A Conversation With ... David Potter

How has the coronavirus pandemic impacted insurance coverage?
We’ve seen some industries that have increased, like housing. But some of the businesses, their revenues went down, and part of the time we base the insurance premium on their revenue because it’s a more accurate indicator of what we should charge for the exposure.

What about risk? Has that increased in certain industries due to the pandemic, and how is that affecting premiums?
Where we’ve seen it is on some hotels that I have insured; they don’t like the single entrance, from the parking lot to the room. And partially it’s because in some of these; not in Springfield, in other cities, they took hotels like that and made them overflow for COVID. All of a sudden, the major carriers said, “We don’t want any new hotels.” Finding a place for the hotels has become just a huge thing. And then the commercial umbrellas skyrocketed this year across the nation because of the exposure that they felt could happen from COVID. If they rented out their hotel, (they) could have some exposures. They just didn’t even know what could come out of this in litigation down the road. They went up three to four times in one year. So, if they had a $5,000 premium, it was $15,000 or $20,000. It was just astronomical increases. Some carriers were scared, and they pulled out. In one situation, we needed a $15 million umbrella and we needed three companies.

The Missouri legislature passed protections for businesses as they relate to COVID-19 lawsuits, but what have companies been asking you about exposure and what coverage they may need as customers and employees are back in businesses?
What you’ll see is EPLI, employment practices liability insurance, and that was a great concern to a lot of them because if they allowed someone to come back before their [quarantine] time frame and somebody is exposed, that policy would cover that or it could. If you had a $100,000 limit, they weren’t wanting to raise it because of the exposure. Nobody has had to deal with this, so the insurance companies were at a loss and everybody was at a loss as to how are we going to get through this and what exposure and litigation will there be down the road.

Has this affected workers’ compensation claims – has it stressed the industry? And is COVID-19 included?
Not yet. We’ll see. I think there will be litigation. That’s what makes the insurance companies so nervous. Some of them pulled certain coverages. It’s really hard to figure out how to change your rates to compensate for this, or if you need to. Work comp is extremely worried if this disease could be covered. And in the state of Missouri, (workers’ compensation) is basically unlimited. Work comp covers the employer for anything that could happen. To me, it’s one of the worst policies for the employer because it is designed for the employee. (Support) can go on for years.

Deloitte reported insurance industry mergers and acquisitions were up 8% from 2019 to 2020, and another increase is predicted this year. What’s behind that?
I don’t know all the reasons for it, but insurance companies are wanting to diversify. Partially, they’ll diversify because they have too much business in a certain area of the company – the Northwest where it’s burning like crazy – and they’ll want to merge with a company that is in the Midwest to offset some of that. American Family basically has five companies and they’re scattered out all over the U.S. American Family started looking at that 20 years ago because they knew this was coming. If you didn’t get larger, (you wouldn’t) be able to sustain huge hits. Most companies buy reinsurance. The reinsurance, because of all the huge things that are happening with storms, their rates are going up. The bigger the company, the less reinsurance you have to have. If the smaller ones get hit, they have to buy reinsurance, and it’s going to be extremely hard.

What trends are you paying attention to for customers?
Crime score has become a huge issue. If there is a lot of crime in your area, you have a bad crime score, that’s another thing major umbrella looks at. Some places downtown that we see a little more, it may not be a lot worse, but they have a lot more calls, a lot more activity. You’re going to see that be a major factor in rating from now on. Before I would build something or buy a business in a certain area or have an apartment or a hotel, I would pull the crime score.

David Potter can be reached at dpotter@amfam.com.