Author: N.P. James Insurance Agency

Massachusetts Society of Licensed Insurance Advisers Elects Nancy James as Co-President

Concord, MA, September 14, 2006 – At its annual meeting in Boston, the Massachusetts Society of Licensed Insurance Advisers elected Nancy James, principal of N.P. James Insurance Agency, as co-president for the 2006-2007 term. James also served as president for the M.S.L.I.A. in 1996-1997. The purpose of M.S.L.I.A is to uphold the ethical and professional standards of all insurance advisers licensed by the Commonwealth of Massachusetts.

The N.P. James Insurance Agency is in its 24th year in business. Nancy James, principal, specializes in technology risks and has uniquely positioned the agency to serve the global market so important to Massachusetts technology and manufacturing businesses. A professional team of trained staff assists clients in identifying risk, planning solutions, and claims handling.

“The coming year is important to the M.S.L.I.A. with sponsorship of legislation that will set and uphold the professional standards of all licensed insurance advisers in Massachusetts,” James said. “We look forward to continuing the long history of the organization in assuring clients that licensed advisers meet the defined principles and services.”

Nancy James, who wrote the first cyberspace liability policy in the U.S., applies her depth of technology product knowledge and her earlier professional background of more than a dozen years as a computer systems designer to help technology clients manage risk. A frequent author and speaker, James covers issues related to technology exposures for cutting edge identification of emerging risks in technology.

The N. P. James Insurance Agency of Concord, MA, founded in 1982, specializes in high technology risks, exposure analysis, and insurance. James is a licensed insurance adviser, a member of The Boston Club, Association for Corporate Growth, American Bar Association, and the Concord Chamber of Commerce. James also serves on a number of non-profit boards. For more information, please visit or call 978-369-2771.

A provocative issue regarding outsourcing beyond the U.S.

It is not unrealistic to conclude that following the next major terrorism threat or attack on US soil or possibly a pandemic, the US government may restrict overseas outsourcing, especially where our infrastructure or public health is affected (security, utilities and communication)! Most consumers are already unsympathetic to overseas-outsourced service desks. Indeed, remote, unengaged service desks are high on the list of consumer complaints. While the economic, political, and diplomatic implications may be staggering to imagine, it is important that those on the cutting edge think soberly about the increasing ripple effects of continuing to outsource outside the US.

Manage Risk in Technology Manufacturing

From the perspective of your risk manager’s desk, technology manufacturing is changing in both important and subtle ways.

Assemblers are becoming a more and more significant part of the manufacturing flow, reducing costs while continuing strong quality production. Overseas markets continue to be a vital source of revenue, growth and business viability to Northeast technology products in spite of terrorism threats.

Cost containment is a crucial factor in profitability as margins continue to experience pressure. Data security holds steady as the No. 1 Internet-based problem, forcing businesses to slow or redirect their plans for Web-based sales and service. The realm of consumer and corporate litigation continues to be robust, often giving executives the feeling of being held hostage to fears of litigation.

How can you manage everything while continuing innovation and profitability? Read on.


Cost-effective JIT methodologies have caused complex systems manufacturers to turn over more of the parts assemblies to large specialists in the market. This solution creates its own set of additional risk problems. Initially, you will need to look at this new assembler facility on your survival critical path. How dependent are you upon the continuous operation of that assembler? Have you established a substitute plant in the event of an unforeseen shutdown due to loss? Are there any geo-economic issues at that site? Then you need to address the finer points of parts, capital equipment and inventory protection. Who owns the fire loss (check your contract), you or the assembler? How quickly can you replace capital equipment? How secure is your intellectual property      (designs, tools, finished product) in the assembler’s plant? Is someone on your staff responsible for seeing that certificates of insurance are kept current? Have you calculated the additional cost of lost income at this location should the assembler go down? Do you have employees reporting to the assembler’s plant regularly?

Your To-Do List:
• Don’t treat your assembler just like any other vendor!
• Look at each assembler as an independent unit of your own operations and configure the insurance for each as if it were one of yours.
• Take each part – property, liability, shipping, loss-of-income – and determine who owns each piece.
• Transfer as much as you can to the assembler via your contract.
• Negotiate your insurance rates carefully (remember, since your insurer has no control over hazards management at the assembler, the more building engineering you can provide your own insurer, the lower your rates).
• Be sure your workers compensation policy reflects the new state exposure if the assembler is in another state (Massachusetts manufacturers purchase a lot of assembly services from New Hampshire) and your people either report there or visit regularly.
• Adjust each of your insurance policies to reflect the exposures represented in your new manufacturing model.

Overseas Customers

Assuming that you are a U.S. company with no overseas offices but you sell worldwide, you probably already have a global shipping policy in place. Be sure that your products liability covers your products globally for suits brought abroad as well as in the U.S. If you and/or any of your employees travel overseas, it is mandatory for their protection to place global package insurance. This global policy looks just like your domestic program, offering property, general and products liability, hired auto liability, workers compensation and repatriation (the cost to bring an injured           or deceased employee back home). Premiums begin at $2,500 to cover five or six annual trips overseas. Remember, however, that new threats of terrorism have changed the climate of risk. No global shipping or package policy has ever provided for terrorism coverage since it was not part of the cultural mentality. There is a growing “excluded country” list, which automatically
denies coverage for losses in those listed countries. Keep current with that.

Your To-Do List
• Place a global package insurance policy with one of the several insurers specializing in overseas risk. For short money, you need to protect company people traveling overseas for you.
• Ask about kidnap and ransom coverage costs while you’re at it.

Margin Slip

One red flag to very cautious underwriters now is what kind of margins your product enjoys. Do you have enough cash to properly quality control, repair, upgrade and service your product? When companies are squeezed, quality degrades. Litigation ensues. Underwriters know this.

Your To-Do List
• Your brokers and underwriter are part of your risk team. Use them; let them help you.

Data Security

Data security is currently the greatest area of technology concern for both consumers and businesses. Credit card and identity theft are increasing, especially via the Web. Only a few years ago most businesses fully expected to be using the Internet to receive orders and accept payments, anticipating Web-based sales as an important segment of their revenue.

Wide publication of security breaches has dampened Internet business enthusiasm, postponing plans for direct e-commerce sales while retaining basic e-mail sales contact information. Have these security problems retarded economic growth? Are successful (but large) investments in Internet data security solutions a decisive factor in separating growth companies from slow or static sales? Does this issue continue to plague your management team?

Assuming your Web site is primarily a product-advertising vehicle, your own Web design team probably does not have the necessary legal skills to assess the magnitude of the exposures associated with possible security breaches. Outsourcing your e-commerce function still falls short of any real protection from liability for security breaks since transference of your security risks via contract is complicated and typically impossible.

The lack of insurance for these complex first-party and third-party exposures continues to be one of the many problems still to be solved. Insurers are excluding most if not all Internet security exposures. Only specialty products address these perils at noticeable associated costs.

Your To-Do List

• If your business is not an Internet-based talent house, do not yet embark on Internet sales without the help of Internet and legal professionals. Remember, your risk management team includes your lawyer, accountant and insurance broker. Let them help you plan and execute a strategy to keep as far from the threat of litigation as possible.


Protect Against Infringement with Insurance Coverage

You may have more than a theoretical interest in intellectual property, because you probably have one or more technology contracts addressing your IP obligations to a client, partner or vendor. How you handle these complex issues will separate you from your competitors; it may even determine your long-term solvency.

A scenario:

A technology company developing state-of-the-art products aggressively pursues a contract with a large corporation in need of those products and services. Negotiations begin, hurdles are passed and the relationship looks good.

Then it begins. The corporate department sends the contract with intimidating wording such as, “YourCo hereby indemnifies and holds harmless and agrees to defend BigUsCo for all claims, demands, charges, suits, proceedings, damages, direct or consequential … for any and all injury or damage … intellectual property infringement, including but not limited to trademark, copyright, patents, invasion of privacy, plagiarism, unfair competition.”

Required limits of liability usually follow, with specifics of coverage and “additional insured” status requirements.

Indemnification is a term associated with a financial guarantee to provide legal defense for a claim. You should not under-take indemnification casually and without attempts to transfer the risk to your insurer. The general liability areas and even errors and omissions liability are more easily accommodated.

In addition, your Web site carries a number of intellectual property exposures, which many businesses have not previously encountered. Web sites are publications by any definition, and as a publisher you are exposed to claims of infringement.

Vastly more difficult are the intellectual property indemnification clauses of your contract.

First, some interesting statistics and facts from American International Group, one of the largest insurance providers:

  • Damages of up to $1 billion, often $20 million to $30 million, are common.
  • Insurance limits up to $15 million coverage per patent are available, with a minimum deductible of $50,000.
  • Defense expenses are covered by policies: legal fees, declaratory actions, injunctions and appeals.
  • Insurance coverage premiums start at $25,000 per patent for $1 million in coverage with an infringement search and opinion letter required.
  • From 1982 to 1994 patent litigation doubled. The number of patent infringement cases filed since 1994 increases 25 percent annually.
  • Fewer than 4,000 of the largest corporations holding 100 or more unexpired patents accounted for more than 50 percent of all lawsuits in 1991. That trend continued through the 1990s.
  • In 1998, U.S. revenues from licensing, litigation and settlement of U.S. patents were $100 billion up from $3 billion in 1980.

The median costs through trial of intellectual property lawsuits increased dramatically in just four years. The results of 1995 and 1999 American Intellectual Property Law Association (AIPLA) surveys are in the chart below.

The best way to protect yourself is to contact a risk specialist who can approach insurers willing to look at your contract obligations. As you may know, insurers took an estimated $50 billion hit to a $300 billion industry due to Sept. 11. That, coupled with a 10-year soft market and investment income declines, have resulted in limited additional insurance capacity. Coverage once thrown in is now either not offered at all or offered at high rates.

Taking into consideration all of the above, it is important to review what coverage IP policies offer.

Following is typical coverage to look for in an infringement policy:

  • Defense expenses, including legal fees, declaratory actions, injunctions and appeals
  • Damages covered, including judgments and settlements (90 percent are settled prior to trial); lost past royalties and past profits; interest and costs; attorney fees assessed by the court
  • Who and what is covered: directors and officers, employees, company and all subsidiaries; all products; all patents – utility, process, design
  • Coverage for new acquisitions; past acts; expedition of dispute resolution procedure, or arbitration

These facts and coverage information can help you measure your protection needs and requirements against contract obligations and risk transfer decisions. Don’t get caught in a costly IP dispute.

Costs of IP Lawsuits
1995 1999 % increase
Patent $1,000,000 $1,503,000 33%
Trademark $249,000 $300,000 17%
Copyright $200,000 $248,000 19%


November 2002 Newsletter

Four Lessons Learned
1. Keep property inventory lists, especially computer inventory and software licenses, off-site.
2. Be sure all the locations where you have property are listed on your insurance policy.
3. “Schedule” all mobile property for broader territorial coverage.
4. Agree with your insurer about loss valuation as part of your policy terms.


How insurers handle electronics in 2002

  • Your computers are customarily categorized in a lump under “Computers” with a single total value of coverage. You will be expected to send your insurer a complete inventory of all computer hardware and software at least annually in order to support value as well as to facilitate later claims adjustment.
  • Laptops at this time cannot be specifically scheduled. But you should list them on your inventory.
  • Most insurers are now insisting on a $2,500 laptop deductible; they simply do not want to be insuring these high loss items. Laptops are disappearing with some rapidity.
  • Computers in transit are getting harder to insure as theft claims are dramatically on the increase.

Off Premises Property

Your losses may not be covered

One lesson often learned very painfully is loss of property stored somewhere other than at your office premises. Be sure to keep your insurance broker advised if you move property, or if a client has not taken title to an expensive piece of equipment. These are the types of situations which should trigger your memory to call your insurance agent:

  • Warehousing, even temporarily, of any valuable property
  • Demo equipment at a client’s site (and you still own it)
  • Equipment/property on approval for a lengthy period at a client site
  • Property storage at any employee’s home
  • Lending or rental of equipment (and you still own it)

Many insurers offer some nominal amount of “unscheduled location” coverage ($t0,000 is customary). Often we are called for large theft or water losses from a location about which we were never advised. That location of loss is then deemed “unscheduled” and only the incidental value of $10,000 can be collected.

Keep your agent in the loop.

Scheduling Specific Property

What to – what not to

While jewelry and silver are the most frequent property losses by theft, those are usually from residential homes and not businesses. Computer equipment is the most frequent commercial
property stolen, including boards, parts, and components. Value versus weight makes electronics an attractive target.

The principles of scheduling coverage are the same in your home as in your business, however. So – what should be specifically named and valued (with appraisal or receipts) and what should be designated as genera! “contents”?


Any property that moves around a lot, traveling from business site to clients or tradeshows, etc. Gemstones, high-valued products samples and like items.

What not to schedule:

Most of your business premises contents should not be: specifically scheduled. Coverage will respond for full value of lost property on site for fire, storm, smoke, theft, vandalism (terrorism maybe), and the usual perils.

N.P. James in Best’s Review


Insurers as DP Vendors

Best’s Review-Property/Casualty Insurance Edition

by Nancy James

UNFOLDING before the insurance industry is an unforeseen marketing phenomenon as insurance companies finally bring workable agency computer products into the competitive systems market. Aetna’s IBM Gemini system is the product of two industry giants and, in my opinion, is the first system to be worthy of a creditable mark in the open marketplace.

It is exactly the openness of that marketplace and the subsequent position of the independent system vendor which I address in a look at the short-term future of agency automation systems.
Aetna currently is offering the Gemini system to agents at discounted hardware costs, a particularly attractive offer in competitive terms, since Aetna is sustaining all development and software
costs. It is no news to the independent systems vendors that insurance companies have enormously greater resources for capital development expenditures than do the vendors, including the capacity to fund extensive product research and configuration costs. The question, then, is what market Position will be assumed by Aetna’s system and by other similar systems as they are introduced to the industry. Will the final product be available at costs competitive with those of established vendors?

Who Controls Cash Flow?

The most significant benefit Gemini and similar systems offer the parent insurance company is improved cash flow. As every agent who has learned to bill a binder knows, there is considerable profit potential in holding premium dollars in high-yield, short-term interest-bearing accounts while waiting for carriers to bill company accounts payable. The company position has been aggravated over the years by inefficiencies and delays in policy processing and subsequent agency billing. It is wholly a company problem, but one which the agent understands.

With company-sponsored computer systems available to the agents, the company accounts payable clock will start ticking as soon as the daily electronic transmission of new and renewal policy data is complete. This transmission will be made possible through an automated agency/company communications interface, which has been publicized to the agent as a great advantage for accelerated policy production. Agents who have made careful use of cash flow potential observe that the costs of the entire system-hardware, software, and possibly even R&D-can be recovered on a unit basis with the profit potential of a single year’s cash flow. Increased cash flow from the second and subsequent years and from multiple systems, then, is profit.

A Process of Self-Selection

That’s just the start. An insurance company also can look to additional revenues from greater underwriting pro f its. Commercial Union discovered early in its agency systems research that profitable agents have a tendency to automate and, in fact, do automate. A very desirable book of underwriting business thus becomes available through an agent with whom an automation or interfacing link is established. If the original premise that profitable agents tend to automate holds true, and there seems no reason to doubt it, underwriting profits can be added to cash
flow profits to support near giveaway costs for computer systems.

In addition, agents in full interface mode will, in the future, completely replace company staff support needed for keyboard entry functions of policy and claim data. These costs, now duplicated by
agent and company as transactions move back and forth in the discrete, autonomous systems environments operating today, will have a single source: the agent’s office. As a consequence, the company will be relieved of associated data entry costs. The result will be lower operating expenses and more profit potential.

Combine these with decreased communications transmission costs, and you find a significant potential for a dramatic decrease in the total operating expenses for writing business through automated sources. Sophisticated electronic satellite and earth station communications networks will be cost efficient in comparison with the expenses of surface postal delivery, while the time benefits of overnight agency / company communications offer attractive business incentives.

As Aetna and other industry giants offer their products, there seems to be a growing realization that companies can continue virtually to give their systems away and still realize enormous profits. It is a most extraordinary environment which could lead to this conclusion. In this environment, the independent vendor will be hard pressed to compete at all.

Independent agents, in searching for their own operational solutions, need to employ the same negotiating skills they apply in daily sales situations. There is no reason why agents, as well as the public, should not share the potential wealth with companies, both in reasonable commission levels and in lower premium cost to the consumer.


A Critical Look at Agency/Company Interface: An Interview with Nancy James


Best’s Review-Property/Casualty Insurance Edition
An Interview with Nancy James

This month’s technology section revolves around agents’ investigation of the automated agency. In our lead article, Nancy James, an insurance broker and data processing consultant on insurance matters, raises some provocative issues in “A Critical Look at Agency/Company Interface. ” Automation of insurance companies, she points out, has supported the way the industry does business with benefits of speed and economy, but has not done much to change the basic way in which the business functions.

But automation of the agency, she proposes, will disrupt significantly the traditional ways of doing business as multiple aspects of the agent/company relationship are brought within the scope of the computer, streamlining operations but also placing additional responsibilities upon the agent. In this climate of change, Ms. James urges, agents must assess carefully the impact of such developments on their own operations and on their relationships with insurers.

An accompanying article, “A Discussion of Agent Concerns, ” reports on some of the issues discussed when Ms. James and John W. Folk, president of the Insurance Institute for Research (sponsor of a well publicized agency automation pilot project), both appeared as speakers before an audience of independent agents at on automation seminar sponsored by the Professional Insurance Agents of New England. Agents do have valid concerns about certain cost and responsibility factors, Mr. Folk agreed, but the competitive needs of the American Agency System for an industry wide network make it imperative that these issues be resolved without impeding the evolution of the automated agency and an interface system. Automation concerns per se, he cautioned, must not become intertwined
with those of extraneous issues.

Our final article reports the substance of a panel discussion, also part of PIA-NE’s Agency Automation Fair. Eight agents, all owners of in-house computers, reported on their experiences as users,
The agencies represented cover a broad spectrum of lines of business, premium volume, and computer sophistication. One agency, for instance, commissioned custom software in the mid-1970s, before today’s turnkey systems were available; another took the first step with the purchase of an Apple II just a year ago. Some agencies are fully automated; others have not gotten much beyond an accounting system to replace an outside service, Each agency purchased its system for somewhat different reasons and uses it in somewhat different ways. Their combined reports provide an intriguing
series of “snapshots” of the present state of agency automation and may encourage some agents who have not yet taken the plunge to explore the wide range of possibilities open to them.

A Critical Look at Agency/Company Interface

ONE does not need a long memory or deep understanding of data processing to realize that many early expectations for the computer have been proven unrealistic. With greater numbers of agents expressing an interest in automation, as indicated by a number of recent surveys, a critical look is needed at what part each of the industry players will provide in the decision-making process. This article will examine how data processing supports the insurance industry agency system, where computer systems have fallen short of stated objectives, and what business concessions have and will be made to accommodate computing needs.

One must be cautious not to attribute independent capability to the “computer’s contribution,” for the computer is, after all, an inanimate object. First, let us summarize the position of the companies, which have longer experience with data processing support. Without oversimplification of the extent of development effort involved, it is evident that most insurance companies have
been utilizing data processing support for a significant number of years. Routine functions were automated first, then repetitious tasks. The efficiency of data entry input defined the progression of systems development which, in part, alleviated rapidly expanding paper flows and the resultant staffing burdens. Large centralized systems were developed which at least approximated the existent central files.

What is significant here is the mode and purpose of systems development; departures from business functioning which might have necessitated change in the basic product-underwriting-adjusting methods were not required. When such demands have been made upon the industry, they generally have not been attributed to data processing requirements. Business has gone on as usual according to the conditions of the time, but supported to an increasingly greater extent by computerized systems.

A Different Tack

This seems not to be so when automation addresses the agent. An entire harmonious order of business support is upended with the introduction of a turnkey minicomputer. No area is left untouched as gravitational forces swiftly pull all facets of agency operations into the computer’s sphere. More important than the influence upon mere operational changes within the agency are the business decisions forced by the need to communicate electronic data from the agent to the company.

It is this aspect which is subtly changing the traditional and fundamental business relationship between the company and the agent, and ultimately the consumer. There has always existed that
delicate balance between the interests and perspectives of the company and of the agent. An amiable adversary relationship has evolved wherein the company profits and the agent profits under differing conditions, each jurisdictionally both dependent and autonomous by supporting the consumer’s needs and the company’s interests in low-risk business. While agents seek reliable markets for the client’s needs, company underwriters set a satisfactory price offer for acceptable risks. Losses are adjusted bY the best objective sources both have available.

what appears ominously on the horizon of the agent’s future are increasing demands upon him not only to find and sell the account, but to underwrite the risk, fairly and competitively, and then to adjust losses. Although this may appear, and has been advertised as, a greater faith in “select” agents, I maintain that the companies have been forced to grant excessive underwriting latitude to agents to circumvent their own data processing shortcomings.

The Weak Link

These shortcomings appear primarily in the area of agency/company communications, necessitating underwriting at the source of business. The network required to transmit an underwriting request for response within an acceptable time period is just not available, and attempts to construct workable networks during the last decade have not yet succeeded. The implications of these failures
(beyond the obvious lack of technical capabilities) have not been addressed and, indeed, may have deliberately been disguised.

Apologists for greater underwriting authority point to the example of large agency operations and posit the mistaken assumption that the small agent by virtue of success and profitability can assume the disproportionate autonomy required of large houses accustomed to underwriting and settling account claims. It poses, nonetheless, a conflict of interest when one agent (or office) Attempts to underwrite fairly in competitive conditions any particular key account, and can later be placed in the position of assessing a coinsurance requirement for loss adjustment.

Companies Relieved of Risk

Proponents argue that the system is self-policing, but implications of the consequences of such policing evoke pictures of expensively automated agencies with fully functional company interface programs being suddenly truncated for Poor underwriting averages and/ or higher than average loss payments. It is folly to wish additional risks of judgment on the “average” size agent while relieving the companies more and more of any risk. And that is precisely what will happen as more agents automate.

The continued development of data processing equipment, particularly in the minicomputer line, and expectations of substantial price reductions in the near future are opening the computer market door to virtually any size agency. It appears probable that within this decade most insurance agencies will own their own systems, or will be fully process-supported by an extensive policy writing/accounting service. Critical business decisions which will be made in these intervening years will decide the ultimate success of agency-company relations under these new conditions. Assessing the merits of these decisions is up to us.