Changes are occurring in many aspects of insurance including auto liability, construction-defect and, most notably, health insurance. While it may be a time of transition for insurance brokers and carriers, industry leaders are hopeful that stability will quickly follow. Recently, insurance executives met at the the Las Vegas offices of City National Bank to discuss new developments and the health of the industry.
Connie Brennan, publisher and CEO of Nevada Business Magazine, served as moderator for the event. These monthly meetings are designed to bring leaders together to discuss issues relevant to their industries. Following is a condensed version of the roundtable discussion.
What are the challenges of insurance today?
MARY THOMPSON: We’re not insurance brokers like the days of old. We’re advisors. How do you advise when you don’t know? The clarity is one of the biggest issues. The expectations that have been set I don’t believe are real. We have to deliver a little more of a reality check to our clients, which is tough.
DAVID DAHAN: One of the greatest challenges right now is clarity. Our industry is in flux with healthcare. I would say everyone’s expectations are misaligned. Our goal is to try and bring clarity and try to explain and become a partner with our clients in understanding what’s going on. The challenges that we face are huge. For some people, it’s the different between life and death. For others, it’s a financial impact that can result in a a hardship in their business. Again, we are in front of our clients trying to sort through all this and look for help from the commissioner when we need to.
ROBERT JOHNSON: I really think insurance is turning into a commodity. I’m not even sure [insurance brokers] are going to be here in five or 10 years. You’ve got Geico and [organizations] like that. The newer generation that’s coming up that’s used to being on computers don’t want to talk to anyone. They don’t want that insurance professional. So we have some challenges.
FRANCIE STOCKING: We have to do a better job of educating the public about what an independent agent is and what they do for you as opposed to calling e-insurance. The people who don’t want to talk to anybody are the people who have the losses and it gives us a bad name. A big struggle for us is getting the right mindset to the general public about us being professional and getting our clients to look at us as a professional like their accountants and attorneys. We’re not just a vendor. We’re taking care of one of the biggest financial risks they have which is their business. It’s educating our clients and everyone about who we are.
How do unprofessional practices devalue brokers?
W. ALLEN KAERCHER: We have some insurance companies that will sell a two-month policy. They go down to one of those little agencies, buy a two-month policy, show proof to the state that they have insurance on the automobile and let the policy lapse. So they’re driving around without any insurance. The honest people are paying for it. I don’t want to mention some of those carriers and which ones they are, but they do. You can buy monthly policies.
JERIC LEAVITT: With an attorney or CPA, they’re selling a service. What we do is both a service and a product. A lot of times, the product is out of our control. We negotiate that product, but we don’t set prices. We don’t set terms, although we negotiate them. A lot of people pay their insurance premiums but don’t ever see claims. They don’t necessarily see as much service. They don’t see what we do for them all the time, so I think insurance kind of gets a bad rap for that reason.
SHAWN CROPPER: Jeric’s point is spot on. You’re talking about a product that you don’t control in any way. If you’re an accountant or an attorney or a bank, you’re bringing something that is a value to an industry and has a purpose. There’s some means and mechanisms for controlling that product you’re delivering. We are independent consultants that bring a company and a policy to the table of a business owner. Often times, the mentality of a business owner is they’re paying a lot of money for something that they don’t get very much value from… until they need it.
How is Auto Insurance changing?
LEAVITT: The auto liability loss ratios have been very poor the last handful of years, essentially resulting in higher auto liability premiums. It’s nationwide, but it is more severe in Southern Nevada. There was an article in the [Las Vegas Sun] that said from the first three quarters of 2015, there were 8,500 collisions as reported to the police department. In the first three quarters of 2016, that number was up to 13,500. There’s more accidents happening. Also, with these vehicles, they’re a little bit more complex nowadays. They cost more to fix. We’ve got distracted drivers. There’s a lot of different things combined.
CROPPER: You can drive on any freeway or any street in Las Vegas and just look at the people you’re driving around. Three out of four are on the phone. They’re texting, looking at their phone, checking emails. Everybody’s guilty.
THOMPSON: The auto industry is in trouble. People aren’t expecting it. As much as we try to deliver that information, it’s going to be worse before it gets better in the auto [industry], which is detrimental to business owners, especially ones that have large fleets. The marketplace is really tough right now.
KAERCHER: In real estate, you always say “location, location, location”. In insurance, it’s “statistics, statistics, statistics”. Underwriters will get the statistics of losses and exposure and automobile losses are going up. Premiums are related to that. The insurance industry is a huge consumer protector, too. They have the same desire the client does. How do we prevent claims? If you don’t prevent claims, then you become a statistic and your premium is going to be based on that. That’s very important for the public to know.
COMMISSIONER BARBARA RICHARDSON: We’ve seen a significant increase in staged accidents. Usually they come into an area until it gets cleaned out by the local police departments and some of the local fraud units, then they’ll go somewhere else. I think they’re here now. A staged accident is where you know people in the other cars. You’ve got three or four people in the back of your own vehicle and you hit the other car. It’s usually done with cars that already have damage on it, so they’re not actually going to fix the car. Everybody inside all of a sudden has soft tissue damage so there’s bodily injury claims that aren’t provable. Nobody shows up to make sure who was in the car and make sure that the accident scene was taken care of. All of these people put a claim in so a little bump between two people who know each other and did this on purpose is now $40,000 or $50,000 worth of claims.
CROPPER: A common occurrence is you’ll have an individual who’s not complicit. They’ll be driving and you have two vehicles that will come after. The first vehicle will pull in front of that vehicle and the next vehicle will pull up alongside of it. The vehicle in front will slam on their brakes and that person is all of a sudden not given the ability or time to react. You have no way to exit out of that lane because someone has come up alongside. The side car then exits and takes off. The car in front is now rear ended and you’re at fault. Any time you hit somebody from behind, you’re at fault.
DAHAN: We can’t forget that we have 42 million tourist a year that are driving around this community. That creates an environment where there’s distraction, not just people on cell phones, but tourists trying to figure out if they’re going right or left while the rest of the community is trying to get to work. We’ve always had an environment that is going to reflect some of that. We have a lot of contributing factors.
STOCKING: I think one of those contributing factors is that a lot of people are carrying lower limits because they can’t afford the higher limits, which causes more attorneys. The people who are underinsured cause backlashes as well.
THOMPSON: The thing that’s happening is, an individual has a lower limit and they’re staging [an accident] with a truck [that has a logo]. All of a sudden your individual insurance isn’t going to cover their damage, so they’re going after the business insurance even if the business insurance isn’t at fault. In the past, workers comp was the sole remedy, but now the attorneys have figured out a way to get a claim on your company’s business truck as well. In the past, we’d always advise our clients to have uninsured/underinsured motorist [insurance]. Don’t have the owners on there and don’t get underinsured motorist [insurance] because they’re going to double zing you, which is so opposite of what we used to do in an advisory role. Now you have to at least warn them that that’s exposure every time their vehicle is on the road. They’re at risk because the attorneys are telling that injured worker that they can come after [the business].
What is happening with construction defect in Nevada?
KAERCHER: They reduced the time of reporting a claim from 10 to six years, which is good. That helps out a little bit. I don’t understand it because if you buy a product, if something’s wrong and you put an attorney in the middle of it, you can’t repair it. It causes a lot of problems and I think that’s what happened with the construction-defect in our state. It has caused a lot of problems.
LEAVITT: It took out the ability for an attorney to recover damages from the settlement. It also defined construction defect with a lot more narrow of a definition. I don’t know what everybody else is seeing, but we insure a lot of contractors and we’re not seeing a whole lot of construction defect claims come through recently, so it seems like it’s been effective. It hasn’t really been tested in court so you don’t see a lot of insurance companies jumping in the marketplace again, although they’re talking about it and waiting.
DAHAN: It’s not an issue between the builder that can fix something and the resident that’s legitimately asking for a repair. It’s the fact that the litigious aspect of this is having an insurance company that doesn’t want anybody to touch it and an attorney that’s telling everybody this is what you’ve got to do. It’s so complicated. Unfortunately, I don’t know where the leadership on this comes from.
LEAVITT: From our perspective, it seems like it has been effective, though. You take out the incentive for that attorney to jump in there and see the big paycheck.
CROPPER: That’s the biggest issue. If an attorney doesn’t see it profitable, they’re not going to take the case. Until they see a way to make money on trying the cases and getting defense costs and all that, they won’t even bother. They won’t take the case.
LEAVITT: The pendulum swung to the other side. Now that we have different control in our legislature, we’ll see what happens.
How do you expect the Affordable Care Act to change?
RICHARDSON: The Affordable Care Act (ACA) is going to affect both large and small businesses just as much as it’s going to affect the consumers who were getting individual purchases.
CROPPER: I don’t think the rates are going to come down, but I do think they will not go up as much as they have been the last two or three years. A large majority of people who were uninsured are now insured and used the heck out of their insurance and are now stable. They’ve been seen and treated and may not be causing the claims that they were in the first few years of the ACA. The problem is that never in the history of America has a benefit been given and then taken away. Trump is smart enough to realize you can’t just repeal this thing and scrap it and go back to a private market. He doesn’t want to eliminate preexisting limitations and exclusions, but he wants to get rid of the mandate. You can’t have it both ways. What’s going to happen is a really big problem that was created by one political party is going to be hung around the neck by the next political party because their hands are tied. They can’t get rid of it and they can’t change it enough to make it work.
DAHAN: I think it’s going to be repealed, actually. We’re going to have to come to the realization that, politically, that’s one thing. What needs to be done is for the sake of this country. There needs to be an adjustment of this whole healthcare reform act. It has to be repealed. The republicans are going to be able to go around and at least repeal something, if not just the name of it. I’m originally from France where we have social medicine. It doesn’t work. It can happen there, but it’s not going to happen here. What needs to be replaced is the idea that you can do this without a high-risk pool. That’s what we’re supposed to do. We’re supposed to address risk and not run away from it. The problem is that most of the people that went with the ACA are on Medicaid. That’s where we have to address that issue. If it is replaced, I hope it is replaced with a dialogue, at the very least. The problem is the businesses are constrained with healthcare reform.
CROPPER: In the White House, the idea was, we have too many people who are uninsured. We have too many people who can’t afford insurance. We get them covered. The problem with the legislation is it didn’t address the biggest problem, and that’s where people disagree. Maybe the biggest problem was that enough people weren’t insured. My opinion is the delivery of healthcare is too expensive. Pharmaceutical costs are way too expensive. The lack of technology, streamlining information and communication is not there. You can’t do anything. You can repeal, you can replace, you can make changes, but unless you change the amount that it costs, insurance will always go up.
RICHARDSON: Everybody is talking about repeal and replace, but that’s a big picture. Those are big words for something that’s very complicated. In Washington, they’re thinking about piecemealing it out so you can actually understand what you’re trying to get through. In this case, in this section, replace it with this and this. Also, [they’re] working with business people and the states. One of the problems is the federal government did a lot of this without working with the states, so there was not a lot of feedback from the communities.
JOHNSON: There’s going to be some change. There has to be. It’s just not working the way it is. They may rename it or something like that, but they can’t take it away.
EDITOR’S NOTE: By a show of hands, half of the attendees indicated that they believed the ACA would be repealed.
What advice are you giving your clients?
CROPPER: You can’t give advice. Honestly, this is a table of some of the best professionals in town and not one of us can tell you, definitively, that something meaningful can happen because you just don’t know. There’s no certainty.
DAHAN: Your advice certainly would be cautionary. It would be to keep following the rules because that’s what you have to do. Unfortunately, we’re the bearer of that message. That’s a big hardship and we have to tell them to follow the guidelines and do reporting and everything else that they have to do. I think they should feel optimistic. I am optimistic that, at the very least, we are going to get engaged in this discussion. We never thought the ACA would happen. It happened, so I’m not going to think that it’s not going to be replaced. Things evolve.
