, and where I married myexperience as an agent and a musician.”

Over the years, Anderson's original agency added otherorchestras as clients, including the Utah, San Francisco, Phoenixand National Symphonies to name a partial list. In 1995, the agencycreated a program for freelance musicians that added a masterpolicy through Anderson Group Musicians Alliance and issuedcertificates from that. Today this is the agency's major focus,although it still adds orchestras and musicians' associations ascustomers. Through the freelance program, the agency deals withmusicians around the world with a program that covers dealers,collectors, hobbyists, enthusiasts, professionals and semiprofessionals, giggers—in short, the whole range of musicians.

Individual policies include many famous individuals, althoughAnderson says he can't name them because of privacy concerns. “Iinsure a lot of artists, whether they're playing a guitar or anexpensive violin,” he said. “Insuring big-name artists is not aprincipal focus, but I love it when the opportunity arises. We havea name at this point and given an opportunity to bid and quote onthose kinds of people and their instruments is exciting.”

Insured instruments range from those valued atunder $1,000 to a violin with an estimated value of $8 million, andeverything in between, Anderson said.

One of the more famous cases of musical instrument misplacementhappened in 1999, when world-renowned cellist Yo Yo Ma (not anAnderson insured) left an 18th century $2.5 million cello in a taxi(the instrument was quickly recovered). Although cases like thisare rare, Anderson encourages establishing provenance oninstruments, as well as use of the SNAGG microchip program, similarto the system used on lost pets, to create an instrument pedigreeand ownership trail in case of loss or theft. “Our overall lossexperience in the history of our accounts is quite terrific,” hesaid.

Considering the intimacy between musician and instrument, onemight assume that Anderson's business would be highly relationshipdriven but surprisingly, he says it's “anything but.” Thebrokerage's six staff members (two in Canada, one in Spain, two inFlorida and one in Massachusetts) all work out of their homes, andalthough the business maintains a brick-and-mortar address,Anderson has only used the office once, conducting most businessthrough BlackBerry, iPad and the occasional laptop connection.

Most of Anderson's inquiries come in through its website and areprocessed through a customized ticketing and quote managementsystem developed by the brokerage's IT people, an off-the-shelfproduct used to engineer software enhancements or projects andadapted to work with the brokerage's quote flow system. The systemis currently scaled to handle 25 quotes a day.

The policy and form are exclusive to the agency and have customwritten coverage, now in its fourth generation. “We're reacting toand trying to lead the marketplace with the very best coverage formwe can offer and write, and we're constantly tweaking it forwhatever reason based on claims,” he said. The average annualpremium and policy fee is in the mid-$200s and growing. “Smallschedules of one or more total instruments totaling $600 or even$2,000 is not the sandbox we play in,” Anderson said.

Related: Read the article “Insurance Issues for Medical Marijuana”by Christine G. Barlow.

Claims typically arise from instrument bumps and drops. Airlinesand travel are another big exposure when people put instruments inimproper cases and leave them to careless baggage handlers.“Ninety-five percent of claims can be avoided,” Anderson said.

Anderson's job is to provide customers with both appropriateinsurance coverage and risk management information on ariditybalancing, proper humidity controls, and appropriate handling tokeep instruments safe.

Legitimate claims can include trip-and-fall claims withinstruments, the occasional theft, and one instance in which aninsured was moving and his car was totaled on the highway with theinstrument in tow. “It was only on the books for 2 weeks and endedup being a $19,000 claim,” Anderson said.

“We try to ask all the right questions to get a sense if theperson is responsible about the care and feeding of an instrumentto make sure it's got a fighting chance. Typically musicians takebetter care of their instruments than they do themselves, which ispart of why we've had an enviable loss record.”

The specializinggeneralist

For a 100-year-old agency with deep roots in traditionalinsurance, Thoits Insurance has a forward-thinking attitude whenit comes to technology. A self-described generalist agency thatspecializes in cyber liability risk, Thoits prides itself on being“a generalist agency, which has been fortunate enough to specializein a few profitable niches,” said CEO Paul Saich.

“We don't look for niche/program business. As a generalist, wewill come across opportunities that can and will be developed intospecialty programs. The key to our success is our relationshipswith our partner carriers. In today's marketplace, there must be astrong working relationship between a broker/agent and an insurancecompany to develop a program. Trust between both parties isessential to a successful niche/program.”

Niche/specialty business is approximately 20 percent of Thoits'annual premium volume. “Our management philosophy is not to be toodependent on any one niche in fear of it controlling our decisionmaking process,” he said. “As a generalist, a maximum of 25 percentniche business is what we strive for.”

Thoits Insurance was established in 1891 as an enterprise of theThoits family, serving the commercial and personal insurance needsof small business in Palo Alto and the Stanford Universitycommunity. In 1975, five employees bought out the Thoits family'sinterests. Since then, the company has thrived as a 100 percentemployee-owned company. Today, Thoits has approximately 75employees handling $125 million in annual premium with a corporateoffice in San Jose, Calif., and an additional office in Santa Cruz,Calif.

One of those opportunities spotted by Thoits was the rapidlyexpanding cyber liability market.

“The general concept for cyber liability really kind of startedtaking off about 18 months ago,” said Ted Way, client executive andcyber and management liability practice leader at Thoits. “That waswhen we started making these submissions on a regular basis.”

The concept of cyber liability has actually been around for awhile, but has only recently started to really gain traction, Waysaid. “Now we're starting to see a lot of people pay attention toit, because of the technology and social media and webpresence—everything that we're doing over the Internet. It isbecoming a really interesting topic.” Cloud computing, cyberbullying and the growing use of electronic health records arecombining to give the issue more relevance every day.

As is common in emerging markets, there is plenty of uncertaintyin the cyber liability arena, such as who is liable, what steps arerequired to protect information, and what is considered sensitiveinformation, Saich said. “We like our clients to err on the side ofcaution and understand that this exposure is not going away, thatis, unless the Internet does,” he said.

Cloud computing adds another level ofuncertainty, with most businesses figuring that if “it's not myserver, it's not my problem,” Saich said. “This couldn't be furtherfrom the truth. We always ask our insureds to think, 'Who will bethe target of claims?' Let's say a major hack occurs and 90 percentof our client's data is stolen. Even if using cloud computing, theconsumers affected aren't going to go after server farms. Theydidn't give their data to a server farm, our insured did.”

Thoits' generalist reputation helps the agency spot trends thatcould turn into niches. “Being a generalist gives us constantexposure to multiple lines of business that we can evaluate anddetermine if it is worth investing our resources in creating aniche,” Saich said. “As an agency, we work with our partnercarriers to see where we could carve out a niche given our existingbook of business. We would never go into creating a program/nichewithout having a partner carrier willing to move forward with usfrom the start.

A niche/program is never built on price but on coverage—and aprogram's ultimate success hinges on the carrier, Saich said. Thisrequires a lot of preliminary research about the potential nichebefore the agency should even think about approaching a carrier, hesaid.

“If you have done your homework, a program/niche will be pricedbased off the credibility of the risk. It is up to the broker/agentto bring the best in class to the program. If you bring the best inclass to the carrier, the price will be easily achieved. Whatattracts an insured to your niche/program is the coverage offering.Once the insured is in the underwriting stage, the broker/agent andpartnered carrier will evaluate their credibility and make sure theinsured is willing to accept the loss control and risk managementrequirements that make a niche/program successful for years tocome.”

Saich's advice to an agency interested in getting into the nicheprogram business?

“First, evaluate and understand your book of business. Next,work with your partnered carriers to see if there is a commoninterest in a specific class of business. Once this is determined,make sure you can set yourself apart with a coverage position orrisk management offering that will attract additional insureds toyour agency. Again, if you do your homework and underwriteeffectively, price will not be an issue.”