Hello, and welcome to today's webinar, DIC and Inland Marine, Beyond Earth, Wind, and Fire, hosted by Inland Marine Underwriters Association. I'm Eileen Monreale, Education Training Specialist for IMUA, and I thank you for joining us today. Also, thank you to my colleagues, Lillian Coulson and Ali Monreale, for working behind the scenes to ensure the success of today's webinar. We have about 50 attendees. I think they're slowly coming in. So we appreciate your all being here today, and we look forward to a great session. So let's get started. You will find in your attendee control panel, which is on your screen, that it may minimize by default. So at any point, you can always click that orange arrow, which sometimes that's all you wind up seeing. If you click it, it will bring back the Q&A panel and the control panel, so you can ask a question. We do look forward to your questions today. You can ask them anytime throughout, and our presenters will be happy to take your questions. To encourage the questions, IMUA will send a $25 Amazon e-gift card to the most slash best engaged attendee today. So that's a combination of best questions. So if you ask 10 questions, but they're just not as good as one person who asks an exceptionally good question, it's kind of like an algorithm. So that hopefully just makes it a little more fun today and adds to the engagement incentive. And our instructors will announce the winner at the end of this presentation. So let me move to the IMUA statement and remind everyone to refrain from entering into any discussions on matters affecting rates or conditions of insurance contracts. And without any further delay, I would like to introduce today's presenters. Nick Lamparelli is a 20 plus year veteran of the insurance wars. He has a unique vantage point on the insurance industry from selling home and auto insurance, helping companies with commercial insurance to being an underwriter with an excess and surplus lines wholesaler to catastrophe modeling and strategic planning consulting. Nick has wide expertise in the industry, quite obviously. Over the past 10 years, he has focused on the insurance analytics of natural catastrophes and big data. He serves as our chief evangelist. He has a broad range of talents, experience, knowledge, and I think most of all, passion for education and insurance. You may have seen Nick present in prior IMUA webinars, workshops, and seminars, always to outstanding feedback. Also with us today, we are really happy to have Rich Soja. Richard Soja is global head of Inland Marine at Allianz Global Corporate and Specialty. He earned a BS in business from Wake Forest University and holds the CPCU designation. Prior to Allianz, Rich was an executive vice president, chief marine underwriter US at Aspen Insurance. And prior to that, he enjoyed a 22 year career at Chubb & Son, where he was senior vice president and worldwide manager at Chubb Marine. Rich is past chair of IMUA and a current board member. He is a true industry leader who has served IMUA's professional development steering committee and instructed in numerous seminars and webinars, classes, and conferences, always to outstanding feedback. In 2017, Rich called for the formation of IMUA's Gen X, Gen Y committee to ensure a viable and well-trained marine insurance industry, not only for today, but for years to come. To that end, we are always delighted to see so many young people involved with IMUA today. And most deserving in 2016, Rich was presented with IMUA's Lifetime Achievement Award. We're honored to have Rich and Nick with us today. Gentlemen, the floor is all yours. Thank you, Eileen. With an introduction like that, I think it can only go downhill from there. So we'll try to do the best that we can to match that praise. So thank you. And thanks everyone for attending. This particular session is on differencing conditions. And I will proceed to go through the slides with you. Hold on. So both Rich and I spent some time creating this particular session for you. We wanted you to leave with a fairly solid understanding of what DIC or differencing condition means. So Rich will go into the meaning of DIC and spend some time going over the policy form, the contractual language. This is a critically important aspect of DIC. Differencing condition means that sometimes the policy will act in a primary manner. Sometimes it will act in excess. You want to make sure that the language completely specifies how the policy is supposed to respond when different things happen. We will talk about how to underwrite DIC. It's definitively more complex than a traditional commercial or personal lines policy because there are just more moving pieces. It has to respond excess in some forms, primary in others. And managing those makes the underwriting a little bit more challenging. And then I will end the session going through some use cases. DIC is extremely popular now. The MGA that I formed wrote a lot of DIC around the NFIP, but there's a considerable market for DIC in the wind area, the fire area, the quake area, and in general flood. So we will go through all of those. Please I'm going to keep track of the questions as they come in. So depending on where we are in the session, if the question fits where we're discussing a particular topic, myself or I'll stop Rich and ask him that particular question. But we'll try to go through all of them before the end of the session. So by all means, please make use of the question tab and ask your questions and we'll try to get to them as best we can. Then we'll end with Q&A, as I said. So I'm going to turn it over to Rich, and Rich will introduce the first polling question. Thank you, Nick. Appreciate it. Good afternoon, everyone. Good morning to those on the West Coast. Let's kick it off with the question of what does a difference in conditions, a DIC, insurance policy cover? Earthquake and flood, excess limits for quake and flood, named perils, or all risks for policies issued outside of the United States? We'll give it 20 or 30 seconds. All right, interesting mix, and everyone's right. And that's part of the challenge of, and part of the reason we're doing this presentation, because DIC means different things to different people. So there's a practical consideration in terms of what most people think DIC is, but depending upon what you're writing in your policy language, it can mean a lot more. We'll dive into that to a larger extent, too. So I'm not going to go through this, obviously, word for word, but I've highlighted some portions of the ERMI definition of what DIC means, and you see words like broadened coverage, additional limits, specific perils, all risk property insurance policy, fill the gaps, fill the gaps, master insurance policy. So filling the gaps, broader coverage, more limits, that is consistent language within the ERMI definition. And then if you go to the AMIM-122 textbook, you'll see things like flood and quake, excess limits, NFIP, exposure is not covered. So again, consistency there, but it seems to be doing several different things, not just one thing. So I think if you ask someone, what's DIC, most people are going to say, oh, quake and flood, or maybe excess quake and flood. And all that's true, but it can also be a lot more. So we'll focus in on the concepts here in that DIC can cover flood and earthquake exposures not covered by the basic policy that it sits over or alongside, or, and or, it can provide excess limits over the flood and quake coverages included in those basic policies. It's frequently used, or at least historically has been, has used to provide excess limits over the NFIP. And I think Nick has a use case on that later on in the presentation. The other thing it could do, sometimes intentionally, sometimes unintentionally, is to cover other perils not covered in the basic policies beyond quake and flood, or to cover loss exposures not covered in basic policies, such as property and transit, business interruption, extra expense, transit. So that's another cautionary note, which we'll talk more about. And just a couple of fun facts, as fun as academic exercises on describing the coverage can be, the 1976 Nationwide Marine Definition states in order for a DIC policy to be considered inland marine, it must exclude fire and extended coverage perils. If it doesn't, then it's really a property policy. Other fun facts, DIC is considered a non-regulated line of inland marine, but filed forms are still required in about half the states. And notable in this regard is California, just because of the earthquake exposure. So in California, all non-controlled inland marine classes still require a form filing. And then finally, a file rating plan for non-controlled inland marine is generally not required. There's normally seven states that require a rate filing. But New York considers DIC to be property insurance, not inland marine insurance. And so in the state of New York, you also require a file rating plan. All right. Very simplified version of going through the basics, the property covered on a difference in conditions policy is typically the same as the policy that sits alongside or on top of, and that's basically building and personal property. That's the normal utilization of a DIC is to cover building and contents. But the property not covered is normally a shorter list than the policy that it interacts with. An example could be foundations and excavations. So your primary property insurance policy would exclude foundations and excavations. It's possible your DIC policy does not exclude it. Assuming the other language is consistent, you are therefore picking up direct physical loss or damage to foundations and excavations on your DIC policy. And this is a recurring theme that you'll hear me say a few times that could be on purpose or it could not be on purpose. So understanding the gaps between, sorry, the differences between the two policies is a critical part of DIC underwriting. Similar concept, covered causes of loss, DIC policies apply in a special form basis that's more technical jargon for an all risk basis, and it typically includes quake and flood as we mentioned. As we said so far, we also exclude fire. We exclude extended perils. But it could have and frequently does have possible other exclusions, falling objects, sinkhole collapse, and others. And also most notably, it almost every time would exclude machinery breakdown, partially because of the specialized underwriting nature of it, partially because of jurisdictional requirements. But you almost always see a mechanical breakdown exclusion in DIC policies. Crime is an interesting one. When most people think of DIC, even beyond quake and flood, you normally don't think of crime. But you could cover theft, robbery, burglary, and depending upon your wording, employee dishonesty if you're not excluding them from your DIC policy and they are excluded or sublimited from your primary policy. So that is something to keep an eye out for as well. And then recently, I'm sure all of us who are underwriters on the phone or claims adjusters on the phone have gone through their own company's interpretation of the addition of exclusions for infectious disease, cyber, and depending upon, again, what the primary policy does as respects to those added exclusions, if the DIC does not contain them, that could be a backdoor for covering those exposures. So, some additional provisions. In addition to covering earthquake and flood, you might also still have it be a sublimit. It could also have a substantial deductible. So it's not always meant as a deductible buy-down, or you could have a split deductible. You could have one deductible for earthquake, one deductible for flood, or you could require the max limits be purchased from NFIP, at which point the DIC policy would set excess of the NFIP. Also possible that you're covering a certain percentage of the loss for earthquake and flood once the underlying policy has been eroded, as well as your deductible. So the insurance cost is skin in the game in that regard. A common focus area within DIC is water damage, and we'll go through an example of that. But many property policies could exclude flood, but if you have a water definition with which flood is part of, you might also be excluding water of all kinds, or a sublimit. So if you're sublimiting flood to a million dollars, and flood is part of your water definition, you could be excluding, or sorry, sublimiting flood and water to that million dollars. Many DIC policies, although not all, have broad water damage awardings, and we'll go through one example. So wherever the DIC policy language is broader than the underlying policy, those gaps in coverage that would normally exist on the original policy will be picked up by the DIC. Oops. Another approach could be to take a named perils approach within the water definition to pick up certain things, maybe just mudslide, maybe just mudflow. It could be other things as well that you could add to the DIC policy, or you could add an endorsement for only NFIP-defined flood, which is not broad water damage wording, and you'll see an example of that in a minute as well. So I think you're getting the point, which is there are wide variations of what could happen in a DIC. Every company's got their own language, and it really depends upon the intent of what you're attempting to cover, which makes the underwriting a little tricky. All right. So let me stop with the academic exercise for one minute and give an example of a definition of broad water damage in an actual use case, if you will, of something that happened many years ago where this became very relevant. So here's a sample water definition that's very broad. Flood, surface water, waves, tidal waves, and so forth. So this is storm surge plus normal flood, mudslide, mudflow, water that backs up through sewers and drains. So that's a pretty straightforward definition of water. And then this is what makes it particularly broad, which is water under the ground surface that flows through foundations, walls, floors, basements, doors, windows. So that's a far broader definition of water than you see in some cases. So using that definition and this event, we're going to come up to a polling question in a minute. But let me briefly describe the Chicago Tunnel Flood. On April 13th, 1992, water from the Chicago River poured into an underground tunnel when part of the tunnel wall ruptured. The tunnel had once been used by trains making deliveries to the buildings. And at the time of loss, it was used primarily for utility conduits. Although the doors from the tunnel into the building had been boarded shut, the pressure from the enormous volume of the river water that surged into the tunnel forced water into the basements and sub-basements of all the buildings in Chicago. The damage to property located in those areas as well as building service equipment and utilities was widespread, power was shut off, and business was interrupted for hundreds of firms. So that's the event. In April 13th, 1992, I actually, I'm sad enough, I've been around long enough to remember this in an insurance context. And I'll tell you a little anecdote after we do the polling question. But the poll, is this a flood? Yes or no? Right. So the answer to the question is it depends. It depends on the wording. And that's one of the reasons we went through what we went through. And in the context of the wording that we reviewed, the answer is yes. But in the context of the NFIP definition of water, which I did not share with you, the answer is no. So the NFIP ruled that it was not exposed. The water remained below street level. And therefore, it didn't hit one of the triggers for what does constitute a flood within the NFIP definition. So if you were an inland marine underwriter and you had a DIC policy with a broad water damage wording that we utilized and it sat over a NFIP policy that your insured had purchased and the property policy excludes flood, you're picking that up for a dollar, all else being equal. And that very easily could have been your intent. But that's basically the way it worked. The anecdotes is very quickly. I was working for Chubb at the time and Chubb during this event and Chubb had a financial institutions department that wrote property. We had a package department that wrote property. We had a marine department that wrote property. And we probably I think we had an entertainment unit that wrote property. And all four or five of the units who had insuring buildings or insurers in downtown Chicago at the time all had different language on the floods. And so the same company was writing policies with different language to the point where the president of Chubb basically said, I don't care what the language says, we're not going to be out in the marketplace communicating different messages to different insurers and different industry segments. So we're just paying the loss. But that's an example of how inconsistency and language can be impactful when you get to a tricky coverage situation. All right, back to academia. General provisions in DIC, normally it's US and Canada, but you can have worldwide coverage as well. The initial reference to the controlled master policy with local underliers all over the world, if you have been an international underwriter, that's a very frequent use of this term as well. So if you have more limited cover with a local underlier for property in Brazil or Singapore or France, and you have a master policy here that sits over it, there are DIC provisions in that master policy that will pick up the gaps in coverage as well, making the local underlying policy as broad as a domestic policy. So that is terminology that you hear with DIC in the international world. Valuation can be flexible, but it's typically a replacement cost. And this is a little tricky as well, in that most property insurance policies have another insurance clause. And the other insurance clause says that if there's redundant insurance elsewhere, we are going to pay excess. And that insurance policy is going to pay primary. If your DIC policy, which in some cases is meant to be excess, also has the same language. Now you have two competing policies covering the same loss with the same language. And the normal resolution to that problem is, well, you say you're excess, you say you're excess. So you're just going to quote, you're going to quote and share the loss, which normally is not the intent of the DIC policy. So that would be the normal interpretation. But there could be other courts that would say, you're going to recognize the essentially excess nature of DIC and uphold that language for the DIC underwriter and not the primary policy. But if, as you are working on evaluating language on what you're sitting over, that is another area to look at, the other insurance clause, not just coverages and perils. And finally, insurance to value is normally no co-insurance clause. A lot of the time, the limits you're providing, especially for quake and flood, are sublimits that don't equal the TIV. So that is, it's an underwriting consideration, but it's not a coverage consideration. And finally, especially for those perils that are sublimited, typically the underwriter would rate off of the TIV and then give it credit for the loss limit as opposed to rating off the loss limit. Okay. Quick advantages, disadvantages. The DIC policy, although it excludes earthquake, sorry, although it excludes fire and extended coverage, is still an all-risk form in most cases. It's a potentially cost-effective purchase of flood and quake. Sometimes it's the only way to get flood or quake if you are in a more exposed area. Would not have a co-insurance clause, and in about half the states, as we said, it's a non-filed form, so it's easily tailored to your underwriting intent. Disadvantages of DIC form is the market tends to be pretty small. With the exception of California earthquake underwriters who specialize in this day in, day out, a generalized DIC market, you don't see a ton of competitors out there plugging it. So there are some, some of you know who you are, but in most cases, it's not readily talked about other than in the context of quake and flood. Terms and conditions are all over the place. Court interpretations as a result are relatively limited. Many times, in addition to it being non-filed, it may also be not admitted and therefore insurance regulators have not reviewed or approved the language, making it more inconsistent. And conversely to what I said above, while it might be cost-effective, there may also be minimum premiums that make it not cost-effective. All right, a few words on underwriting. And again, for the underwriters in the room, this is the virtual room. This is kind of the crux of it. In addition to the exposure, it's really the first course of business, in my opinion, is underwriting the original policy and understanding what your intent is. Is your intent just to cover quake and flood? Great. But based upon your language and the underlying language of the original policy, is, is that what you're really doing? Or better stated, is that the only thing you're doing? Are you providing quake and flood, but more that you don't even understand? And that's where the real underwriting comes in. So property not covered. What's not covered on the original policy that's not excluded on yours, you are potentially covering that difference in what's not covered on the original policy. Same concept for exclusions. If the original policy has more exclusions than you have on your all-risk policy, other than fire and extended cover, extended perils, what is that your intention to pick up the difference in gap between the exclusions? And same for sublimits, right? So are you, you might be covering the same perils, but are you covering them for the same limits between the two? So understanding the underlying policy, in my opinion, is the first step in underwriting DIC. Then it gets a little more normal from there. For lack of a better word, we're all used to underwriting the flood exposure. But in the context of water damage wordings, based upon the example that we just used, while we can underwrite the exposure, you also have to underwrite the water damage wording that you sit on top of, as well as what your wording is. Once again, trying to identify the differences. Basic earthquake and earth movement exposure underwriting. Is it your intention to also cover primary or excess theft-related perils? If not, that may be something you want to look at if, in any way, shape, or form, some of the underlying coverages that you're sitting on top of exclude these or limit these. Or, for that matter, have a warranty. Will you warrant that your vehicle will have two drivers at all times? Otherwise, theft is not covered. If you don't have that same warranty, and at the time of loss, there were no drivers in the truck, and the underlying policy denies claim because you didn't meet the warranty. And if you don't have that warranty, DIC policy is picking that up. Property and transit needs to be reviewed. We're going to get into a collapse example to end my portion of it. But what we're really doing is understanding the mismatches between primary language and DIC language. So, great to cover all of that as an underwriter, as long as that's your intent, and you're getting premium for your exposure. All right. Polling question number three. Does an all-risk property policy exclude collapse? And the answer is, all right, it seems to be some overwhelming belief that the All-Risk Property Policy doesn't exclude collapse. And you're predominantly right. With that said, it can get tricky. We're not going to go through this, but again, I highlighted some key words. This is the, I randomly picked the AAIS Property Policy wording, because I know that there are a variety of carriers that use it. So here's the COP wording for AAIS. We pay collapse if the collapse is caused by, and there's a list of items, but there are some exceptions, unless this, unless that. And then if you go to the bottom part, it says the following property is covered for collapse only if the collapse is of a building or structure, which then results in damage to these items. So there could be a radio and TV antennas, bulkheads, piers, water stocks. We'll cover collapse if it damages these things, but only if there's a collapse of the building or structure or any part of it that results in this. There's a couple unlesses in here. The AAIS wording then goes on to define collapse as a sudden and unexpected falling or caving in where the building cannot be occupied for its intended purpose. And then it goes, the following are not considered to be in a state of collapse. So once again, it's a mismatch between what your DIC policy is doing and what your primary policy is doing. Now in AAIS's case, the collapse wording in the DIC policy is exactly the same as the collapse wording in the property policy. So you're not going to pick up unintentionally any gaps, but that may not always be the case depending upon the policy language that you're using. So polling question number four, and this will pretty much, the next couple of questions end my portion. The famous Petronas Twin Towers in Kuala Lumpur is written on a standard property policy with the wording we just reviewed, so the AAIS policy. The bridge walkway in between the two towers collapses, is damage to the bridge walkway covered by the property policy? Yes or no? All right, and the answer is mixed opinions. Okay, so let's take a look. The bridge, I'm not a claim adjuster, but the wording that we looked at, we will cover collapse to the bridge or the walkway, but only if the building collapsed, which caused damage. So in this hypothetical example here, the bridge and the walkway collapsed, but not the buildings. So I would argue that the wording we just reviewed would say that's not a covered claim because the bridge and the walkway collapsed, but not the towers. So if a DIC were written alongside the property policy, would that DIC policy cover the collapse that the original policy excluded? Yes or no? Alright, let's see what people think. Very good. So it's exactly the interaction between how the DIC policy fits hand-in-glove with the property policy. In this particular case, the bridge walkway collapses, not picked up, I'm going to argue, by the property policy, but the DIC policy, unless it has the exact same language, which, in which case it wouldn't, but if it has broader language, then you would pick up that collapse on the AIS policy. And most importantly, which of the following movies was the Petronas Tower Tower's feature? Shining Star, Entrapment, That's the Way of the World, or Sun Goddess. There's only one. Alright, Shining Star, That's the Way of the World, and Sun Goddess are actually earth, wind, and fire songs, so Entrapment, thank you, Katharizida Jones, is the correct answer. And Nick, on that note, I will hand it off to you. Very good. I actually didn't know any of the answers and I'm embarrassed because I was the one that wrote that little quip with the earth, wind, and fire songs at the very beginning. And I completely forgot, but that was very good. Thanks, Rich. Rich, I have a question around form and rate filing. For those particular states that don't have form and or rate filing criteria, it seems as though it wouldn't make any sense to do anything other than admitted in those, given that you don't have to file the form or the rate, therefore you have almost as much flexibility as you need. It's almost like bringing an ENS solution into the admitted market. Am I correct in assuming that? Yes, the only reason why you would write it not admitted is one of corporate strategies. So maybe that's what you do, and you just use not admitted. But in terms of flexibility of rate and form filing in those states that do not require uncontrolled inland marine, if you don't have to file the form, you have as much flexibility as you have in the ENS market. Yeah, so for national carriers, they need to have a mix of strategies. So ENS where they want that flexibility, but the local, whether New York or California, local market doesn't quite give it to them. And then admitted everywhere else. Or you could be admitted everywhere and just have a robust product that allows flexibility within your filing. So you could have an off-the-shelf EIC form and then 20 endorsements that allow you to buy that form, all of which are filed and approved. So that's the other road to go. Got it. Thank you. Thank you. Okay, so I'm going to go through some sample use cases. Rich just gave like some real world examples. I'm going to try to do the same on my end on things that I have done or I have been privy to seeing being done in the marketplace. And so it'll start in personal lines. DIC has been traditionally, I think, in the realm of the commercial lines paradigm. But there's quite a lot of activity in the personal line space. So we'll go through a couple of those. And I actually think that's an area that could expand and make it from the small market, the small opportunity that Rich talked about, into something that's potentially bigger. To something that's mixed. The National Flood Program being the most common one, but I'll examine some options around there. And then Rich brought up a particular case around builders risk. This is the IMUA. Even though DIC is partially inland marine or considered inland marine, will give a specific case around that particular use case. So the one that I have been, the one that I have seen most recently, the one in my space where there's the most hubbub around is for California homeowners. I'm not sure how many of you are aware of what is going on there, but it's quite a significant turn of events. We're seeing quite a bit of activity around carriers actually picking up the ball and leaving. So AIG just announced last year that they, on the personal line side, that they would be non-renewing all personal lines business in the state of California. Chubb themselves has pulled back dramatically, and I don't hear a lot of activity around carriers who are eagerly looking to go in. I would actually say it's the opposite. Areas where I have actually explored reinsurance capacity, there is definitively a reticence to going into California. And what we're seeing is that the, from a regulatory standpoint, the state of California is essentially forcing the fare plan, the insurer of last resort in California to pick up more of the burden. So before these carriers actually departed, the maximum limit that you could buy in the state of California for homeowners was $10,000. The maximum limit that you could buy in the state of California for homeowners, for instance, I believe was $1.5 million. The Department of Insurance got them to increase it to $3 million. And now if you look at that last image there, the Department of Insurance, and I believe it was the CDI in California, is looking to have the California fare plan actually just pick up all of homeowners. So instead of just providing fire coverage and being an insurer of last resort for property, they're looking to have the fare plan come in and just write the entire homeowners policy, which has gotten significant pushback from the fare plan themselves, because they don't necessarily have that expertise. But the insurance market, the trade associations have pushed back significantly because it's actually not, it's probably not going to be a good outcome for the property owners in California. So what does a DIC look like in California for a property homeowner? Well, we'll start with the base primary policy. So you're a California homeowner, you had AIG or one of the other companies that has now non-renewed you, and your agent and broker just cannot find coverage. California fare plan is there, insurer of last resort. But as the insurer of last resort, they actually don't cover very much. So the base primary policy, if you look at that box image, covers fire, smoke, and internal explosion. That's it. No wind coverage, no water coverage, no vandalism coverage, just fire, smoke, and internal explosion. So if there was ever a use case where DIC would be quite a useful piece in the placement process to solve a problem for a property owner, this one is the classic example because of not only the limitation of what it covers, pretty much fire only, but even if you extend further, it only covers property that is defined as building and or contents. So you get no loss of use. If you happen to be a commercial property owner, you get no business income coverage. So it's got a significant limitation from the traditional policy that you would want to buy. The losses are settled at ACV. Again, now that adds another wrinkle. For a lot of property owners, that will be a significant gap in coverage. You can get replacement value, but you have to buy that with extra premium. And if you're unfamiliar with how the fare plan works, you may get stuck buying something that's actually not going to cover you for replacement value. And you do have the ability to gap in, piece in other perils. But the process of which you have to have some familiarity with how the fare plan works, you have to actually go out and seek the coverage. It is not standard in there, and you're still not going to be able to get all of the coverage that I think a property owner that is buying a homeowners policy or buying a commercial policy would recognize as standard or special form. So there's definitively going to be a gap in coverage. Luckily, there is a market that exists specifically to solve this particular problem. And I think it's, we're going to see more activity in this space as well. So when Rich comes back, I would like to ask a question around excess fire and whether a DIC that has excess fire would be qualified for the definition of DIC. But for the most part, what we see is that there is excess fire coverage that's mostly desire, especially in the private client space. So with AIG leaving and you have homes well in excess of $3 million, there's definitively a need for a difference in condition or some additional excess coverage for fire. So now that Rich is back, Rich, does having fire in this particular diagram here definitively knock it out of the DIC classification? The technical answer is probably yes. I mean, what you're looking at here is excess property. So you can call it what you want as long as it achieves the intended result. So it's a DIC concept. Technically, it's probably not considered DIC. It is being marketed as that. So as the additional pieces come in, Rich, what we see is that the companies that label this as a DIC will say we'll give you excess fire and we will drop down coverage to primary for everything else that the California Fair Plan does not cover. So it is meant to replace that special form. And so you'll see some sort of structure like this where elements of it can still be sublimated. The BI could still have a loss limit that's associated with it. But these are being packaged as DIC from what I have seen. Yeah. And it's probably on a not admitted basis? Yes. Yes, because it's predominantly California. So my guess is that no one wants to kick the hornet's nest around anything doing with the regulatory environment that is California right now. Yeah. So if that's the case, it's just a semantical dance. It doesn't really matter. But I think the concepts are DIC in nature, whether it fits the definition or not. Yeah. And to me, this is the beauty of the DIC. I actually think the DIC is a very much underutilized tool that we insurance professionals have in our toolbox because of what it can do. When in terms of bringing a solution set to the table to a property owner, it's significant. What it can do, the flexibility and what it can provide. As Rich said, from an underwriting standpoint, there's complexity to it. Being able to figure out how the losses are going to come about when it's primary, when it's excess, and then having some margin of safety around where you make a mistake. And there's policy language that causes you to go primary when you didn't intend to. The underwriting and the pricing of that is challenging, to say the least. But from a marketing standpoint, from a solution standpoint, my expectations are that this is such a valuable tool in our toolbox that I would like to see more of it in the marketplace. And I don't have a poll question on this, but in general for the audience, for anyone that's on the carrier side, how often does DIC come up in the conversations in terms of rolling out new products, new solutions in the product design? Because I think DIC is just a marvelous tool that we have. So, California is on one side of the country with one set of problems. Florida is on the other side of the country with a completely different set of problems. So, with Florida property, we're going to see a lot of opportunities with DIC. Florida, as with California, is in a significant hard market. So, capacity is difficult to get. Pricing is extremely hard. And Citizens, which is the state insurer of Florida, similar to the California Fair Plan, the Citizens Insurance Company, in their enforced policies, they have not been this big since the last hard market. And that puts considerable pressure on the state of Florida, who is backing the losses that will emanate from that. So, Citizens property coverage is a wind only, and it only covers you up to a million dollars. So, from the standpoint of getting coverage, there's a lot of gaps that exist here. So, in order to create a DIC kind of structure, you need to be able to get X wind. There is already a healthy market for X wind, but for property owners, we'll take a homeowner that has an in excess of $1 million home. The situation is quite different than the California Fair Plan, where even if you have a plus $3 million home in California, the Fair Plan will still offer you $3 million of property coverage. Not so with Citizens. Once your replacement value exceeds $1 million, you can no longer get coverage. So, there are all sorts of issues around Florida and DIC where the gaps are just numerous. So, a lot of opportunities. So, there's opportunities for excess wind, then you have to bring in the AOP. So, the fire, the vandalism, all of the other coverages, and continue to extend that. So, if it's commercial, you have BI and extra expense issues that are unresolved, whether you have the Citizens coverage or not. And we still have liability issues as well, not covered. So, similar to the California Fair Plan, which is highly focused, almost predominantly a monoline primary coverage, a broker will have to fill in all of the remaining liability and coverage pieces that a property owner would think of as standard coverage. This requires a lot of work. So, not only is DIC a really solid solution for the property owner, but in terms of distribution and placement process, you can imagine the nightmare that's occurring with property brokers in Florida, in California, having to do multiple placements. So, a single property here would probably require, if you couldn't get the whole thing wrapped up in a DIC, would require multiple placements in order to piece the jigsaw together. That's an opportunity for a carrier to have a distribution advantage in the marketplace as well, because brokers will, it's like water flowing downhill. Brokers will go to the easiest places of capacity in order to place coverage. And if you can get that done in one spot with one application, that's a hell of a lot easier than having to jigsaw this with a shotgun approach and multiple placements. So, this is the one that I am the most familiar with. I founded an MGA five years ago that focused on flood, and we did a lot of work of basically, in the excess and surplus lines market, allowing a malleable coverage around the National Flood Program because there are so many gaps. So, for those of you that aren't familiar, the National Flood Program covers flood, floor property, personal lines, and commercial lines. The challenge is, in the commercial space, this is a commercial example, the National Flood Program will only offer coverage up to $500,000 for building coverage and an additional $500,000 of coverage for contents. The contents is that ACV. Okay, so already we have gaps in coverage in excess, but also excess contents, no business interruption coverage. There's a gap in the replacement value. So, the ability to potentially drop down and offer and fill in that gap and offer the difference between what AC, what the adjustment paid via ACV versus what that adjustment would be at replacement value is an opportunity to create a DIC language and make a more thoughtful and solid solution for the property owner. So I apologize. We see a lot of opportunities in the flood space. So DIC is traditionally known for quake and flood. The National Flood Program has given every indication that there will be a continual political pressure for the National Flood Program to try to divest and try to degrow, to try to slow down the growth of their policies, but also be able potentially move some of their business to private carriers. But in some cases, the National Flood Program is priced so thinly that you almost can't begrudge any broker or property owner for wanting to have some property coverage with the NFIP. So our philosophy around that was if the NFIP is charging that inexpensively for that coverage, go ahead and get it and we will sit on top and we will manuscript a policy to fill in the gaps when it comes to flood. But we've seen increasing activity around, well, you're offering the flood coverage. Can you also bring in wind as well and enhance the particular product? So one of those opportunities is sort of bringing in additional perils around flood. We've seen it with quake, but now we're also seeing it with wind because of the hard market that's occurring in the east coast, particularly in Florida. So Rich gave a particular, Rich, you talked about one particular example about foundations and excavations. And so I did not see that when I was going through your pieces. So I'm glad you brought that up. There's in builder's risk, we started to see over at my MGA, we were starting to see a lot of activity from brokers who were coming in asking for additional builder's risk coverage to supersede or to go in excess or to DIC around what they were able to get. So I'm not sure if there is a hard market in builder's risk, but it does seem that there's a reluctance to offer builder's risk in the special flood zones, in the A and the V zones. We just saw a lot of activity where there was just a reticence to offer that. So excess of primary, but also as Rich mentioned in one of his comments, there are specific things that are not covered in builder's risk. So there's an opportunity to sort of fill in the gaps around different soft costs, delays, where can you piece these in? Where is there conflict in the market where the placements are really difficult, capacity is really hard to get, pricing is not conducive, and where could we as insurance professionals craft a solution and bring that to market that's a much more solid approach, not only to the property owners, but again, to the brokers who have to place this. So we will see it in Inland Marine, but I think one of the beauties of DIC, it almost doesn't matter what the primary policy is. As Rich said, there's flexibility and there will be gaps in coverage and a good DIC policy can mend around those and fill those in and just be a really solid solution for the marketplace. And earthquake and flood. So I want to give like an illustrative framework for those of you that are listening to try to think about DIC and use an illustrated, in an illustrated manner, try to diagram out where all of the opportunities might lie. So it always starts with an anchor primary policy and there's a gap that's associated with it. And that gap might be excess. There might be a need for the customer to just get additional coverage that you as the DIC creator could fill in and close that gap for the property owner. There are different forms of coverages, right? So we have building, contents, loss of use, whether the foundation is covered or not covered. So what is on the primary policy, what is the specific, what are the specific coverages that are missing or that aren't covered to its fullest extent? Then there are different geographies, right? So we, you may have situations in your primary policy that do not definitively cover a particular geography that may need some other policy to fill that in. That creates an opportunity for a DIC. Then there's the peril. So there's the standard earthquake and flood that has been the part of the prototypical DIC for, you know, a generation plus, but can that extend into other perils? Are there other perils that we can add into the DIC that make the overall placement a much more solid solution? And then there's loss settlement. So we have differences in ACV and replacement value or differences in deductibles, right? So where, again, back to the primary, where are the gaps? What does the property owner or the policyholder owner or the policyholder need, right? And where can you sort of wrap around that where you can create a more solid solution? So this is a little bit of a illustrative element that DIC, as Rich said, is extremely flexible. It can be, it can take all different kinds of forms and facets. And it is, I think it's one of the product development thought processes that you have to have is how can you put this together so that you can get a competitive edge? And I think that might be one of the reasons why DIC has remained in rather smallish in its total market share is that we have not been creative as industry professionals. There's a lot here and there are a lot of gaps in the traditional property policy. So where can we fill in those gaps? Where can we cover more? I think the broader that you can make that without exposing yourself to risk that you don't want to take, the broader that you can make it, the more attractive it can be in the marketplace. So the way I see DIC segmentation opportunities is by peril, right? You can provide it excess or it can be, you can have drop down privileges primary for perils that are excluded by the primary. So traditionally that has been flood and quake, but it doesn't have to be just flood and quake. While flood and quake are the most common, I expect essentially since what we've seen in California, for instance, I expect to see a lot more activity given the wildfire situation that's occurring in California. I expect to see a lot more property writers pull back from writing fire coverage. So that would be very different from what we are used to traditionally where fire is a standard peril. With the pullback, I think that will create an opportunity for more fire coverage for those that are willing to take it. And they would be able to do that at an excess position, which might be less risky or it might be more advantageous. There's also DIC opportunities by coverage type. So I did not mean to write it like that, but it's essentially different types of water as Rich described. So you could have DIC situations where the water coverage is broadened, okay? Or the particular definition of the primary coverage is broadened, right? You can do that in a DIC and I think there are opportunities that exist there. And then around geography. So I think loss settlement is quite interesting, especially if we see in the California Fair Plan situation and with more policies going to Florida citizens and the settlement is in ACV, there'll be additional need for replacement value. There'll be a demand for that in the marketplace. So if you build it, will they come? What should you look for when trying to design to do product development around DIC? And I would be very interested for those that are listening, again, how are they thinking about it? Does DIC ever come up in the conversation when they talk about product development in the future? But any time I think there's a government involvement in the underlying, I think that creates an opportunity, because generally the government solution is a last resort solution. So the product itself will be suboptimal. The experience in buying the product will be suboptimal. The claims adjustments will be suboptimal. And we now have a couple of generations of seeing what that's like. It's not ideal for the property owner. So any time the government gets involved, I think there's an opportunity for the private industry to also get involved. So if the primary coverage is likely to be underpriced, so that's one of the reasons why you don't necessarily want to displace the government option. In a lot of cases, you want to be a supplement or a complement to the government solution and allow the property owner to get the benefit of the economics if that government entity is willing to underprice it. So the poor experiences are well known. There are still properties in the seacoast of New Jersey that are still boarded up because of issues around the NFIP. There are still properties in the Houston area after Hurricane Harvey that are boarded up because of issues with the national flood program. The experiences are not good. And so I think the private industry does a much better job in servicing its clients that way. And the policyholder is likely to have a desire for additional coverages. So I also look for where the model line coverage is beginning to prove itself. So in two areas that Rich discussed, one being cyber, for instance, I think cyber has matured significantly over the last five years. So I would not be surprised to see situations where the pricing and the mechanism for underwriting in issuing a cyber policy gets so standardized that it offers an opportunity for a DIC carrier to potentially bring that into the fold and make it a little bit easier, bundle it into something else and make it more streamlined. It might be a little while before cyber has the significant named peril associated with it that you do see in with other perils. But cyber could be extremely interesting. It could be a very interesting opportunity to bundle it in and just make both the property owners and the broker's life easier. And we're getting to the point where cyber is well understood. So there's not necessarily that additional risk that exists like when it first was rolled out and it's more of a model line coverage. So the second bullet point is just basically that the time period has reduced, right, has reduced the risk of bundling. So now we see, I expect that with potential infectious diseases and other coverages, it will, as we get really good at pricing it and underwriting it, it affords us the opportunity to offer it in a different way. And I see DIC as that particular opportunity. So cyber climate is another one that could be particularly interesting, especially since if you're a financial institution, we're already seeing both at the state level and the federal level with the SEC recently announcing that they will be doing more enforcement trying to get institutions to determine what their climate exposure is. It won't be that much long afterwards before they ask to actually have those exposures hedged. So with that said, that brought us over an hour. We have about six minutes left in this particular session. And so are there any particular questions? Sarah Gartner was waiting for the Earth, Wind and Fire song reference. And Sarah, I hate to inform you, but I actually had to, as much as I am a fan of Earth, Wind and Fire, I actually had to research the little quip that I had that we put in the marketing letter. I don't know Earth, Wind and Fire well enough to do anything more than refer it that way. Rich might be a bigger fan or Eileen. I'm not sure. So, but that's, I apologize. That's the best that I can do. Yeah, I'm old. I'm not that old. Rich, on your part, have you seen, when it comes to inland marine and when it comes to the property segment that might not be inland marine, do you, are you seeing any interest or any increase in the conversation around bringing DIC solutions to the table? In your estimation, do you anticipate it remaining kind of smallish in relation to the property market? So the standard answer to that is the property, the underlying property policy has become so broad. That there's less and less need for DIC. That's the standard answer. With that said, there's always, you know, it's not just chubbing AIG as the two markets out there. There's hundreds, if not thousands of insurance companies. And if you're a small mutual, no offense to small mutuals, but if you're a small mutual in three states in the center of the country, and your target audience are, you know, farm owners, and you don't have great capitalization, and you can't afford to cover Quaker flood because you can't handle the aggregation. You can't afford to provide really broad cover. Now your product's going to be really cheap, but it's not going to cover a whole lot. And you may be a fantastic company and perfectly serve your community, but there's a need, right? So it's not, so while there's clearly a trend for broader and broader coverages on the primary, there will always be those gaps. The other thing that's happening macroeconomically within the insurance world is volatility reduction, right? Reinsurers, capital providers are really just tired of extreme volatility. So while it's, I wouldn't call it an increasingly hard market, it's certainly going the other direction. There is still a lot of concern around aggregation management. So there will always be opportunities on the excess side as well. And then finally emerging risks, right? As you talked about in terms of cyber and, you know, it's not really an inland marine cover, but the concept of DIC to plug gaps very much applies. And so from my perspective, it's the underwriter just needs to be intentional about it. What you don't want to do after the loss is to find out that you actually covered it, and you had no idea that's what you were doing. Yeah. Thank you, Rich. And there are no additional questions. So Eileen, do you want to come back into the video and do the outro? Absolutely. Thank you so much. Thank you for sharing your expertise on what is clearly a complex coverage. I definitely learned a few things today and we appreciate your time. We also appreciate our attendees. With that said, Eileen, since Sarah Gartner was the most enthusiastic person, I nominate her as the winner of the most enthusiastic DIC attendee. I absolutely agree with that decision. So thank you. Congratulations to Sarah Gartner. And we will send you a $25 Amazon e-gift card. Perhaps you could buy a nice Earth, Wind & Fire CD with it, if they still have CDs. Ali, I think is going to pop a survey into the chat pod. So take a minute, complete the survey. We look forward to your feedback. And let us know what else would help you with your professional development. I believe that it was great to see you. Hopefully, we'll see everybody in person. I know the IMUA annual meeting is in Savannah in May, the end of the month here, April, rather, April 24th. So hopefully, we'll see you there. Everybody, please enjoy the rest of the day. And thank you again. This ends today's webinar. Thank you. Thanks, everyone. Thanks.

webinar

Eileen

Rich

DIC

difference in conditions coverage

property coverage

California homeowners

Florida properties

flood insurance

builders risk coverage

government involvement