Charlie Venus is joined by Bob Rusbuldt, President and CEO of The Big I. Together they are covering everything from the impact of COVID-19 on the insurance industry, to an agency’s digital transformation. Bob and Charlie also talk about how to get new talent into your independent agency. You won’t want to miss Bob’s year in review.
Edwin K. Morris (5s):
Welcome to the trusted advisor podcast brought to you by Iroquois Group. Iroquois is your trusted advisor in all things insurance. You’re listening to Charlie’s corner, a segment hosted by our very own Charlie Venus.
Charlie Venus (21s):
Welcome to our podcast today. We’re extremely fortunate to have as our guest Bob Rusbuldt, president and CEO of the Independent Insurance Agents and Brokers of America, better and preferably known as the Big I. Bob, thanks for being here.
Bob Rusbuldt (38s):
Great to be with you, Charlie, and with Iroquois.
Charlie Venus (40s):
So I guess the first question I want to get to, I think people are interested to know what the impact of COVID-19 is going to be on the insurance industry, both in terms of growth and from a claims perspective.
Bob Rusbuldt (54s):
Well, if I had a crystal ball, I’d be a zillionaire. I think that is the big question in the industry and the United States of America today, most industries, including the insurance industry, follow the general economy, we went from the best economy in our lifetimes to a recession almost overnight, unprecedented in American history. And of course the recession wasn’t caused by general economic issues. It was caused by politicians that mandated closure of our economy. So, very unprecedented. Agencies obviously write more business when people are buying products, expanding their businesses, starting new businesses, buying new homes, all of that economic activity generates business for independent insurance agencies and for insurers.
Bob Rusbuldt (1m 42s):
The pandemic has forced us into a recession. And the question is, is what is the long-term impact on the independent agency system in our industry? We all know auto claims are down. Companies have been rebate, rebating premium to consumers, claims unrelated to nature or to civil unrest or down. So the question is will policies and premium truly grow, should the pandemic continue? Nobody really knows the answer to that. We have anecdotal information on independent agencies and we did a survey at the beginning of the pandemic asking independent agents exactly what they thought was going to be the net result in their agency as a result of the pandemic.
Bob Rusbuldt (2m 28s):
That survey we did in late February, early March, independent agents were saying they expected with what they knew at that time that they would lose 10 to 20% of their commercial lines business. They were also having issues transitioning to remote working for their employees. They didn’t know at that time, whether they would be deemed essential businesses by their state governments, et cetera. Now we just launched this week, a new survey of independent agents asking some of the same questions on what the impact of the pandemic is on their agency, both externally and internally. What’s the economic impact on commercial lines, personal lines, what’s the economic impact as far as technology.
Bob Rusbuldt (3m 13s):
And I know you’re going to get to that, Charlie, in more detail in a moment, but we’re, we’re in the process of doing another survey as well. So right now insurers are weathering very well because claims are down, but we’ll see if that, that holds and where we are at the end of this pandemic.
Charlie Venus (3m 32s):
And Bob, when would you expect to have the results of this survey?
Bob Rusbuldt (3m 36s):
We expect to have them by the end of next week.
Charlie Venus (3m 38s):
Okay. Now you talked a little bit about claims there. One question that I wanted to ask is have you seen any agents experience E&O claims resulting from the lack of pandemic insurance and possibly not addressing the exposure when they sold the coverage to their customers?
Bob Rusbuldt (3m 58s):
It is a good question. E&O is always a perennial concern for independent agencies and obviously, you know, carriers. The Big I, we are the largest writer of E&O insurance in the United States with our Swiss Re Westport program. We have almost 14,000 agencies that we cover with that program in the United States. So we have a lot of experience, a lot of experts on my staff on professional liability. The short answer is yes, we’ve seen agents brought in on litigation, not that many, but there are some. Right now they’re concentrating on insurers.
Bob Rusbuldt (4m 40s):
Last week we saw the industry had a big win in Michigan where the judge threw out a case, making the saying that no, there was no property damage. The big issue for insurers is did they use the ISO exclusion language or not? The ISO language is pretty airtight because it includes pandemics and viruses. And those sorts of things. My understanding is about 70% of insurers use the ISO exclusion exclusion language, about 30% have not used it for a variety of reasons. Those that didn’t use it have to rely on “was there physical property damage?”. And the judge in Michigan ruled that there was no physical property damage.
Bob Rusbuldt (5m 22s):
So I think as far as litigation, the very, very early stages, things are going in the right direction for carriers. As far as agents, we have not been dragged into that many cases. There have been some around the country, but if you look at the reasonable man test, which is of course a legal test, what could agents have done differently? There were very limited markets, almost just a couple that were writing pandemic virus coverage. It was wildly expensive. Most agents didn’t have that access to that market. And even if they offered it, the clients probably wouldn’t have bought it because it was too expensive anyway. So I think agents are in a fairly good position vis-a-vis potential litigation.
Charlie Venus (6m 7s):
Well, and to your point about the, the lack of markets for pandemic insurance, do you foresee new markets popping up, particularly for business interruption or even carriers adding this coverage to policies in the future?
Bob Rusbuldt (6m 22s):
Charlie, that’s a good question. Not today. In fact, it’s going the opposite way, right? They’re trying to constrict and restrict the, the exposure that they have for pandemics and viruses. I think you’re going to see the take up rate on the ISO exclusion language explode in everything from bops to larger commercial lines policy. So, no, I don’t see new markets popping up at this time. We’re working in Congress right now, the Big I’s doing a lot of work on the business interruption issue and how to deal with future pandemics and coverage. And we have something we call the business continuity protection program we’re working on with the APCIA and a couple other company insurance trade associations.
Bob Rusbuldt (7m 6s):
That would not use a claims model, It would use parametrics. In other words, if you are in the program, you get an automatic payout. If the president declares a pandemic, it’s a similar to the NFIP the flood program and how it works. You also have PRIA, which is modeled on TRIA, the terrorism risk insurance act. This is the pandemic risk insurance act that’s been introduced in Congress. We don’t think it works in the real world. We think it would be expensive. We don’t oppose it, but we, we think that our proposal we’re working on will actually have a much higher take-up rate and provide commercial lines customers with a true protection for their payrolls and their expenses in a future pandemic, a lot going on on this issue right now,
Charlie Venus (7m 51s):
I’ve been following a little bit on what’s going on in Europe, and in Europe, and I think even in South Africa, there’s been a, a couple of situations where the pandemic claims have been coverage, been covered, just because of the difference in the coverage language. How do you see that playing out? If you can comment on this from a re-insurance perspective, you know, do you have any thoughts on that?
Bob Rusbuldt (8m 16s):
The Big I is a member of the world Federation of insurance intermediaries. I serve on the executive council and our current chairman john Jensen is the chairman of that international organization. So ironic you asked that question. I was on a zoom meeting internationally yesterday morning talking about this exact subject. And my counterpart from South Africa was on the zoom meeting. Internationally, we’re seeing a lot of the same challenges that we face in the United States on business interruption, whether it’s the UK or France or South Africa, Australia, you saw the AXA case, the preliminary decision in that was against the insurers on BI and France.
Bob Rusbuldt (8m 59s):
The UK right now, their regulator is looking at issuing some regulations and some proclamations on business interruption insurance. And in South Africa, some carriers have been told to pay out. Nothing like that is transpiring in the United States right now, the regulators don’t have that authority of courts. The judicial system has that here in the U S and as I said, in your previous question, we think the litigation is going in, in the direction of being pro industry in the outcome. So internationally, we see some unique situations, but I don’t think that’s going to impact some of the decisions here in the United States.
Charlie Venus (9m 43s):
Great. Thanks for that response. Now, changing gears a little bit, you know, I have a conversation with a lot of our agency members and many of them are struggling in terms of what to do from a new business perspective since we’ve been in this lockdown mode for the last 90 plus days. So from your perspective, what should agents be agencies be doing differently to be successful in the current environment?
Bob Rusbuldt (10m 11s):
That’s a really good question. I think that there’s a host of challenges and opportunities for independent agents in this new pandemic and in the new environment, people are doing business differently. We’ve seen a trend towards electronic shopping for many, many years now. That’s not a new phenomenon. That’s been going on. I think that trend has been accelerated in many respects. You know, my mom is 87 years old and she used PayPal. I mean, it’s really, it’s unbelievable what’s going on in the marketplace out there. So people have been sitting at home, they’re doing business at home. And I think that you’re going to see that trend accelerate.
Bob Rusbuldt (10m 52s):
What can agents do? I think it’s afforded agencies a time to actually concentrate on their current clients, to re-establish connections as producers and CSRs work remotely, or even in their office where new business activity may be down in the agency. They can reconnect with their current client base. Retention levels, anecdotally, we believe are up in independent agencies for a variety of reasons. With companies giving rebates on auto insurance, and now some even doing commercial lines rebates, we believe that, you know, that has given independent agents the opportunity to have conversations with their consumers.
Bob Rusbuldt (11m 41s):
So what should independent agencies do? I think the first thing they can do is get a digital review from trusted choice. It’s free for Big I members. Trusted, our trusted choice team comes, looks at your agency website, critiques it from top to bottom. They look at your social media footprint and critique that top to bottom. If you have a social media footprint, then they will look at your profile on trustedchoice.com and give you suggestions there. So they do a top to bottom review and critique of everything digital in your agency, all part of the Big I membership.
Bob Rusbuldt (12m 20s):
It has been wildly successful, frankly, we can’t keep up with demand and it has been a very big positive value for independent agencies. The second thing is trusted choice.com. A company that the Big I started with a number of carriers that started it with us from travelers to central insurance company, selective, main street America and Safeco, Liberty, and a whole host of other companies. And since COVID, this trustedchoice.com, which is taking independent agencies, we’ve disrupted the independent agency system intentionally on the positive side to get agents to be more digitally focused.
Bob Rusbuldt (13m 0s):
So trustedchoice.com is concentrating on that. Since COVID every, as I said, virtually everybody is shopping online now, and that continues. Having digital marketing in my opinion is no longer forward thinking – it is required today. And it’s going to be absolutely essential for independent agencies going forward. It’s a must have. Last year, trustedchoice.com had 7 million insurance shoppers go to that site to find an independent agent and to do business with an independent agent. 7 million. That’s a lot. And that number is going up now this year in 2020 as well.
Bob Rusbuldt (13m 41s):
In 2019, 60% of the business on trusted choice.com with the 7 million was personal lines. 40% was commercial lines and, and consumer activity continues to go up. In July alone, trusted choice.com made over 36,000 agency recommendations to insurance buyers across the U S that were looking for an independent insurance agent. So I would say do this, to the listeners on this Iroquois podcast: Google insurance agents near me. What’s the first organic search result you see? Trusted choice.com, trusted choice.com is ranked number one on Google search results for over 20,000 insurance related terms.
Bob Rusbuldt (14m 26s):
We’re in, we’re past the Geicos of the world and those entities. Trusted choice.com is the best kept secret among independent agents right now, today in the United States of America, for how to quickly produce business in that independent agency, we have almost 4,500 agencies that have signed up as advantage subscribers. We’re producing hundreds of thousands of exclusive referrals. Independent agents are writing business through it. So it’s, it’s a beautiful thing. So for those that are involved with trusted choice.com, your agency will be digitally recognized, digitally understood, digitally recommended and digitally referred.
Bob Rusbuldt (15m 8s):
So I can’t think of more ins-, better instant oatmeal, Charlie, than trusted choice.com. Now, that sounds like a commercial, but this thing is working. It’s almost like it’s becoming the MLS of the national association of realtors for independent insurance agents – that multiple listing service, right? You can’t do business as a realtor without that. It’s going to be in the future, Charlie, that independent agencies are going to have to be with trusted choice.com to get that new business. That’s where consumers are playing the game now.
Charlie Venus (15m 41s):
Well, and to your point there, I read this just earlier this week and that is that now 50 more, a little bit more than 50% of the U S population is under 40 years old. So as that segment of the population continues to grow, there’s going to be more and more business done via the internet and online, or the internet of things, whatever you want to call it. Now, when you look at, you know, you talk about trusted choice.com, when you look at other digital tools, are there any other specific digital tools that you see successful agencies adopting and, and just in your mind, what’s the overall adoption rate of independent agencies using these digital tools?
Bob Rusbuldt (16m 28s):
That’s, that’s a broad question and hard to quantify. You know, one of the things that I’ve learned is that agency management systems are way under utilized. And it doesn’t matter whether it’s Applied, Vertafore, EZLynx, et cetera, that there’s a lot of marketing that those platforms can do for independent agencies, that independent agents are not aware that they can do. And of course, those agency management system companies every day are looking at more digital marketing capabilities, allowing APIs to be plugged into their platforms, et cetera. So we worked through the agents council for technology, which is run by Ron Berg and my staff.
Bob Rusbuldt (17m 11s):
We are working with a whole host of InsureTechs. We’re working with a host of agency management system companies, and everybody in between to get them to be more focused on the independent agency system needs in the digital world. And also working with those entities to educate independent insurance agents on what is available in the digital world. So, you know, you have a host of InsureTechs that are providing all kinds of neat things, but the attention span of a small agency is like a gnat, right? I mean, they are trying to run a business, you know, and do everything in between that they need to do, and they don’t have time to focus on the hundreds of InsureTechs out there that are bombarding their agencies with new products and innovative ideas.
Bob Rusbuldt (17m 60s):
So the agent’s council for technology is, acts as sort of a filter for that for independent agents. And it’s been very successful for agencies.
Charlie Venus (18m 10s):
Now, again, switching gears a little bit here, how would you judge the industry’s effort to bring new talent in, particularly on the agency side in production roles?
Bob Rusbuldt (18m 22s):
Yeah. Another good question. The number one thing I hear, and the number one thing we see in surveys, challenge for independent agencies is attracting new talent and retaining talent. That’s the number one issue. Technology is usually number two. So you have now touched on the top two issues for independent insurance agencies. Talent recruitment is just huge. We have agencies that say every day, the owner wakes up and says, I’ve got to hire somebody, send me anybody. So we launched about a year ago, something called Big I hires. We’re working with ideal traits on that, and agencies can sign up.
Bob Rusbuldt (19m 4s):
And it does everything from sending you tons of resumes for people that are interested in everything from producers to CSRs, to HR people, it’s everything that an independent agency would need. There is a cost for that for Big I members, but it has been very, very successful. We also have Invest, which is a 501C3 educational charitable foundation. It’s been in existence for, since the 1970s. Invest has been working with a whole host of people in the industry to recruit and train the next generation of independent insurance agents. And it’s been very successful. They’re in almost every state, not quite, in thousands of high schools, community colleges, and some four year universities as well.
Bob Rusbuldt (19m 53s):
And they have a whole curriculum. They are now moving into the apprenticeship and internship area where we will help to subsidize independent agencies, apprenticeship programs for aspiring independent insurance agents. And we’re launching that in Maryland, as we speak right now in agency, in several agencies in Maryland apprenticeship program. So between big I hires and invest, the Big I has been working diligently. We work very closely with carriers because when I talk to company CEOs, they believe the number one issue for their distribution system is talent, recruitment and retention. So the carriers and the independent agency system are united on what the top challenges for the independent agency system.
Bob Rusbuldt (20m 39s):
The Big I has been working very closely with all involved to recruit that next, next generation of independent agents. And as you know, if you’re graduating from high school, community college, or college, let’s face it, Charlie, being an independent insurance agent isn’t as sexy as being an investment banker or being in the technology world. And I think we undersell ourselves in many respects because we are an explosion of technology opportunity for the younger generation. They just don’t realize that. And we don’t promote that, when we’re recruiting on a college campus, the technology needs that we have in our industry are just incredible.
Bob Rusbuldt (21m 25s):
And, and the younger generation wants technology. They’re hungry to work in technology. That’s us, that’s the insurance industry. That’s the independent agency system. We need that next generation to understand that. Also one last thing, US news and world report for many years has said that the best, greatest opportunity for young people looking for a career is being an insurance agent or broker. And that was for a couple years in a row. And they looked at the pay, the flexibility of being an independent agent. If you’re sitting at your desk, you’re not doing your job, they want you in the community. They want you coaching little league. They want you involved in the chamber of commerce and the Kiwanis, community-based programs, charitable programs involved in your church or synagogue.
Bob Rusbuldt (22m 11s):
That’s doing your job. It’s also doing your job being on social media, the flexibility, the entrepreneurship of a young person coming out of college or high school or community college, the it’s, limitless the possibilities, but we don’t do a good job of selling that.
Charlie Venus (22m 29s):
Well, I, I agree with your point on technology because I’ve been, I don’t want to say how long I’ve been doing this, but I’ve been doing this for a long time. And what always has stood out to me is the slowness of the industry to adopt technology and really to change the process. I mean, we’ll use the technology, but it’s just really to, to hold the data. We haven’t really improved the, the overall processing until recently. And I think for probably 20 years there was, there was limited improvement from a process side.
Bob Rusbuldt (23m 4s):
Charlie, you and I are old enough to remember that fax machines were, we thought that was greatest invention in the history of mankind.
Charlie Venus (23m 14s):
Well, we also remember those little inner office memos that you wrote on and you pulled out the duplicate that had carbon paper. So that’s going back a ways. So now a question that’s, that’s important to all of our listeners today that own agencies is what impact do you see the current economic conditions, you know, with the high unemployment, low interest rates having on agency valuations? And do you see a slowing down of agency mergers and acquisitions?
Bob Rusbuldt (23m 47s):
Another good question, and really important for the independent agency system and our carrier partners as well. Bobby Reagan, we, he helps run our best practices program for the Big I. And as you know, he’s an acknowledged expert on M&A and consulting on agency valuation. And then of course it was Marsh Berry also. So I have some information, latest information from Bobby Reagan. And what Bobby says is that there’s still M&A activity, but it has slowed with deals being delayed during the pandemic. He feels that 2020 will be better than average year for M&A, but not what has been in recent years.
Bob Rusbuldt (24m 31s):
January to April, M&A activity fell 31% compared to 2019 at that same time period. In April alone, transactions fell by 52%. And through May, there’s a delay as well. Valuations, according to Bobby Reagan are definitely not going up, but they’re not going down. So it’s been sort of static on valuations during the pandemic. Now, Marsh Barry says that, generally agrees with Bobby Reagan, that through the end of June, there have been 256 individual deals as compared to 343 deals announced for the same period last year, which is about a 25% drop in M&A activity during the pandemic time.
Bob Rusbuldt (25m 17s):
But they point out like Bobby Reagan does that many are retroactively announced. You never really know how many are in the pipeline, but aren’t being announced. Those are variables. But the bottom line is, is that valuations are holding steady, not going up or really going down. Number one, and number two M&A activity is down. We’ll still be robust, but probably won’t be what we saw last year.
Charlie Venus (25m 45s):
Oh, great. Thank you for that. So we only have a few minutes left, so I wanted to get quickly, if you could recap what you see from a rate perspective on commercial lines for the rest of this year and into 2021.
Bob Rusbuldt (26m 0s):
Yeah. Commercial lines, there’s definitely a hardening of the market. There’s no doubt about that. We’ve seen a lot of rate increases in certain lines like D&O and professional liability, commercial auto. There has been a tremendous amount of hardening. AIG’s CEO Brian Duperreault just publicly said that rate increases are broad-based for commercial lines and their global. AIG Took incremental rate increases in commercial lines of over 16% in the second quarter, on average, their D&O has increased 50% EPL up 30% retail property and excess casualty up 35%.
Bob Rusbuldt (26m 45s):
So we’re seeing rate increases that are quite substantial and commercial lines there’s – you and I are old enough to remember the hard market of the late eighties and early nineties. You say that to a young agent now, they don’t even know what you’re talking about. What in the world is a hard market? Well, we’re, we’re starting to experience that. And the trend has been there. It’s clear in commercial lines, especially in certain lines like professional liability DNO, where the, the market is hardening. So,
Charlie Venus (27m 16s):
So final question, Bob, do you foresee the Big I and PIA ever coming together in the future?
Bob Rusbuldt (27m 24s):
Good question, Charlie. The Big I for 40 plus years has had a position of supporting consolidation or merger with PIA. We have an open invitation to PIA to meet with us, anytime, any place for those discussions. We think it makes sense for independent agents and brokers to consolidate and have one association. PIA has a different perspective, but we remain hopeful even after 40 years, that that may come to fruition someday.
Charlie Venus (27m 56s):
Well, thank you very much, Bob. Is there anything, any parting comments that you have?
Bob Rusbuldt (28m 3s):
No. Thanks, Charlie. And thanks Iroquois for all you do with the independent agency system, we look forward from the Big I perspective to work even closer with you in the future. We share the same members and the same system and the same aspirations and goals. So thank you for what you do.
Charlie Venus (28m 20s):
Thank you very much, Bob.
Bob Rusbuldt (28m 21s):
Edwin K. Morris (28m 23s):
Thanks for listening to this edition of Charlie’s corner brought to you by Iroquois group. I am Edwin K. Morris, and I invite you to join us for the next edition of the trusted advisor podcast.