Insurance Industry Overview
As advancing technology and big data play increasingly vital roles in the insurance industry, a strong commitment to the unique needs of each client-big, small and all in between-continues to be the bedrock of success.
In its beginnings, the insurance industry, both its commercial and personal sides, was built on relationships. Everyone had a local agent. Today, that’s changing. Instead of mailing a check to your agent and calling them to report a claim or discuss shifting coverage needs, a lot of people buy policies online, have their premiums automatically drafted from their account and call a 1-800 number to make a claim.
Yet Montgomery’s insurance industry leaders stress the personal touch still matters and say a hybrid approach that blends the convenience of mobile and digital offerings with customized service is the way to win, by drawing new customers and holding onto existing ones. According to Jimmy Parnell, Alfa President, CEO and Chairman of the Board, evolving technology makes this possible and preferred by many customers. “While I don’t think computers and mobile phones can ever replace the value provided by friendly, helpful and knowledgeable agents, Alfa is changing to meet the needs of our customers,” he said. “We’ve invested in one of the largest technology upgrades in the country, and we are developing new products, services and pricing models so we can be more competitive.” Some of the available options making insurance easier on consumers include online quoting, mobile apps and e-signing for documents.
Drew Gunn, Vice President, Surety and Commercial Insurance at Thompson Insurance, Inc., shared Parnell’s thoughts, calling technology a “great thing” for his industry because in addition to making the process of getting and staying insured simpler, it broadens knowledge, allowing for the delivery of more effective results. “We have access to risk management platforms on which our insureds are able to keep track of various items in one easy dashboard. They are able to get policies, procedures, facilitate safety training, remain compliant with OSHA standards and HR issues and much more, all in one place,” he said. “We are able to provide more comprehensive solutions when it comes to risk management and compliance, as an added value to our insureds.”
Businesses of all kinds are capturing and examining huge amounts of data to better their processes and boost their profits, but the endless flow of available digital information is transforming the insurance industry. It’s always been a number’s game, but with the industry’s heavy reliance on data, its reliance on technology is being pushed up too. “Data is the biggest technological driver of insurance,” Parnell said. “The amount of information we’re able to analyze is growing each year.” This massive volume is behind the major trends affecting the industry, such as cloud services becoming essential and automation becoming key to store data as well as quickly and accurately analyze it. Many national industry experts claim that insurance companies making strategic investments in their IT development to leverage data will grow faster than competitors.
More data brings benefits for consumers too, improving service by making products more tailored to suit specific needs and increasing their flexibility. “The more we use technology, the better job we are able to do at understanding the risk profiles of our insureds,” Gunn said. “Many of our carriers are using technology and various types of analytics to better predict loss occurrences and prepare for those situations in advance. This all allows us to make better and more efficient recommendations.”
Parnell agreed. “By being able to understand more about your home, cars, driving habits and other factors, we are able to customize a product and price to fit your needs,” he said. He also noted that more data means more precise pricing, which translates into savings for customers.
But all this information also puts a burden on insurance companies to manage it and use it wisely to stay on top of emerging threats, as Barrie Harmon, Founder of Harmon Dennis Bradshaw, Inc. explained. “Although the insurance industry’s primary purpose is to provide protection from litigation and catastrophic losses, it has continued to adapt to events and exposures that have developed recently, such as terrorism, cyber liability, viruses, technology breaches, etc.,” he said. “Thus, our industry has a significant responsibility to be aware of new insurance exposures and keep our clients informed and maintain the proper coverage.”
Alabama Department of Insurance Commissioner Jim Ridling echoed the industry experts on the advantages of technology with a caveat. “From advanced telemetry that tracks driving records to sophisticated computer models that rate insureds on a vast array of variables, the industry is making use of both existing and emerging technology as they seek to refine ratemaking and gain competitive advantages,” he said. “As would be expected, these changes have both champions and critics, as customers might have a more difficult time determining exactly what goes into their rate.”
Keeping pace with the constant changes in technology is a priority for Ridling and his team. “We will continue to fulfill our mission to protect the consumer as that landscape continues to evolve,” he says. Technology has and will continue to be the force behind a lot of the industry’s changes. But that’s ongoing. Gunn pointed to several current industry trends focused on liability, property and cyber insurance. “On the liability side, there is a big trend towards litigation, especially as it pertains to auto-related claims. These judgments are growing and growing and therefore, understanding your limits of insurance is key to help protecting your assets in the event of a loss,” he said.
In the world of property insurance, replacement costs are on the rise. “Because of factors like increasing materials prices and supply chain disruptions, replacement costs are going up and must be accounted for when evaluating your property values for insurance coverage.” Gunn said. And like the rest of the world, the insurance industry has to keep a watchful eye on cybercrime and provide customers with policies to protect from this growing problem. “Hacking events are becoming more prevalent, even for small businesses because typically they have less sophisticated network security protocols and protections,” Gunn said. “Cyber policies are often very different from carrier to carrier as well, meaning that it is important to consult with an agent who has a great deal of expertise understanding the different terms and conditions from carrier to carrier and how they can affect your business.”
In Montgomery, the insurance industry delivers more than the assurance that property and livelihoods are protected. With commercial and personal brokers, agents and massive companies combined, it makes a big mark. Alfa is one of the largest employers in the River Region with 816 in its Montgomery office, and Harmon Dennis Bradshaw has approximately 50 employees.
Ridling touted industry’s employment footprint, but also noted how it touches and enhances most of our lives. “This industry employs thousands directly but also impacts other businesses such as contractors and auto body shops, not to mention the healthcare industry,” he said. “We have some of the best and brightest insurance people in our area making sure people are protected when bad weather strikes or a car accident happens. Insurance helps to restore them and protect them financially when a covered loss occurs.”
David Dennis, President of Harmon Dennis Bradshaw pointed out the wealth of options that a large local insurance industry brings to area’s business community. “The insurance industry in Montgomery has all levels of expertise ranging from smaller agencies that cater to homeowners all the way to larger agencies, such as HDB, that can provide international and specialty coverage to larger businesses with 500-plus employees,” he said.
Parnell also stressed that he and his team strive to be “good corporate citizens,” giving back in various ways at a high level. “Our employees are collectively the largest supporter of the River Region United Way, and we support a variety of charities through our Alfa Foundation as well as the Federation’s Alabama Farmers Agriculture Foundation.” In addition, Alfa awards more than $250,000 in scholarships annually, and its employees routinely gather in Alfa’s onsite cafeteria to prepare hot meals that they deliver in teams in support of Meals on Wheels.
But the insurance industry’s core function is still the most valuable tool it offers when it comes to its role in our area’s economy, as Gunn outlined. “Understanding how to mitigate risks and put together comprehensive insurance plans for our insureds allows them to better protect their business, their people and their assets,” he said. “When businesses are protected from risk correctly, they can protect themselves from major catastrophic situations because they know they have the proper coverage to help facilitate their recovery. Ultimately, this helps these businesses stay in business when the unexpected happens, which keeps their employees employed and affects the overall economy for Montgomery and the River Region in a positive way.”
Harmon founded his firm in 1977 and has watched the industry shift and progress through the decades. In his mind, no matter where technology and future changes take it, long-term prosperity in the industry will always depend on the people in it. “The insurance industry is no different from any other industry. To compete effectively, we must continue to devote resources and personnel to be sustainable,” he said. “Our success for the past 45 years results from our commitment to the foundation of hiring and developing an outstanding management and support team.”
Local agents specializing in personal policies weighed in on the most common coverage need for individuals.
Q: What’s trending in the insurance industry?
“Real-time engagement continues to be a great opportunity for insurance, especially for medical malpractice and workers’ compensation coverages. Insurance premiums are nothing more than future predictions based on past results. Inspirien is working to close that gap by leveraging technology to capture issues at the time they become a problem or before, allowing for real-time intervention. It’s the kind of differentiator in healthcare that not only lowers costs for insureds, but also has the ability to improve outcomes for patients and employees.” - Kathy Freyman, Chief Innovation Officer, Inspirien
“One trend we are seeing is consumers going online to insure their home, auto and so on, without ever speaking to an insurance representative. Unfortunately that can be dangerous due to the consumer’s lack of coverage knowledge or lack of knowledge of certain insurance definitions. A reputable insurance representative can guide you through the process and help you select proper coverages.” - Jonathan Waters, Allstate Insurance
“Insurance companies can use telematics information to reward your driving. For example, State Farm® Drive Safe & Save™ uses your smartphone, combined with a provided Bluetooth beacon, to collect basic information about your driving characteristics. The less you drive and the safer you drive, the more you could save on your auto insurance. Also, combining home and auto with the same company can provide bigger discounts.” - Cedric Bradford, State Farm
Q: What is the biggest challenge facing the insurance industry right now?
“One of the biggest challenges facing the commercial insurance industry right now is how to prepare businesses for the renewal increases in a hard market. Auto premiums have been increasing for several years due to billboard lawsuits even if the client was at fault. Property premiums are increasing due to numerous destructive hurricanes and storms. Umbrella premiums are also increasing due to unexpected verdicts. Trying to prepare your customer’s organization for a renewal increase is a huge challenge for commercial insurance agents.” -Todd Johnson, Vice President, Palomar Insurance
“The biggest challenges facing the employee benefits insurance industry is the continuing rise in the cost of healthcare and the rising relevance of mental health. These factors cause undue stress on employers and employees because shortfalls in coverages can be financially and personally devastating to the employees. Often, there is lack of alignment between employee healthcare needs and benefits packages offered. Tailoring benefit offerings to employee needs is crucial to hitting the sweet spot of comprehensive coverage and well-scaled costs.” -Stacia Robinson, Agency Principal, The BeneChoice Companies
"There are several business challenges that established agencies are facing as they try to meet new customer needs while improving core agency functions. Some of the issues are the cost of maintaining a high level of insurance technology, which has now become a norm in employee benefit consulting and is causing fierce competition among players. Every insurance agency is now looking for ways to leverage and incorporate technology into their business growth strategy. Alliance Insurance Group has created its own solution for benefit enrollments. Alliance Enroll is a FREE service we provide to clients if we work with them on their employee benefit programs.” -Mike Hicks, President, Alliance Insurance Group
Q: Am I Covered?
Ever wonder if you have the right line-up of insurance policies to protect your business and yourself? While every situation is unique with unique risks, MBJ asked a few local experts for their insight.
Drew Gunn, Vice President, Surety and Commercial Insurance at Thompson Insurance, Inc., outlined the basics on insurance needs for commercial customers. Some of the coverages that we see most businesses finding value in are:
- General Liability: provides coverage for our insureds against claims alleging their negligence as it pertains to property damage or bodily injury of a third-party.
- Auto: protects your fleet against theft, physical damage to your fleet as well as any liability claims arising from your fleet.
- Work Comp: provides protection for your employees if injured on the job.
- Umbrella or Excess Liability: provides additional limits of insurance over your other liability policies in the event of a catastrophic loss that depletes your underlying limits of insurance.
We also provide policies that provide coverage for real property like buildings and equipment. We also have specialized liability polices like Directors and Officers Liability coverage, Employment Practices Liability and much more.
Insurance premiums are going up for businesses of all kinds. David Dennis, President of Harmon Dennis Bradshaw, offered a few ways to save when it comes the rising insurance expenses for your business.
Implement an effective safety program.
Even though Workers Compensation insurance is the one of the few lines of coverage that hasn’t seen much of an increase in rates in 2020, it’s an area that you have more control over and can therefore potentially reap some savings to offset higher premiums in your other insurance coverage lines. Almost every business has a safety management program, even one that is written, but very few hold employees accountable to it and update it regularly. Make sure you have a return-to-work program, a well–executed training and safety program (including adequate personal protective equipment gear), a drug and alcohol testing program and the ability to track your claims to determine where your risks lie.
Practice risk transfer.
Most businesses do a terrible job at this and take on risks they don’t even realize they did simply by not reading the contracts they are signing carefully enough. The hold harmless and indemnification clauses embedded in these contracts need to be mutual rather than one-sided so that you are not assuming liability of the other party’s actions or inactions. Alternatively, if another organization is providing a service for you (including construction repairs, delivering goods and manufacturing a component product), you should make sure the contract reflects the fact that their insurance policies should respond on a primary basis via an additional insured provision without any contribution from your policy. This shields your policy from receiving these claims, which helps keep the costs of your insurance coverage down over the long term. Having the contract provide a waiver of subrogation on your behalf provides additional protection so that your policy limits aren’t eroded, and your loss experience isn’t negatively affected.
The number of captives was increasing even before rates started rising but they’ve exploded in popularity in 2020. There are many types of captives for casualty insurance, but for this example, we’ll discuss a Group Captive. A Group Captive is an insurance company owned and operated by captive members, strictly for the benefit of those members. Just like most Fortune 500 companies, it enables middle-market companies to increase their underwriting credibility through the benefit of collective purchasing power. Instead of an insurance company keeping the profits at the end of a policy term, a group captive divides the profits up and releases them in the form of a dividend to its members. Generally, in some Group Captives, up to 65 percent of your premium is YOUR loss fund. Whatever you don’t spend on claims is returned back to you. Captives are much more affordable now, and since they enable a business to capitalize on their good loss experience, the businesses that are well-run and are using proper risk management and risk transfer techniques stand to gain the most from using them.
Sometimes, self-insurance makes more sense. For instance, auto physical damage rates have soared over the past five years due mainly to distracted driving and the steeper repair costs associated with our more high-tech cars. Consider self-insuring the physical damage on your older auto units to help decrease the cost of your business auto insurance.
“Covid litigation is still the hot topic, centering around business interruption insurance. (Most policies exclude this, but litigation is still ongoing until the dust settles).” - David Dennis, President, Harmon Dennis Bradshaw
Like many sectors, the insurance industry is regulated and subject to various laws, most with an emphasis on protecting the consumer.
According to Jimmy Parnell, Alfa President, CEO and Chairman of the Board, Alfa never stops monitoring activity in Congress and the state legislature. “We are continually watching for legislation that would hinder our ability to service our customers or provide the best possible price,” he says. “It is important for insurance companies to be able to rate products differentially based on risk.”
Barrie Harmon, Founder of Harmon Dennis Bradshaw, Inc. noted recent judicial system outcomes that have also affected the industry. “There have been significant court rulings that have broadened the insurance policy language’s original intent that has resulted in increased litigation,” he said.