Playing it SafeNevada’s Business Insurance Update

 

As long as risk has existed, so has insurance. Despite a dated and out-of-touch public image, business insurance is one of the most rapidly growing industries in the state of Nevada. Through the millions of claims filed and arbitrated every year, insurance professionals want to make sure Nevada business owners aren’t letting anything fall through the cracks.

The Laundry List

As owning a business gets riskier, insurance types and policies get more complicated. Pulling up a list of available insurance policies can quickly become convoluted and leave owners at a loss. Susan Bauman, executive director of the Nevada Independent Insurance Agency, said to start with what’s required in Nevada.

“All businesses need to have what we call ‘general liability insurance’: basic coverage for bodily injury or property damage,” she said. “Then, if a business has employees, they’re also required in Nevada to have workers’ compensation – security in wages and benefits if an employee is injured while working.”

From there, the size of the company may add new requirements. “Larger companies will be required to offer health insurance for full-time employees,” she said. “If you have six or more employees, you also need to provide retirement plans.”

This is the point where insurance gets more customizable. Like a mosaic, the longer you stare at insurance options, the more unique pieces you’ll find. “Life insurance, key person or ‘key man’ insurance, crime, auto, liquor liability – the list of policies goes on and on and on,” she said.

A “core set” of coverage is typical for most companies: insurance policies to protect operations, employees, and customers. Throughout the laundry list of insurance policies, Bauman said a type that business owners often overlook is hired and non-owned automobile insurance.

“It’s goes further than an auto policy that only covers cars or vehicle fleets in your or the business’s name, which would be personal or commercial auto policies,” she said. “The hired or non-owned insurance covers more. If you have an employee and they’re running an errand for you during a regular business day in their own vehicle – say, they’re going to the bank, or picking up an office birthday cake – and they get into an accident, this type of policy would have your back.”

Still, generally, if a business has a niche risk, Brian Cushard, president of LP Insurance, said it or their insurance advisor will know about it already. “I don’t think it would be surprising to a business owner if they’ve been in business for a while and know the pressure points for their company,” Cushard said. We’ll identify and find coverage for anything that will pose a material risk to you or your assets, even if it’s niche. Nothing should shock you.”

Bauman cautioned that while a large insurance package might seem attractive to Nevada businesses, it’s often not the right long-term decision.

CPAs, Attorneys and Insurance Agents

“It can be difficult for a company to find the products or insurance coverage plans that they need,” Bauman said. “When you transact with an All State or a Farmer’s, those are capped – they represent a certain type or amount of insurance companies, and so you’re limited as a business when shopping for options.”

In contrast, independent agents can access a variety of retailers and find the right product – or mix of products – for a business’s specific needs. It’s the insurance advisor in both Bauman and Cushard’s examples that can eliminate any surprises.

“Insurance has become more fragmented,” Cushard said. “This, I think, is a good thing – not all insurance policies fit perfectly with every single employer or company type, and the ability to have separate policies and hyper specific coverage allows companies to build exactly what they need. An advisor is your guide through all of this.”

Even if a business owner knows what kind of insurance they want, Bauman stressed that insurance isn’t as easy as it may seem. “Much like you would partner with a CPA or an attorney and build a relationship where they know your business inside and out to the point that they can effectively consult, that’s the level you should be at with an insurance advisor,” she said. “Someone independent and trusted who can translate the insurance language and get you the proper coverage.”

Not just any independent insurance agent will do. Matt Harris, CEO of CorePrime, said business owners in Nevada should shy away from any non-admitted carriers if possible. “We’ve seen a shift toward what we call the ‘excess and surplus market’ (E&S) in business insurance,” he said. “These carriers are non-admitted, or not recognized by the Nevada Division of Insurance, and lose the consumer protection that designation typically provides.”

Many admitted carriers are more risk-adverse than those in E&S, which initially created the market. “E&S is more aggressive and will cover risks that admitted carriers won’t – often at a significant cost and additional fees,” he said. “Business owners should know those additional risks before working with that market.”

Ever-Changing Liability

Just because something isn’t covered by admitted carriers today doesn’t mean it won’t be on that laundry list tomorrow. “Insurance by its nature is reactive,” Cushard said. “The industry takes historical experience and applies it to future potential risks.”

The Nevada Division of Insurance identified four other emerging insurance types. First, supply-chain and contingent business interruption insurance plans, which appeared in response to the pandemic, enable businesses to protect against global market fluctuations. Though initially most popular in the early 2020s, businesses continue to seek out this kind of pre-emptive protection against potential negative swings.

Environmental and wildfire-related products have also become incredibly popular over the last few years, with more detailed catastrophe packages than ever before. The natural disasters across the West Coast of the United States, where individuals and businesses alike lost billions in damages to fires, motivated insurance companies to get into the nitty-gritty of policy details.
With the rise in artificial intelligence and high-profile cases of internet users “deepfaking” videos and other content, insurance coverage for media liability exposure is also on the rise, particularly to protect both intellectual property and reputation. However, the most prominent new insurance type is cyber, which covers privacy breaches, ransomware, and other incident responses.

While the supply-chain, environmental, and media liability lines of insurance may fall into existing packages or under general umbrellas of insurance, cyber is paving a new path: most cyber insurance is issued as a specialty insurance line with specific security prerequisites.

Despite the fanfare for newly developed packages, not all of today’s popular insurance plans are brand new. Businesses have had access to Employment Practices Liability Insurance (EPL) for decades, but over the last year, Bauman said the breadth of coverage has exponentially increased.

“If you have employees who feel they may have been mistreated or harassed, all the way to wrongfully dismissed, that falls under EPL,” she said. “Due to the political climate and general culture shift – just the way the world is – we’ve seen employers look more closely at EPL plans and be much more open to increasing the payment coverage they have now than in the past.”

Paying Out

If the insurance expense line item feels like it’s getting bigger every year, that’s because it is. Cushard said the primary cause is a well-known enemy: inflation. “Pricing in insurance consists of how much things cost to replace,” he said. “If the materials needed to rebuild or repair are more expensive, then the insurance is going to get more expensive. If the severity of losses increases, the insurance company will need more money to cover the losses. If the costs and severity increase at the same time, like they are now, that’s a double whammy, and you’re going to see that represented in the price tag.”

Harris deals primarily in health insurance. He’s seeing a baseline cost increase trend in healthcare, too. “It’s true that across the country, we’re seeing medication and pharmaceuticals in general spike,” he said. “Hospital pricing has also gone up.”

This is in part due to inflation, but also to market trends. “We saw some chaos in the market during and after the pandemic, along with the natural disasters,” he said. “This rise in claims was atypical.”

Even when the dust settles, business owners shouldn’t necessarily expect price decreases thanks to “the cost of claims,” Bauman said.

The Car Accident Capital

“If there was an area to be concerned about in Nevada, it would be the auto industry,” Cushard said. While true for individuals and companies, businesses often have more assets at stake.
“There was a point when property claims were more expensive for insurance companies paying out on claims, but liabilities have surpassed that immensely with people going after the ‘deep pockets’ of corporations,” Bauman said. “If someone is injured and they see a logo on the potentially at-fault vehicle, they think ‘Oh, I can get money from them.’”

This approach has turned auto claims into what Bauman called a “free-for-all” among personal injury attorneys. “The number of claims continues to increase,” she said. “Some are false or fraudulent and are investigated, but for the many others, it’s a volume issue. There are just so many.”

Bauman said oftentimes insurance companies choose to settle and pay out some amount of money rather than fight it through court, even if they believe they could have won. “We’ve found it’s less expensive to settle on a claim to avoid attorney fees, along with the time and energy of our employees,” she said. “A one-million-dollar settlement is a lot more attractive than the five million it would cost to go through litigation, even if we believe our covered party isn’t guilty or whatever the story may be – the bottom line is cost.”

The rapid rate of auto claims is driven by private equity, Cushard said. “Litigation has become a private-equity-backed business,” he said. “There’s a lot of money in increasing lawsuits and maximizing these settlements, especially in Nevada.”

Insurance professionals encourage the state to get involved, warning that prices will only rise if no action is taken. “There’s nothing broken about the insurance part of this,” Cushard said. “It’s the lawsuits and litigation associated with auto liability that’s really just become out of control. Business owners will continue to see increased costs and hits to their profitability until some kind of reform is enacted.”

Future Forecasting

“If there was ever an industry that needed a bright young person, it’s insurance, Cushard said. “Our processes were archaic, and as younger generations join, we continue to advance.”

These technological advances are obvious in the health insurance industry, Harris said. “Surest,” an app-based health plan, lets users interact with their insurance in a more relaxed way.
“In our current system, there are many different factors that make it basically impossible to tell a customer how much a procedure or visit will cost,” Harris said. “Surest takes that question away: you tell the app what kind of appointment or service you’re looking for and your zip code, and it shares with you all the options in your area within your plan, ranking them based on quality of care.”

Once selected, the app also provides its users with an “all-in” price for visiting that provider. “You sidestep all of the confusion,” Harris said. “It’s very tech-forward, and that’s the direction we’re going to continue.”