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How the digital age changed the insurance landscape

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Impact of ACA, concerns over data security move the needle

by Michael Bradley
Special to Delaware Business Times

You set up the firewall, and you have the most recent updates in place to protect your data. There’s only one problem: The hackers are ahead of you. When they strike, you could well be helpless. You’re covered, but for what?

That’s the problem Rick LaPenta sees today in terms of cyber coverage as he surveys the insurance landscape. The president and CEO of Wilmington-based IFS Insurance has 30-plus years of experience in the business, and what he has seen over the past several years is a difficulty defining what’s covered by policies – for precisely what is the policyholder responsible, or not?

“The government is pushing back on what happens if a company’s data is breached,” LaPenta said. “It wants to find out why and will hire forensic people to see what happened. That can impact coverage.”

LaPenta lists the growth in cyber policies as one of the biggest changes in the insurance business over the past few years. He and three other professionals provided their insight on what is happening in the industry and what could possibly be coming next.

For Jim W. Hartstein, a commercial risk advisor for more than 10 years at The Insurance Market in Laurel, a big change has occurred in how agencies develop policies that are custom-fit for their clients. He likens the process to how a large online merchant compiles a person’s search and viewing histories and suggests products they would most likely prefer. Insurers are now doing the same thing.

They try to make sure the customer has exactly what is best for its needs, based on its history, rather than applying a more generic approach that may have prevailed in the past. As a result, some carriers end up realizing they are not perfect partners for every prospect.

“What consumers need to understand is that not every carrier is the right fit,” said Hartstein. “The match of their background to a company’s capabilities allows the client to find the right company.

“There was a day when it boiled down to who was the biggest agent. Now the predictive analytics we use allow an insurer to predict the perfect profit margin for clients.”

One condition of the industry on which just about everyone can agree is the impact of rising health-care costs. John Allen of the Allen Insurance Group, which has been in Wilmington since 1932, does a lot of work in the field, and he is seeing how increased premiums are causing big problems for employers and individuals. Although the Affordable Care Act has brought coverage to many who didn’t have it before, Allen says the necessity for everyone to have “essential benefits”, such as maternity coverage, even if it’s not an issue for the person any longer, has pushed costs up considerably.

“The goal of the Affordable Care Act was to get more people insured, especially younger, healthier people,” said Allen, who has been an insurance professional for 20 years. “But a lot of them didn’t sign up. Unhealthy people signed up, and now we are in the black hole of insurance.”

Allen isn’t alone in his dissatisfaction with the state of health-care costs. David Lyons, whose Lyons Companies have three offices throughout the state and represents a considerable number of businesses across the spectrum said,  “We have no typical customer,” and many owners of companies have to decide between adding staff and providing health benefits.

“The business owner has to manage the bottom line,” he said. “If health-care costs keep going up, then he or she can’t bring on as many new people.”

The idea that people can go online for auto and home insurance has led some companies to search for their insurance solutions on the Internet. Also, technology has taken the paper trail out of the market.

“Ten years ago, we used to send the SUV up to get the mail at our Post Office box,” LaPenta said. “Now we have little mail. And the phone doesn’t ring like it used to. It’s all e-mail. Customers also want to look at their accounts on line.”

The one thing missing from that equation, however, is the ability to speak to someone with a direct knowledge of a company’s situation in the event of an incident. Lower rates are great until there is a catastrophe. That’s when a personal touch matters.

Allen reports there is a definite impact on property and casualty insurance from on-line competition, as well as individual home and auto. But the Internet can’t provide the kind of one-on-one contact clients need. Hartstein’s Insurance Market has one woman who has been with the company 25 years and performs one job: customer and carrier relations.

“I certainly think people are looking online, but I am a firm believer that a portion of the population will turn to an advisor,” he said. “Insurance is so complex, that when people have a claim, they want an advocate, so they look to their advisors.”

One of the keys to future growth is improved service. Allen says that because of the growing complexities of the industry, his agency is creating products and policies that are unique to clients’ needs, rather than employing broader, more generic approaches. LaPenta believes that rates are stable and that will allow companies to provide more coverage to clients. Hartstein says that clients are getting savvier. They aren’t just looking at their deductibles. It’s more of a holistic approach, and insurers must adapt to that.

For instance, if a company has a worker’s compensation claim, it is concerned with the overall costs of the episode.

“If they have a claim, they look at the deductible, but they also have to consider down time for the person who is affected and how to replace that worker,” Hartstein said. “Good brokers are saying “˜What do other elements look like, and how can we mitigate them?'”

Workmen’s compensation is a concern for insurance professionals moving forward. Allen speaks of a “tremendous burden” for smaller businesses, due to Delaware law, which he considers restrictive. He says that some contractors in the state lose work because businesses in other states don’t have as high workmen’s comp policy costs and can present lower bids for work. “We haven’t had significant reform in Delaware.”

Lyons agrees and says that because of the state laws, no business “can ever close a medical file” and that reform is necessary.

It may come. But no matter what happens, the industry will adapt and continue to address clients’ needs as creatively as possible.

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