Executives representing the insurance industry met recently at the law offices of Holland & Hart, LLP. Like every other business, insurance brokers are feeling the pinch of the current recession. While the economy was certainly an important topic, these industry representatives offered strong opinions on a variety of topics.
How have large, national companies such as AIG affected the industry?
Jeric Leavitt: You know, AIG is one of those barriers that, on their insurance side, the property and casualty business is fine. It’s the financial products that have gone a little sideways. There are some carriers, like Hartford and a few others, that also have some troubled financial products, but those are just concentrated in insurance. Travelers and some of those others are going to be positioned really well.
Gregory Pike: I think probably the more difficult component with AIG is the public perception.
Hardly a week goes by, whether it’s on the front page of the Wall Street Journal or another news source, where they’re not being bashed for one infraction or another. From a public perception standpoint, that can be very damaging and as a retail broker on the property/casualty side, it does create challenges.
In reality they are a very, very sound underwriting company. Fortunately the laws prevent the financial services side from dipping into the policyholder’s surplus.
David Dahan: I think the public is just angry, and it’s very difficult to get through to them.
One additional concern that I have is if AIG’s rating goes down and it puts a lot of clients out of compliance with their own requirements. The issue at that time will be finding another carrier that’s comparable.
Jade Anderson: That could be the most troubling long-term affect of AIG, because before the bail out, the insurance agency pretty much stood alone very healthfully and really didn’t need a lot of government intervention.
The bottom line is the insurance entities were never really in danger. It was their investment portfolio which was completely unregulated that got them into trouble.
Larry Harrison: I think the end result, which we’re already starting to see, is the market hardening. And you’re going to see insurance companies that aren’t able to write business at losses for market share, because they don’t have the investment portfolios or the cash they once had.
Anderson: Around the fourth quarter of this year, we’re going to begin seeing rates starting to flatten out. We’ve been in the five-to-six-year slide with an eight to 10 percent a year rate increase, but we’re at a bottom now as pricing power returns.
Pike: I think that’s further segmented by classification. If you get into the specialized markets, whether it be gaming or development, pricing has been through the roof.
Leslie Pass: You’re seeing hardening of property and not necessarily in casualty. We’re still seeing decreases in casualty and hearing that property is hardening or even increasing quite a bit. So I think it just depends on what line and what industry.
Pike: The reality is, there has been some attrition of clients that have been forced out of business, but we’re continuing to renew the policies that we have on the books. It still requires a certain amount of service work, we’re just making less income to support it. So we’re probably no different than any other business. We’re figuring out ways to stay leaner through this tough economy.
Dahan: I just wanted to add that I’m the current president of the Henderson Chamber and it’s not unusual in any given month, for us to see 30 companies go out of business.
So there’s a reality out there that regardless of how successful, you’re going to have less business. I’ve also seen that companies are shrinking, so there are fewer employees. That’s the direct impact.
How is the insurance market weathering the storm?
Anderson: I haven’t heard of anyone that’s going out of business. Well, one that has broken up and everyone went their own way.
Dahan: There’s some consolidation I think. There have been a few smaller brokerages emerging.
Pass: But any retail insurance agencies that are having problems, from what I’m hearing, are those that are primarily focused in construction.
Harrison: Well, there’s that, but I think really what we’re saying is we’re working harder for less. The employers are focusing on overhead. All of our clients are also re-evaluating all of their expenses, and insurance is certainly a part of that. Many are opting to raise their deductibles, which means our premiums are smaller. So in my office, we’re spending a lot of time working with our existing clients, modifying their plan designs and at the end of the day, they’re paying less in premiums. There’s greater emphasis I think on customer relations.
If you’re not friendly to your customers, you’re not going to be successful.
I think that the insurance schools are very, very busy right now with people who think that they’re going to get into the insurance business and take this hick town by storm. As it is, we lose a lot of people every year who think that they can get into this business, but they’re just flashes in the pan that come and go. They don’t have the staying power because the first three-to-five years are very, very, very tough.
In what ways does government regulation help or hinder the industry?
Pike: We’re all regulated by the state. There are insurance codes and regulations. I think that the problem with Carson City is that many times the legislators have great intentions, but the affect of the laws they actually put in place just creates additional burdens interfering with business. Short of good consumer protection, I think most laws and regulations are a bad thing. I don’t need Uncle Sam telling me how to drive the bus-how to run my business.
Harrison: We have so many mandates, we’re among the top five states in the nation, and there are more on the table right now. One of them concerns acupuncture. Very rarely do I have somebody come into my office and say I want acupuncture. But now, they want to mandate that all planning companies offer acupuncture. This will raise the price of healthcare and as costs go up we’re going to end up with more uninsured and uninsurable people. We need to get a handle on these things. Rather than a mandate that says ‘you shall” we want these plan designs to read, ‘you may’ cover this benefit and allow a person to buy into these additional benefits much like dental or vision.
Dahan: There’s actually a group, I’m a member, called Nevadans for Affordable Healthcare, which is trying to educate the public about mandated benefits. Every two years you’ve got a bunch of bills and probably about 95 percent of them get knocked off. Once in a while, something will pass. The problem is again, we’re not connecting the price with the consequence of the legislation. When there’s a discussion about the cost of healthcare, no one ever says, ‘Oh, three years ago we passed a bunch of new mandates.’ They just say ‘Wow, look at the cost of healthcare!’ And it’s always attributed to the delivery system.
You want to talk about the cost of healthcare? I’m involved with North Vista Hospital. An indigent walks in the hospital and he doesn’t have any money, but guess what? That person has healthcare. He doesn’t have health insurance, but if he walks into a hospital he gets treated.
John Grady: At the end of the day, the insurance industry does one thing; it assumes risk. That’s true whether it is on the property and casualty side or the health insurance side. So when legislation is passed, whether it’s good or bad, there is an impact on the insurance company rating system. There has to be, because you’re assuming risk.
What is the public perception of the insurance industry?
Grady: For the most part, the general public does not really understand what brokers and agents actually do. Quite frankly, most people don’t like us; there is a general distrust of our industry.
Yet, show me somebody who’s had cancer, or a medical problem of some severity, and I’ll show you someone who will speak very highly of our industry because it saved them from financial ruin.
If you ask the average business owner what they think the profit margin that an insurance company builds into their premiums, they will respond with anywhere from 12 to 25 percent, because the average American believes that there are huge profits. In reality it’s between three and five percent.
How has an employee’s belief they are entitled to free universal healthcare impacted the industry?
Harrison: If we had co-pays with our auto insurance like we do with our health insurance, I would have a new set of tires for every season. I would abuse it because it’s ten bucks. What’s the difference? Higher co-pays are definitely one solution.
Pike: My employee healthcare costs come in third in my budget falling in right after my rent. Are employers trying to control that expense in this economy? Absolutely! Revenue is down, I’m trying very hard not to have any layoffs, so how do I offset this? Well, I look at ways to lower the costs of health insurance for my employees. Really the only way to do that is to play around with deductibles and co-pays.
Grady: The American public seems to lend itself towards some form of entitlement for health insurance. It’s not in the constitution, it’s not in the bill of rights, but we have gotten to the point where people do confuse healthcare with health insurance.
Dahan: Health insurance doesn’t mean healthcare. There are people who have health insurance who are not healthy. And it’s not because they don’t have the insurance to pay for it. They don’t even go see a doctor.
What can be done to control costs?
Grady: What we’ve got to focus on is education, taking care of yourself and controlling healthcare costs. What is it, like 85 to 90 percent of all claims are incurred by 10 percent of the population?
Anderson: We’re seeing a lot of cost shifting. From everything I’m reading it’s apparent that the consumer driven model is not removing expense, it’s just shifting responsibility and costs from the employer to employee.
Anderson: There are so many people leaving the insurance market that we have all of these people walking into the hospitals without insurance and stacking up the emergency rooms, so the hospital is going to have to drive costs up just to recoup.
What’s interesting is that of the estimated 45 million Americans who are uninsured, at least 30 million are uninsured by choice. Many young people choose not to buy it. They feel invincible, so we lose those healthy premium dollar people from the pool which drives the costs up for the sick. Until we get everyone back on board and into a system, costs will continue to rise.
Harrison: And when we talk about universal healthcare, it’s critical to note that everything will change. Availability, research, and choice of doctor; many of these things go away when you go into the healthcare system that’s being proposed today. And another important question everyone needs to ask themselves is if this becomes a government agency who will you complain to? Been to the DMV lately?
Pike: If I don’t take care of my customers, they will go see one of these other people sitting around this table. And that’s just the way it is. But here’s the thing, on a universal healthcare system, I think the level of compassion will go away because at the end of the day, the government employee’s going to collect a paycheck whether they take care of your needs or not.
Harrison: In conclusion, I would say that the employer’s best defense against all these rules, regs, mandates, and so forth in federal acronyms coming out of Washington, D.C. is a well-informed forum.
