Despite constant changes in legislation and the additions of new regulations, the insurance industry strives to be a consistent resource for business owners and individuals alike. Recently, insurance executives across the state met at the Las Vegas offices of City National Bank to discuss the challenges in their industry.
Connie Brennan, publisher 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 is the biggest challenge facing the insurance industry?
Russell Swain: Regulatory issues are cumbersome and strangling a lot of opportunities for us to serve our clients.
Joe Hernandez: There’s the issue of perpetuation and trying to find young people to get into the industry. The hardest thing is trying to convince a young person that insurance is an opportunity for them to not only have a long-term career but also to build a good income base for themselves.
Mary Thompson: We have the outside competition of Professional Employer Organizations (PEOs) and payroll services now selling our product. They keep expanding and the employers don’t understand the value of an insurance broker like they used to.
Larry Harrison: We chose to take on the Medicaid expansion. Right now the money is being funded by the Feds, but in two years the state of Nevada is going to take that expansion on, which means higher taxes and it’s going to be rather chaotic.
How has technology changed the way you do business?
David Dahan: The challenge is how to balance human touch and technology. While we want to continue to have that warm touch with our clients, the compensation has gone down dramatically that allows us to do that. The more technology you put in the mix, the more efficient you are, but the less you’re touching the client.
Harrison: High tech and high touch is where you’re going to build a relationship as a teacher, a guide and an advocate, and you’re going to retain that business. It’s truly about educating clients and bringing value.
Thomas Burns: The things you’re able to purchase online are very transactional; things like personal and auto. But the more complicated lines, the things that are more nuanced, require some thought in figuring out how that applies to your business and how that fits in with your tolerance for risk.
What value do insurance brokers bring to business owners?
Justin Manning: All of us have devoted our lives to being trusted advisors. As a part of the Independent Insurance Agents and Brokers of America, we are all very involved in what we do. The main goal in participating in this association is really to make the public aware of our ability to be a trusted independent advisor versus an insurance company becoming your advisor. An insurance company has a one-sided view; they only see it from their perspective and the consumer isn’t necessarily educated in every aspect.
Gregory Pike: There are variances in every insurance contract. The understanding of the contract that is being placed, what limits are available and what is actually covered or not covered, that’s the value of having a broker. What the consumer gets by having people like us is that expert advice when we do our compare and contrast the value you’re actually getting from the contract that you’re purchasing.
How is the Nevada insurance industry regulated?
Burns: From the distribution standpoint as an agent, we’re regulated by the Nevada Insurance Division. The insurance carriers are regulated tighter than we are.
Manning: We have one of the best commissioners, Commissioner Scott Kipper, in the country. If you have a good commissioner, you have a good climate to work in from a government standpoint. But the federal government is really looming. They’ve been trying for years to pass legislation that would allow the federal government to control and oversee with an oversight committee all the insurance commissioners for each state.
Swain: Most of us have clients that have needs in places other than Nevada, and to obtain a license in a state where you may only have one piece of business to meet those needs can be a challenge. Some states are very easy to obtain licensing but other places are both difficult and expensive.
Hernandez: The National Association of Registered Agents and Brokers (NARAB) helps with this. Reciprocity would allow us to do business in all states. There will still be some fees but it won’t be as burdensome. The oversight group will make sure all of the license fees are collected properly and everybody is complying with states’ regulations so no one can circumvent any rules of that nature.
Burns: The Terrorism Risk and Insurance Act (TRIA) provides a back stock to the insurance industry in the event of a terrorism event. If the secretary of the treasury identifies an act as a terrorism act then the terrorism back stock from the federal government kicks in.
Pike: The federal government will protect an insurance company once they have exceeded 15 percent of their policyholder surplus due to a terrorism act, but they’re changing it from 15 percent to 20 percent. Now the insurance industry is going to face another five percent of their policyholder surplus as a “deductible” in the event of a terrorist act. It is a law that we are required to provide terrorism coverage quotes to everybody we do business with, but the individual business owner has the right to opt out. A smarter system would be like a national flood program where they have “terrorist zones” that would require people to mandate it. It would protect the balance sheet of this country. Imagine what happened in New York City happening on Las Vegas Boulevard and think of the impact that would’ve had on the economy and the willingness of people to invest and build casinos. It’s a necessary evil in the environment that we live in today but how the government is delivering it is always up for debate.
How would the Margins Tax affect your clients?
Burns: It would be devastating to small business in Nevada. There’s an argument behind needing to address our education system and provide support. However, this particular bill is catastrophic in what it does to small business and its ability to hire new people or for new businesses to start. We know there are businesses standing on the sidelines in other states waiting to come to Nevada after we have addressed the Margins Tax Initiative in November. Those jobs aren’t going to come here if those taxes are passed. We absolutely need to address education, but not through this bill.
Pike: The reason it’s gaining so much momentum is because people are pushing the fact that the money is allocated towards education, and we’re 50 out of 50 states in education. The truth of the matter is we have a state government that is dysfunctional in its accounting practices. The funds are dedicated to go into a fund for schools, but there are no restrictions or limitations. The state government can then turn around and pull money out of that to go build a road or to pay for the health welfare benefits of the unionized workers. Nobody would argue against needing to fix our educational system, but before we try to raise taxes we have to take a look at our internal procedures and make sure whatever money we raise for education stays in education.
Hernandez: It opens the door for other taxes. The uninformed voter just sees two things: money for schools and we’re helping education, and businesses need to step up to the plate. They don’t realize what the effect is going to be. The next thing we’re going to see that’s already starting to pick up steam is a minimum wage increase. We’ve priced ourselves out of the market as far as small businesses go.
Dahan: The problem is we never seem to have a narrative that justifies why we shouldn't spend money in this fashion. All the other side really has to say is that it’s for education and it eliminates all discussion.
Swain: Many businesses over the last 10 years didn’t survive this downturn in the economy, and many businesses had to revamp to be much leaner. Now to throw this out there when we finally see a small glimmer of hope in the future is really going to create difficulties for many more businesses.
How does worker’s compensation affect businesses?
Hernandez: The split point number is used to max out a catastrophic claim. It was set at five thousand dollars but it’s been increased to $10 thousand. What happens is when you file a claim, anything over goes into an excess. Your E-Mod (experience modification or a multiplier applied to the premium of a costly policy) has a higher probability of billing out as that cap goes up.
Swain: It’s going to have more of an impact than just premium increases. It’s affected some of our clients’ ability to be able to qualify for jobs. Not only has the cost factor gone up, but if they can’t get work because of that, then it’s a problem.
Gary Daryanani: If your E-Mod is over 1 or 1.15, then no preferred carrier will touch you. You then go into an assigned risk pool where you’re paying 40 to 50 percent more of a surcharge.
Manning: There’s been talk over the years about combining healthcare and worker’s compensation together because they’re so intertwined. The increased cost of healthcare would affect worker’s compensation rates as well. The state sets the benefits for what will be paid to the injured worker and as the cost of those benefits go up, so does the cost of the worker’s compensation claim.
How can business owners manage deceitful claims?
Daryanani: You hire investigators, and you do a thorough job before you pay a claim.
Dahan: Some employers are much more cognizant of what’s happening around them, while others don’t have the ability to do so. It’s the culture and the environment. The politicians don’t realize that worker’s compensation is an issue.
Thompson: You have to be in sync with the claims adjustors. We have to combat it every single day. If you’re involved from the beginning and your clients understand they don’t have to just roll over and play dead to any claim, you can get on top of those claims quicker. I’ve seen a lot of claims get denied once you get involved.
Hernandez: It’s our job to continually review the loss runs, and it’s about frequency and severity. If certain types of claims are happening all the time, you get carriers to come in to do the right training and make sure the employees know the right safety procedures. If you’re having bad claims, you have to look at the cause of it, whether it’s the safety culture, the environment, etc. Bring in whoever you can to mitigate the potential for large claims.
What is the outlook of the insurance industry?
Manning: The industry has opened up in some respects because you are seeing more agencies starting from scratch. As agency owners, we have had to take a different approach. We have to invest a little bit more in our new people. That investment involves different financial incentives, better training, better culture and more support from the top down.
Harrison: The National Association of Health Underwriters have their own organization called the Young Agents Association of Health Underwriters where they are trying to recruit. In our industry, the average age is 57. It’s tough to get these young folks to keep up with the constant changes of legislation.
Thompson: We have to educate the community. We don’t have any perpetuation through generations. Our challenge is to get our industry information out and get people interested. It’s an exciting industry and it certainly is very fulfilling if you want to make those commitments. You provide a service that is above and beyond the average businessperson.
Dahan: The new agents are very well educated with new skill sets, and they’re going to reset the way we deal with our clients. They are going to reconcile human touch and technology. The jury is still out about whether or not they’ll be able to sustain the hardships we faced over the last 10 years. I don’t know if the new crop is going to be as resilient as we are.