Insurance industry meets today’s novel challenges
By Terry Troy
If you own a business in one of the major metropolitan areas in Ohio impacted by violence at the beginning of this summer, there’s a pretty good chance you got hit with a one-two punch. First the pandemic shut down your business, then your property was damaged.
It was enough to make even the most ardent of entrepreneurs fold the tent and go home.
Through it all, many business owners were able to realize that it was mostly property that was damaged and not their spirit. And while their losses were significant, they also realized that they could be made whole again, thanks to their insurance providers.
No matter how you slice it, the insurance industry is one of our state’s key industries, with 257 insurance companies based here, according to the Ohio Insurance Institute (OII). That’s not counting independent insurance agents, which number 71,405 licensed resident insurance agents and another 158,935 licensed non-resident agents who are allowed to operate in the state, according to the OII.
Another government agency, the Ohio Department of Insurance, monitors those 230,000 insurance agents that represent well over 18,000 insurance agencies doing business in Ohio. The industry also provides employment and financial security for a workforce of approximately 109,000 Ohioans and has built a very competitive and affordable market for risk management in companies large and small.
Both consumers and businesses benefit from the competition, which keeps premiums in Ohio among the lowest in the nation. In total, the insurance companies in Ohio write more than $95 billion in premiums.
While insurance is a critical and high growth industry, it hasn’t been easy for providers of late. Many are facing new challenges brought about by both the civil unrest and COVID-19.
“Our approach is to look at changes and challenges as opportunity,” says Craig Welsh, chief distribution officer at Westfield Insurance, headquartered in Medina County. “Collectively, the insurance industry is applying forward-thinking solutions to take care of customers, communities and employees during the COVID-19 crisis and, at Westfield, we are keeping the promises made to our customers and thinking how to help them overcome challenges that have surfaced in the midst of the pandemic.”
Based in Westfield Center, Westfield Insurance began with a group of farmers in 1848.
“Our roots and history are here, as is our future,” says Welsh. “Westfield was founded by farmers in Westfield Center, Ohio. It’s a great story that motivates us today, more than 170 years later.
“The farmers were essentially swindled by some unscrupulous insurance salesman from the east coast. So, they started an insurance company. That integrity, trust and caring about community still inspires Westfield today. As a mutual insurance company, we answer to our customers, which include a great deal of Ohioans.”
Today, Westfield’s insurance products are distributed through a network of more than 1,000 independent insurance agents nationwide. It also employs 2,400 people in the U.S. and is the largest employer in Medina County, with more than 1,500 employed at the company’s headquarters and throughout Ohio.
But Westfield is not the only large company in the state. It is just one of several major insurance companies that call Ohio home. Others include SafeAuto Insurance Group and Nationwide in Columbus and Progressive in Mayfield Heights to name but a few. And there are plenty of large companies that are not headquartered in the state but still do a ton of business here, such as State Farm, which is headquartered in Illinois, but has almost 20% of the market in Ohio.
But make no mistake, the insurance industry in Ohio has a significant impact on the state’s economy that extends well beyond its responsibilities to collect premiums and settle claims, says Welsh. There are multiple insurance carriers that are headquartered in Ohio, providing many career opportunities. Insurance creates tens of thousands of jobs across the state including underwriting, agents, claims adjusters, software developers, digital marketing to data and analytics to name but a few.
To clearly understand the size and scope of the state’s industry, you need to know the three basic distribution methods, which are further split up into business segments that include business, home, fire and casualty, automotive, life and annuity, health insurance, umbrella insurance, renter’s insurance, travel insurance and pet insurance.
But that list is by no means complete. To be sure, there are other forms of insurance as well. Risk management can be built around almost any endeavor. But these are the major segments most companies cover as a matter of course. There are, however, only three major methods of delivering insurance to businesses and consumers.
“When you talk about insurance distribution, how the end consumers or businesses get their insurance products, there are three basic ways it is delivered,” says Jeff Smith, CEO of the Ohio Insurance Agents Association. “The first way, and the most traditional, is the independent agent model, where the agent represents multiple companies, like Progressive and Westfield.
“Then there is the captive model where the agent represents a single company like State Farm or Allstate. The third way, which is the smallest but fastest growing model, is the direct to consumer approach where companies like Progressive and Geico have online businesses.”
And there are companies that use one if not all three of those distribution methods, which becomes something of a hybrid distribution. An agent might sell a Progressive product but may also compete against a Progressive online product or a product from Geico—where the consumer goes directly to a website and gets a quote.
However, independent agents in Ohio still write 42% of personal insurance and 85% of commercial business, says Smith. The captive model, where companies like State Farm, Allstate and Nationwide sell directly through “captive agents” has about 25% of the personal marketplace, while online and direct models would take up about 10% of the market, says Smith.
A quick check of the math shows that only equals up to 77% of the market. The rest comes from those hybrid situations, where a major company offers either both captive and independent agents or captive and online direct models to do business, says Smith.
While one would think that there is a tremendous financial disparity between insurance agents or brokers and the major companies that actually provide coverage, it’s not always the case. Take the Oswald Companies as an example. Founded in 1893, Cleveland-based and employee-owned, Oswald is one of the nation’s largest independent insurance brokerage firms serving clients across the globe. So brokerage firms and agents do have access to a lot of capital for growth.
However, each distribution model offers advantages for both the consumer and business owner. Buying insurance direct through either a captive agent or directly from a large company does offer the peace of mind that the provider can easily cover a claim or multiple claims. In a straight transaction for a specific kind of insurance, the captive agent or company may also offer better rates for that specific coverage.
However, if your insurance needs are more complex, such as with a small business, working with an independent agent who can then cherry-pick coverage from many companies may offer distinct advantages. Agents can find the best coverage from multiple sources, and then package them together to create coverage that is unique to your family or business.
“With an independent agent, one of the biggest differentiators is that we can tailor coverage to suit the client’s needs,” says Smith. “Whereas if you buy from a captive agent or online directly, it’s a little like buying from the government.”
Another more important aspect of dealing with an independent agent is that the agents often know the people they are working with personally and are familiar with the communities they serve.
“We are not operating out of a call center in California or India,” says Smith. “While big companies are focused on national markets, an independent agent is focused on the local economy. Most independent agents write business in six counties of less—that is our geographic footprint. We know the difference between Chagrin Falls and Cuyahoga Falls.
“By the same token, we also know people within our communities. Large companies often use algorithms to figure out personality traits of an individual. While independent agents have access to that kind of information, they also know their customers. Their kids go to school with their customers’ kids—they really have their finger on the pulse of the community and are vested in its success.”
But regardless of the distribution method you choose, many insurance companies in Ohio face the same basic challenges today.
“The pandemic has impacted all lines of insurance at once,” says Welsh, when asked about the challenges the industry is facing today. “Overall, insurance claims will increase in areas such as workers’ compensation and retailers who use delivery services. Insurer premium revenue will decrease with more unemployment, less manufacturing, less driving and less economic activity overall will lead to a reduction in premiums.
“But, again, with these challenges, there is opportunity,” Welsh adds. “Westfield is helping provide new risk control solutions to help customers, such as restaurants here in Ohio and across our operating footprint, navigate in this new environment.
“As with any major disruption, COVID-19 has produced a few winners—think of the companies that made personal protective equipment or hand sanitizer—but for the most part, the pandemic will require new processes to protect the health of staff and customers. Westfield is offering advice, insight and recommendations of strategies to grow so that restaurants can emerge as a better and efficient version of its former self.
“Regarding the protests happening across the country, there is also opportunity here for insurance companies. As a leading employer in Northeast Ohio, we are committed to listening, learning and leading to advance efforts and initiatives for race equity.”
Certainly, the economic pinch facing consumers and small businesses is another challenge that will impact the insurance industry.
“One of the biggest challenges faced by the independent insurance agents today comes in the form of people who have been furloughed or lost their jobs,” says Steve Brown of Payne & Brown Insurance, who also serves as chairman of the OIAA. “We have a lot of people who have lost income, such as restaurant workers. People have to budget to pay their bills and one of the bills they have to pay on a monthly or quarterly basis is their insurance.”
It’s especially challenging for smaller independent agents, who often know their clients on a first name basis.
“Fortunately for us, many insurance companies provided rate relief for our customers by either giving them money back or crediting their next installment,” says Smith. “We have to take those calls one at a time because each person has a different story.
“Our company partners [insurance providers] have been fantastic in working with us and our customers, allowing many to not make a payment for 60 days or more.”
But many people who delayed making a payment in April or May, also deferred in June.
“Now it’s July and August, and it’s catching up with everyone who delayed payments,” says Smith. “The only trouble is that some of our customers still don’t have a job or are unemployed or are just not making the same amount of money that they used to make.
“So we take them one at a time and are doing our best to help each and every one of them.”
Even major insurance providers have a built-in sense of community, especially those headquartered in Ohio. If you have an issue with paying an insurance bill, contact your provider. You may be surprised at the amount of help they are able to provide, especially in this “new normal.”
“Our industry is unique as we can both protect our customers and give back to our communities,” says Welsh from Westfield. “Insurance helps people when the unexpected happens and that is incredibly important to help Ohioans rebuild and regain normalcy.
“Helping our friends and neighbors during time of need is at the core of what we do at Westfield, but we’re also committed to improving the safety and stability of the communities around us. Long after a natural disaster hits, Westfield focuses on providing funding for the long-term through disaster recovery.”
And it may be a long time until business has fully recovered. n
“Collectively, the insurance industry is applying forward-thinking solutions to take care of customers, communities and employees during the COVID-19 crisis.”