Online, Direct Sales Continue to Grow
Online direct sales of insurance to small and medium-size businesses in the U.S. has become a hot market.
While no one is predicting that commercial insurance will be primarily sold online any time soon – and may always primarily require the use of a broker or agent — insurers that do offer coverage to small and mid-size businesses are seeing substantial growth.
Ted Devine, CEO at Chicago-based Insureon, predicted that five percent of small to medium-size insurance in the U.S. will be sold online within 10 years.
“Our online platform is about 10 years old, but the Insureon brand and our real focus on it started four years ago, and we’ve been growing at about 30 percent a year,” said Devine.
Pioneer in the Market
Hiscox USA was the pioneer in direct-to-small business online sales in November 2010.
“We’ve grown from zero in business in 2010 to over 100,000 customers currently, and with sales of thousands of new policies each week,” said Kevin Kerridge, head of small business, direct and partnerships, at the company. He started a similar program in the United Kingdom before moving to the U.S.
Hiscox and Insureon will soon be joined by Berkshire Hathaway Direct, which planned to launch its online product next year. ACE Group also has online small business products, although they are targeted to brokers and agents.
Warren Buffett’s Berkshire Hathaway is pivoting away from its once lucrative, but now lagging reinsurance business in favor of Berkshire Hathaway Direct, an online, direct distribution system for small and medium-size businesses.
“I wouldn’t play it any other way,” Chairman and CEO Buffett told the “Wall Street Journal” in July. Buffett is banking on a success similar to the company’s popular Geico Internet-only, direct-to-consumers auto policy service.
“We plan to launch this service sometime next year,” said Kara Raiguel, president of Berkshire Hathaway Direct, beginning with Business Owners Policy (BOP) and workers’ compensation.
“As we move along, we plan to add other products such as umbrella, commercial auto and professional lines,” she said.
Raiguel added that Berkshire Hathaway Direct is currently licensed in 48 states. “We expect to be licensed in all 50 states when we launch next year,” she said.
The Hiscox online direct sales program for small businesses began with professional liability. Since then, the online commercial lines program, the first in the U.S., has expanded to offer BOP and general liability coverage.
The solutions are currently available in 38 states and D.C., and will be available nationwide within a year, said Kerridge.
“Technology empowerment is what this effort is all about.” — David Charlton, president, micro & specialty products, ACE Commercial Risk Services
“Consumers expect their online business insurance purchase to work the same as it does for all of their transactions online. You can purchase cars online directly without any human interaction and you should be able to do the same for business insurance,” he said.
“To take full advantage of the online channel you need to commit to creating a fully automated process. Every workaround and human review adds time and cost to the process and makes it less appealing to consumers.”
Starting its online, direct distribution for small businesses four years ago, Insureon currently represents about 35 carriers and 175,000 clients, with $210 million in annual premiums.
Devine noted that Insureon, which is licensed in 48 states, gets about 400,000 hits a month on its website, all driven by online digital marketing strategies.
At its start, Insureon offered BOP, workers’ compensation and liability. Since then, it has added commercial auto and cyber, Devine said.
The company also has a B2B business, Insurance Noodle, which Insureon acquired last year, which provides “access to our markets through technology for about 6,000 independent agents,” said Devine.
Empowered by Technology
ACE Commercial Risk Services (ACE CRS), which targets small U.S. businesses, also uses appointed agents and brokers as part of its move into the online market on March 30, when it launched new packaged BOP insurance products.
“Small businesses continually struggle to find proper insurance coverage due to a lack of optimal choices, issues with cost, or uncertainty about the scope of coverage that is most suitable for them,” said David Charlton, president, micro & specialty products, ACE CRS.
“Technology empowerment is what this effort is all about.”
The underwriting platform, ACE Solutions Fast Track, quotes and issues small business and specialty insurance for brokers in less than five minutes, according to the company, by utilizing real-time third-party data analytics.
In early August, ACE CRS launched an expanded list of online products and coverages to include Lessor’s Risk BOP; Liquor Liability; Commercial Umbrella; Employment Practices Liability Insurance BOP Enhancement; Privacy Liability & Data Breach Insurance BOP Enhancement (Cyber) and Professional Liability BOP Enhancement.
Then in late October, the company launched a Producer Portal, which focuses on increasing functionality and simplifying the user experience. The new online portal gives the company’s small business clients an easy-to-use application, providing brokers real-time access to ACE’s systems and expertise, according to ACE.
Regardless of the technology advances made, Devine said, agents and brokers will continue to be the majority distribution channel for reaching small and medium-size businesses for at least the next 10 years.
He noted that selling auto insurance online did not really reach a tipping point until about 10 years after it was introduced in the market.
“Given the complexity of the product, it’s always going to have to be delivered with a lot of advice,” Devine said. “Whoever delivers the best advice is going to win.”
He added that each industry is different. “A mobile food truck is different from a contractor, etc.,” he said. “So you’ve got to have a lot of different industry expertise.”
“This is not going to be a commodity business, even though the technology will continue to make delivering the business easier and easier,” Devine said. “But we will always need people as well.”
Revamped Program Takes Flight
When the merger of American Airlines and U.S. Airways was completed on Dec. 9, 2013, creating the world’s largest airline, the task of integrating 100,000 employees covered by workers’ compensation looked like Mission Impossible.
But newly named director of American Airlines workers’ compensation Jennifer Saddy, who formerly was director of workers’ compensation at U.S. Airways, seized the bull by the horns, and in short order, a complete overhaul of the massive workers’ comp program was on its way.
“We basically started an entirely new workers’ comp program,” said Saddy. “We put together a new workers’ comp team and redefined the roles of that team. We selected almost all new service vendors.
“So from my perspective, we were doing all this and at the same time working with our front-line operations folks to get this accomplished while they were involved in very different aspects of the mergers and integrations,” said Saddy, who also holds the title of director of corporate insurance and risk management.
Known as an enthusiastic, highly focused team leader, one of the first initiatives Saddy undertook was to realign her team’s goals and put a plan in place to resolve the 5,874 American Airlines legacy claims.
Pulling the Team Together
Saddy and her brokers at Willis held weekly calls with the adjusting team to discuss the most costly claims and to ensure the team had a plan to reach a resolution.
The combined forces achieved a consequential 20 percent reduction in overall open claims, and a 29 percent reduction in aged pending (claims more than two years or older) in under one year.
“We started the closing push at the end of January 2014 and results are through year ending Dec. 31, 2014. In fact, as of Dec. 31, 2014, the combined airline had less open claims than pre-merger American Airlines stand-alone.”
Right from the start, Saddy was determined to move out on as many fronts as possible.
She quickly reached out to the new airline’s four big unions.
“I meet with the unions on a quarterly basis,” said Saddy. “But for the most part, our union contracts don’t have a lot of information about workers’ comp. So some of the most common complaints from the unions have been customer service-oriented and the employees feeling they are not being supported and getting phone calls returned. If the adjuster is not returning a phone call, I need to hear that real-time.”
“We basically started an entirely new workers’ comp program. We put together a new workers’ comp team and redefined the roles of that team.” — Jennifer Saddy, director of workers’ compensation, director of corporate insurance and risk management, American Airlines
As part of her plan to roll out the new workers’ compensation plan as seamlessly as possible, Saddy called a two-day, all-hands-on-deck summit that included her team and all vendors.
“We discussed the merger of the two airlines as well as outlining goals and expectations,” said Saddy.
“However, to make it not only interesting but fun, we did a ‘rock star’ theme. Only rock stars were invited to come as a part of the new program.”
Her rock stars included the 19 members of her workers’ compensation team, newly chosen TPA Sedgwick, Willis, and various other vendors.
“We are now planning for our second annual summit,” Saddy said. “And instead of a rock star theme, in this one we are all superheroes.”
Another aggressive, vital step Saddy took early on was to hire Sedgwick as the combined company’s TPA. An RFP was issued in early April 2014, and Sedgwick was hired on May 23 of that year.
Sedgwick has 79 adjusters working on the American account: 54 adjusters who are entirely assigned to the account, with 25 adjusters that are “designated” (they also handle claims for other accounts).
“The Sedgwick team has worked incredibly hard this past year to make our workers’ comp program a success,” said Saddy. “As we have undergone significant change due to the integration, they have proven themselves to be a flexible partner and embraced our new culture.
“They were quick to adopt the realignment of our workers’ comp goals, while delivering immediate results,” Saddy added.
Changes in Claims Management
Tied into the new agreement with Sedgwick was a revamp of the account instructions an adjuster must follow. Some examples of the changes include:
- The adjuster must receive approval from Saddy’s team prior to assigning defense counsel.
- The adjuster must receive settlement authority from Saddy’s team to engage in settlement discussions with the employee/attorney.
- The adjuster reserve authority limit was reduced.
Another very successful initiative has been the significant expansion of the company’s nurse case management program. Saddy and her team selected three vendors, with more than 30 nurses overall assigned to the program.
“One of the things that I think has been very helpful in moving a claim forward, reducing the duration and getting the employee back to work sooner is that we’ve assigned nurses to basically every claim where the employee is not performing their regular job duty, or where they’re working with some kind of restriction,” said Saddy.
The role of the nurses is to be a medical advocate and communicate with the employee. They also provide return-to-work information to the front-line managers as well as coordinate with the medical team involved.
“The nurses’ goal is to be the liaison between all three of these parties to get information to where it needs to go,” said Saddy.
Saddy also moved the responsibility of communicating with an injured employee from her team to the local supervisor or manager. This provided more personal outreach, Saddy said.
This transition also enabled the corporate workers’ comp team to better manage the overall claims process, including oversight of service partners.
On another new front, at the end of last year, Saddy and her team called a summit meeting of all the attorneys who handle claims for American.
The team presented a litigation performance scorecard that outlined how attorneys’ progress would be managed and how their results would be measured.
Safety and Training
Training is a hallmark of Saddy’s program. Claims adjusters, nurses, doctors and union members who are involved in the workers’ comp program are regularly given training in the airport environment and maintenance facilities, as well as at the same on-site facility where flight attendants train.
“We have the adjusters push and pull a 250-to-300 pound beverage cart,” said Saddy. “We also have them open up the aircraft door on every airplane type we use. We also have them train on the baggage ramps, where many of our serious injuries occur.
“This gives them a better sense of how airline employees work on the job.”
Another innovative injury prevention program that Saddy and her team have been involved with is the expansion of on-site athletic trainers through Fit Matters. American has provided fitness equipment for use by its employees.
The result, Saddy said, has been an 11 percent reduction in soft tissue/musculoskeletal injuries, which represent the majority of the company’s injuries.
These athletic trainers work with employees to develop proper lifting techniques and emphasize the importance of stretching before shifts.
Saddy and her team also established two pharmacy providers, using Helios as its pharmacy benefits manager and Prium to review pharmacy data. Based on a variety of triggers and warning signs, they perform physician-to-physician discussions to ensure appropriate prescriptions.
“By partnering with these two vendors and staying focused on early intervention, we have seen success in reducing the risk to our employees from over-prescribing while reducing pharmacy spending to approximately 7 percent of total medical spending, compared to the industry average, which is approximately 15 percent of medical spending,” Saddy said.
Since Saddy and her team have swung into action, all of the workers’ comp metrics have improved — and all of the reductions are significantly better than industry averages.
Among the most impressive achievements was a 22 percent reduction in collateral requirements from its carrier, based on the airline’s improved financial condition and the new workers’ compensation approach and processes.
“It’s this type of partnership that helps us reduce workplace injuries, and in turn, means a healthier, safer workplace.” — Paul Morell, vice president of safety, security and environment, American Airlines
In addition, total incurred costs decreased by 12 percent, or $80 million, and total outstanding reserves were reduced by 10 percent, or $27 million, in the past year. The current year closing ratio (current year defined as claims that open and close within the same year) increased to 72 percent, compared to the prior year’s closing ratio of 60 percent.
Not only was Saddy’s team able to close more current year claims than in years past, but they also closed them more quickly while reducing costs.
“This illustrates that the employee is receiving more timely information and appropriate care while allowing the employee to recover and not only return to work sooner but to return to their family as well,” Saddy said.
Paul Morell, AA’s vice president of safety, security and environment, said, “Part of being an industry leader in safe and reliable airline operations is making sure our safety programs are reflective of the need and risk of our operations. By working together with our workers’ comp team, we are able to develop programs that address any issues immediately.
“It’s this type of partnership that helps us reduce workplace injuries, and in turn, means a healthier, safer workplace,” he said.
For Saddy, workers’ compensation is about helping an employee during a difficult time.
“Workers’ compensation can be complex, challenging and confusing, but it doesn’t need to be,” she said.
“At the end of the day, it’s about engaging our employees and providing the best medical care available, allowing our employees to return to work as soon as possible and as safely as possible.”
Read more about all of the 2015 Teddy Award winners:
Revamped Program Takes Flight: The American Airlines and U.S. Airways merger meant integrating workers’ compensation programs for a massive workforce. The results are stellar.
Checking Out Solutions: From celebrating safety success to aggressively rooting out fraud and abuse, Stater Bros. Markets is making workers’ comp risk management gains on multiple fronts.
Revitalizing the Program: In three years, the Columbus Consolidated Government was able to substantially reduce workers’ compensation claims costs, revamp return-to-work and enhance safety training.
Spreading Success: Barnabas Health wins a Teddy Award for pushing one hospital’s success in workers’ comp systemwide.
Shielding Art From Wicked Weather
When art attorney Scott Hodes set out to transfer some artwork from his residence in Chicago to a newly purchased townhouse in Miami, he was surprised to learn that a number of art insurers in South Florida did not offer fine art insurance during the hurricane season.
Hodes, senior counsel at Bryan Cave LLP, also learned that the building of warehouses in the Miami area custom designed for high-end objects such as fine art was a booming business.
Such structures allow collectors to store their valuables in well-protected art warehouses during the hurricane season and then have the warehouse move the artwork back to their residences from December 1 through June 1 when hurricanes generally are not a threat.
“The art warehouse business has really taken off in Southern Florida and elsewhere around the world,” said Hodes.
London-based Robert Read, head of art and private clients at Hiscox, agreed.
“I think art warehouses are an essential part of the fine art business, whether it’s a pre-exhibition consolidation or a place for private collectors or dealers to store things. People are increasingly using art warehouses as a good way to mitigate risk.
“Also, if you have pre-agreed capacity with some of these shippers and packers at these storage locations, [then] in the event of a disaster, you always have a storage spot and you’ve also got people who are going to allocate their resources to help you,” Read added.
Typically, the way people insure their items in an art warehouse is on an all-risk of physical loss or damage basis, he said.
“It’s a very broad form where everything is covered apart from a few exclusions. Then, of course, what underwriters and insurers have been looking at is that there is a vast range in the quality of things that are stored at the art warehouses,” he added.
“I think art warehouses are an essential part of the fine art business … .” Robert Read, head of art and private clients, Hiscox
“Chubb has been a consistent, year-round player in the South Florida market,” said Melissa Lalka, Whitehouse Station, N.J.-based fine art manager of Chubb Personal Insurance for Chubb Group of Insurance Cos.
“We come up with guidelines and parameters of risk protection so we don’t have to be a player that is in and out of the market when it comes to hurricanes.”
Chubb interacts with the growing number of warehouses in the South Florida market by having a number of specialists, including ones in South Florida, to help its customers there inspect warehouses, said Lalka.
Lalka added that Chubb keeps a database of preferred vendors so if their clients are going to be moving items into a storage facility, Chubb can be very nimble in advising which facilities are well protected.
“One of the questions carriers want answered, before agreeing to insure collections located on the coast of Florida, is if there is a disaster plan in place.” — Sandra Berlin, vice president, Willis
Sandra Berlin, Chicago-based vice president at Willis, said: “As a broker who specializes in insuring fine art collections, it is important to be able to effectively place coverage throughout the United States, including second and third homes in windstorm-vulnerable areas such as Florida.
“One of the questions carriers want answered, before agreeing to insure collections located on the coast of Florida, is if there is a disaster plan in place,” Berlin added.
“Depending on a collector’s location in relation to the flood zone, it can be challenging to obtain all-risk insurance with low deductibles and competitive costs.”
New York-based Jennifer Schipf, senior underwriter, fine art and specie at XL Catlin, said her company offers a full range of art insurance in South Florida, where they have been operating for 14 years.
Do Your Research
“The important thing for clients is that they really do their research to find a warehouse that not only specializes in fine art — and there are several wonderful ones in the South Florida area — but to also do their research among friends and peers to make sure they’re getting good recommendations and good feedback from people who have used the same warehouse they are considering,” Schipf said.
It’s also important to know what type of warehouse facility you are considering, Schipf said. “If it’s a fine art warehouse, they should have climate control to protect their art as much as possible,” she said.
It’s very important for collectors to understand that most art warehouses make sure they are not liable for loss of property of more than the required 60 cents per pound of the property they are holding, which only scratches the value of art these days, Schipf said.
“So it’s absolutely critical that if clients expect to have insurance coverage when their artwork is in the warehouse that they secure the coverage themselves,” Schipf added.
Another trend in the art market that is contributing to the growth of art warehouses is an increasing number of people who “buy and hold” art as an investment or who may not have the property or desire to house the art themselves, noted Read.
That often occurs with individuals “who use the big free port warehouses located in Luxemburg or Geneva, and there’s a big one in Singapore and in Monaco where art is held in tax-free limbo and sold within those warehouses,” Read said.
Museums Need Storage
Museums have increasingly become a big player in the art and collectibles storage business, said Linda Sandell, Huntington T. Block’s chief underwriting officer.
“As I have traveled to various museums around the country to speak with registrars and others responsible for protecting collections, a common theme is the lack of storage space available to house their permanent collections,” Sandell said.
“Most collections continue to grow and expand through acquisitions and donations but in many cases there is only enough exhibition space to display a fraction of the objects in the collection. The rest must remain in museum storage areas that are reaching or are at capacity.
“Increasingly, museums must consider leasing outside storage space for a portion of their permanent collection,” Sandell added. “As many specialty art storage warehouses are at or near capacity, finding temporary space, especially for a large number of objects, can be challenging.”
South Florida is a showcase for model art warehouses.
“Increasingly, museums must consider leasing outside storage space for a portion of their permanent collection.” — Linda Sandell, chief underwriting officer, Huntington T. Block
Fortress, which was built as a state-of-the-art, steel-and-concrete facility 32 years ago, and is the only South Florida art warehouse that has weathered hurricanes Andrew, Wilma and Katrina, also has warehouses in Boston and New York.
“We store art, furniture and valuables like collectibles,” said Vice President Kimberly Jones. “Our facility has been vetted and approved by most of the major insurers, including Chubb, XL Catlin and AIG.”
Fortress, which is an eight-story full-service warehouse, has storage spaces of all sizes, from about 12-square-foot units to those that are in thousands of square feet, said Jones.
“We are willing to customize spaces,” she added.
Fortress recently completed an expanded and renovated private viewing gallery as “we realized art pieces were getting larger,” Jones said. The viewing gallery is open during business hours Monday through Friday.
“When collectors store things with us, they have the option to purchase insurance through our policy for an additional charge,” Jones said. “Or they can have their own fine art coverage, which most of them do.”
A similar facility, Robo Vault, has also opened in South Florida. The facility has an area for storing wine and seven enclosed garages with a robotic arm that can store and retrieve exotic and antique automobiles.
Museo Vault, which opened for business in late 2008, is another state-of-the-art fine art and collectibles warehouse. The idea for Museo arose after the busy 2005 hurricane season, highlighted by Hurricane Katrina.
Museo Vault was designed to withstand even the 200 mph winds generated by the most powerful hurricanes, said business manager Vanessa Amor. Art is stored at least 35 feet off the ground to protect it from even the most aggressive storm surge.
“The insurance companies got together and created requirements for storing fine art in a facility such as ours,” said Amor. Museo Vault can also provide insurance if the client wants to buy it through them.
Amor stressed that Museo Vault was not a self-storage facility. “You can’t just walk in here to access your valuables,” she said. “Everything is very controlled. You have to have an escort with you at all times.”
Museo Vault has a very robust 24/7 security system. “You name the sensor,” said Amor, “we have it.”