March 23, 2022: Board Meeting Minutes

Board of Directors Meeting

Marriott Hotel, San Ramon, CA

March 23, 2022, 10:00 a.m.-3:00 p.m.

Board Members Present:
Janet Beaver, Chair	Aurenity
Rich Gobler, Vice Chair, Stamping Chair	Burns & Wilcox
Terri Moran, Past Chair	Paul Hanson Partners
Tim Chaix, Member, Education and Compliance Chair*	R.E. Chaix and Associates
Jim Faley, Member*	Vela Insurance Services
Robert Gilbert, Past Chair	Markel West Insurance Services
Hank Haldeman, Member, Legislative Chair*	AmWINS
Sarah Nichols, Member	Crum & Forster
Pam Quilici, Member, Next Generation Chair	Crouse & Associates of N. California
Charlie Rosson, Member	USI Insurance Services
Kathy Schroeder, Member	XPT Partners LLC
Terrence Villar, Member	AmWINS
Board Members Absent:
John Washington, Secretary-Treasurer	Arch Insurance Group
Others Present:
Jerry Sullivan, Board Member Emeritus	GJS Re
Susan Atkins, Admitted Market Liaison Chair	Golden Bear Insurance Company
Jon Larson, Special Advisory Chair	Westchester Chubb
Yusuf Mayet, Technology Chair*	AmWINS
Benjamin McKay, CEO and Executive Director	Surplus Line Association of CA
Joy Erven, COO, CCO and Director	Surplus Line Association of CA
Michael Caturegli, Executive Vice President	Surplus Line Association of CA
David Kodama, Jr., Executive Vice President	Surplus Line Association of CA
Jody Black, Vice President, Data Analysis	Surplus Line Association of CA
Cliston Brown, Vice President, Public Affairs	Surplus Line Association of CA
Jo Ann Del Gatto, Vice President, Education and Compliance	Surplus Line Association of CA
Vani Ganti, Vice President, Technology	Surplus Line Association of CA
James Greene, Vice President, Digital Communications	Surplus Line Association of CA
Glenn Leung, Vice President, Financial Analysis	Surplus Line Association of CA
Barbara Trumbly, Vice President, Human Resources	Surplus Line Association of CA
Ivan Morse, Controller	Surplus Line Association of CA
Ed Derentz, Digital Communications Specialist	Surplus Line Association of CA
Dan Brown, Counsel*	McDermott, Will and Emery, LLP

An asterisk (*) indicates participation via telephone.

All votes or decisions taken by the committee during the meeting are highlighted in yellow for easy reference.

Business Conducted in Executive Session
Prior to the regular meeting, in executive session, Pam Quilici moved to make all members of the SLA senior staff corporate officers. Terri Moran seconded, and the motion passed without dissent.

Opening Business and Report of the Chair
A quorum being present, Janet Beaver called the meeting to order at 10:02 a.m., and Benjamin McKay advised participants of their obligations and responsibilities under the SLA Antitrust Resolution. Rich Gobler, vice chair, certified that the minutes of the October, 2021 board meeting were true and correct. Ms. Moran moved to approve the minutes as presented, Kathy Schroeder seconded, and the motion carried without dissent. Ms. Beaver gave the chair’s report, as follows:

• Goals for her tenure include the SLA becoming the most customer-focused trade association it can be, continuing toward its aspirational goal of 100% compliance by setting and meeting a goal of 10% error reduction each year, prioritizing the Diversity, Equity and Inclusion (DEI) initiative, and creating a mini-analytics department and sharing data with other SLAs.
• Ms. Beaver also said she wanted to work with other large SLAs to host a new version of the Western States conference on a rotating basis.

Additionally, Ms. Beaver asked the board to change the Audit Committee charter to allow Ms. Moran to serve as committee chair. The charter previously stipulated that the SLA chair must chair the Audit Committee. Hank Haldeman moved to change the Audit Committee charter as requested, Ms. Quilici seconded, and the motion carried without dissent.

CEO Report

Mr. McKay noted that words matter and cited the SLA’s goal to be a modern, credible leader and our mission to create a healthy, fair and competitive marketplace. The SLA lives by these words. They are not just platitudes. He said it was his hope to showcase the tremendous talent at the SLA and that board members would leave this meeting confident in the SLA.

Mr. McKay touched briefly on the SLA’s financial condition and return to work policies. The SLA has 130 employees and 85 seats. The office will be formally reopened for voluntary entry on June 1 and hoteling will be needed. People who cannot get a desk on a given day will work from home. The SLA has been highly productive during the last two years and would like people back in the office, but it is expected it will be on a voluntary basis going forward.

The SLA has $30 million in cash or cash equivalents (primarily stocks). The SLA’s goal is to be able to survive a 2008-type recession (roughly three years). If the market declines by 25%, what would the SLA need to avoid changing the stamping fee or laying off employees. With inflation at 10% and likely to grow, the number should probably be 30% of the current budget; to survive a three-year recession, about $21 million would be needed. The SLA is in great shape but it begs the question—if you have $30 million and you only need $21 million, what should the association do about the stamping fee. If the market continues to go well, staff will likely recommend a decrease in the stamping fee. Mr. McKay noted that the SLA has fewer reserves than New York but is about twice as large.

Another good news story is that the SLA is about $200,000 under budget every month. T&E is low, travel is low, and there are hiring delays. It is expected that this will change, and a full budget rundown—and possibly a recommendation to reduce the budget—is expected at the summer board meeting.

Additionally, the SLA has moved its accounting function in-house, hiring an accountant to take over some of the functions previously done by Burr, Pilger, Mayer (BPM). It will be a cost savings to the SLA to have this function performed in-house.

Mr. McKay also noted the SLA’s three main goals (three caribou)—employee health and wellness, the Member Value Program (MVP), and 100% compliance. Health and wellness includes DEI, employee retention, and managing the return to work, as well as at least five employee cohorts. Four outside events are to be organized this year. On employee retention, top performers are being given market adjustments because the SLA was getting poached left and right by top companies.

The MVP marks the transition to a member service program. There is customized customer service training which all data analysts have taken. A coverage code project has been undertaken to make coverage codes make more sense to filers, and the SLA also wants to make its analytics relevant to whomever is looking at them: here is what the market is doing relative to their businesses. Additionally, Financial Analysis will do 100 security reviews to ensure that companies are able to pay claims.

On 100% compliance. The Education and Compliance Department will offer eight continuing education classes and four Compliance Connections courses in 2022. All 800,000 policies must be reviewed by SLA data analysts—the California Department of Insurance will not allow auditing or outsourcing. Additionally, the Data Analysis Department has a project ongoing to reduce tags. The SLA intends to make it easier to file in every way, shape and form. And the SLA will launch SLA University, an extension of the Learning Center.

Jerry Sullivan suggested the SLA should provide guidance to members about what to do if offered a Russian risk. Due to sanctions, Mr. Sullivan believes it is advisable for members to decline Russian risks or renewals. Ms. Quilici suggested starting with Marsh and Aon.

Dan Brown advised that there are a couple of things to think about, such as taking care about not making blanket statements about not writing Russian risks. Some regulators suggest that once sanctions are imposed, insurers should issue immediate cancellations, but that’s not legal.

David Kodama, Jr., noted that the CDI has put out two notices encouraging the insurance industry to boycott certain industries, making very strong statements about not investing in certain sectors or countries. It will be interesting to see how much of a trend this is going to be. Mr. McKay suggested the SLA can amplify or reinforce what the CDI is saying. Mr. Kodama also asked if there would be any interest by the board in an anonymous survey seeing whether this issue is impacting certain market sectors, so that the SLA could inform board members as to what their colleagues are seeing. Ms. Beaver said the survey could highlight that this is an issue that members should be thinking about.

Finally, Mr. McKay said he was concerned that if surplus line brokers write too much personal lines business, regulators may pay much greater attention than they have in the past. The trend the SLA is seeing, over the last three years, is that the number of policies in personal lines has doubled. Large, admitted homeowners carriers are calling and asking if there is any relief in sight to write homeowners, and if not, what they have to do to write it on a surplus lines basis. A legislative or regulatory problem could emerge. Mr. Haldeman agreed with Mr. McKay’s assessment. Mr. Kodama noted that a recent CDI notice reminded people that the “normal” insurance market includes both admitted and nonadmitted coverage before going to the FAIR Plan.

2022 Goals

Michael Caturegli discussed the SLA’s customer relationship management (CRM) program and data analytics.

• On the CRM program, Mr. Caturegli said the SLA has selected Salesforce as its platform, and what it is trying to get to is a human-being model.
  • The SLA has been incredibly brokerage-focused, but every interaction with a customer starts with a human being.
  • The SLA will build out what individual needs are, track their patterns, with an account model, account managers, etc., to provide “white-glove service” to members, regulators, legislators, other SLAs, etc.
  • Anybody who interacts with the SLA will be considered a customer.
  • The SLA created a practical model that will serve as the basis for the MVP and the CRM. It has identified its customers, through an extensive research project, and has engaged in market segmentation and tracking of interactions. It has documented all of its business processes and analyzed which processes are needed, which ones need to be tweaked, and which processes do not fit the model.
  • Three Salesforce products are being implemented—“Service Cloud,” a case management ticketing system, and “Sales Cloud,” a customer contact program. Also, an e-mail program will replace the SLA’s Constant Contact program, providing greater flexibility.
  • The SLA is looking at a late-summer rollout with testing happening around June.
  • This is Phase One of the project. A refinement period will take place, and the SLA will begin scoping out what to do in Phase Two. Tableau sits right on top of the Sales Cloud database, enabling the SLA to see who is doing what and who is asking for what.
• Regarding analytics, Mr. Caturegli said in 2021, the industry grew 24% premium during the fiscal year, 18% during the calendar year.
  • Quarter 1 performance in 2022 is up 16% over Quarter 1 in 2021, and transactions are up 11%, as compared to the usual 5%-7%.
  • Based on the seasonality model, a 22% increase for 2022 is indicated, with SLA revenues exceeding $40.5 million.
  • The seasonality model indicated an increase that turned out to be 9% low for Quarter 1, so if that trend holds, the full-year increase could be even higher.
  • The average of all predictive models indicates a 16% change, putting the SLA on course to exceed $38.4 million in revenues.
  • The numbers indicate that the overall market performance trends tend to go through a five to six-year cycle.
  • In 2021, the information sector had high premium growth, as it had in 2020, particularly with telecom. Technology companies are buying up a significant amount of that market.
  • Transaction growth spiked in transportation and warehousing, nearly 40%.
  • In coverage codes, general liability is always number one, excess is second. That’s 35%-40% of what the industry does.

On the evolution of video communication, Mr. McKay said when he first came to the SLA, he had to create a communications function. The SLA did a survey to find out what members were reading, and it turned out that many of them do not read industry publications. Shortly afterward, he watched a YouTube video to find out how to change a tail light, and it dawned on him that the SLA could communicate that way as well, leading to the creation of the Digital Communications Department. The SLA has found that members do view electronic communications.

James Greene noted that 74% of Gen Z/Millennials get their news on phones; 63% get who get their news on social media use YouTube; and 59% keep up with news more by video than text. Large numbers of minority groups get their news from TikTok. As a society, we are changing the way we get our information, and the SLA needs to leverage these sources. Mr. Greene also showcased the SLA’s new “The Daily 5 at 10 Show,” being used internally to help employees feel more connected to the company.

Vote on Committee Rosters

Ms. Beaver asked the board to approve the proposed committee rosters for 2022, as follows:

• Admitted Market Liaison Committee: Susan Atkins (chair), Lynda Colucci, Lisa Foley, Gerald Sullivan, Tamar Tavitian, Jeffery Thomas. SLA staff liaison: David Kodama, Jr.
• Audit Committee: Terri Moran (chair), Janet Beaver, Rich Gobler. SLA staff liaison: Ivan Morse.
• Education and Compliance Committee: Timothy Chaix (chair), Kris Bauer, Carolina Calvo-Betdashtoo, Jeff Chase, Matthew Dutton, Clancy Marie Johannsen. SLA staff liaison: Jo Ann Del Gatto.
• Legislative Committee: Hank Haldeman (chair), Tim Burnett, Tim Conlon, Rupert Hall, Paul Laufer, Tony Manzitto, John Mundelius, Peter Scott, Allen Shiu, Gerald Sullivan. SLA staff liaisons: Benjamin McKay and Cliston Brown.
• Next Generation Committee: Pam Quilici (chair), Phil April, Lauren Delgado, Nicole DiLorenzo, Emily Ehrhart, Henry Fitzpatrick, Russell Jackson, Clancy Marie Johannsen, Perri Leung, Kelsey Moore, Lindsey Moore, Aaron O’Campo, Shanna Sweeney. SLA staff liaison: Kevin Chuc.
• Special Advisory Committee: Jon Larson (chair), Jeffrey Case, Joshua Koppel, Yusuf Mayet, Lennaine Moran, John Poucher, Jonathon Ramirez, Mark Schroeder, Kelly Tate. SLA staff liaison: Joy Erven.
• Stamping Committee: Rich Gobler (chair), Josh Koppel, John Mundelius, Kelly Tate, Andrea Ward. SLA staff liaisons: Joy Erven and Michael Caturegli.
• Technology Committee: Yusuf Mayet (chair), Paul Joseph, Vikas Malhotra. SLA staff liaisons: Michael Caturegli and Vani Ganti.

Mr. Gobler moved to accept the committee rosters as presented, Ms. Quilici seconded, and the motion carried without dissent.

Committee Reports

• Audit Committee: Ms. Moran reported that the SLA is in its best financial condition ever. The continued growth of revenue and slower growth of expenses has paid off, and paying off the pension has been a huge lift. From the 2020 audit, there were two recommendations and both were complied with. The first was that the SLA needed to update its QuickBooks accounting system, and the second had to do with some investments that had grown beyond the bounds of the SLA investment policy. The board made the necessary changes to the policy to ensure that the SLA is in compliance. A new observation which will show up in the audit report, which is expected in about two weeks, is that the SLA was late in providing a report on fixed assets due to difficulties in getting that information from an outside firm. The SLA has hired an in-house accountant to solve this problem.

• Admitted Market Liaison Committee: Susan Atkins reported that the committee had met with representatives of the American Property Casualty Insurance Association and the Personal Insurance Federation of California on January 26 in Sacramento to discuss issues of mutual interest. SLA staff presented a review of registered premiums by sector and other market updates, such as M&A, homeowners insurance and growth trends. At this meeting, Mark Sektnan of APCIA San Jose ordinance imposing certain insurance requirements on gun owners. Rex Frazier of PIFC talked about wildfire risk and the implications for the homeowners market. The committee also received a legislative recap from lobbyist John Norwood and his expectations for 2022, including the midterm elections.

Update on CIERA

David Kodama, Jr., presented on the California Insurance Emergency Response Association (CIERA), of which the SLA is a member.

• CIERA represents a multi-disciplinary collaboration to enhance the insurance industry’s response to a major earthquake.
• It is the culmination of a five-year project that draws on local and global expertise in catastrophe planning, insurance, response, and recovery. The initiative effectively seeks to address a looming question for our state: Is California sufficiently prepared to rebuild and recover from the next major catastrophic event? And, specifically for the insurance industry, what will, or should, its role be?
• In 2017, Lloyd’s and the California Earthquake Authority invited Mr. McKay to participate in stakeholder meetings that would begin to build the framework to enhance the effectiveness of the response and recovery system across insurers, reinsurers, claim adjusters, structural engineering firms and other technical professionals, the CEA, the governor’s office, CDI and other governmental bodies and emergency response agencies.
• Over this past year, the California Insurance Emergency Response Association has taken key steps towards incorporation in the State of California and obtaining 501 (c) (6) status as a non-profit industry-benefit corporation. This is a significant and necessary milestone for establishing a formal communication relationship with the state’s Office of Emergency Services (Cal OES).
• Slated additionally on the agenda for 2022 are finalization of the association’s bylaws, appointment of its board, membership development, and a launch of a ciera.org website. Working Groups of industry representatives will be meeting over the next couple of months to scope out the specific components, requirements, and objectives of three of the expected service arms, including: ground truthing and intelligence sharing; emergency licensing, training and credentialing; and, government liaison planning and coordination.
• CIERA is preparing for a formal launch targeted for later this year.
• CIERA represents an invaluable effort to protect the industry’s stability, resiliency, integrity and commitment to the interests of Californians. Success in CIERA’s mission not only helps ensure a more resilient California, it also supports the SLA’s mission to maintain a healthy, fair, and competitive insurance marketplace.
• According to the U.S. Geological Survey, the probability of a 7.5+ magnitude earthquake striking LA within the next 30 years is 31%, and for San Francisco, it is 20%
• In the event of a major earthquake, the insurance industry will be called upon to be a major source of the financial recovery.
• Additionally, a multitude of emergency measures will be imposed that impact insurers’ commitment to their policyholders: burdensome administrative red-tape, confusing and sometimes conflicting regulations and requirements, inconsistent intelligence sharing and potential misinformation. All of this generates more risk of loss, delays, increased costs, litigation, and further opportunity to vilify and shame the reputation of our industry – none of which serves the best interests of California insurance consumers.

Board Development Staff Presentation

Mr. McKay opened the presentation on the legislative process by discussing the basics of law and the structure of government.

Cliston Brown briefly discussed the basics of how a bill becomes a law and then gave several examples from his own experience on how the SLA, and businesspeople generally, can navigate the legislative process. He said the six key lessons that have shaped his and the SLA’s approach include:

1. Make personal connections with legislators and staff.
2. Avoid crossing powerful legislators if at all possible.
3. Get to know legislators and their staff before you need them.
4. Always build a coalition behind your bill and make sure nobody is going to weigh in against your bill at the last minute.
5. Never get caught in the crossfire in disputes between legislators and regulators.
6. Always make sure to point to something in your bill that the legislator can support.

Closing Business and Adjournment

Ms. Moran asked that discussion of the SLA internship program be added to the agenda for the next meeting.

Hearing no further business, Ms. Beaver adjourned the meeting at 2:28 p.m.