Another Week To Forget (Audio Podcast)

March 21, 2020

On this week’s show, Karl discusses the continued sell off in the financial markets and how diversification isn’t helping at the moment. Plus, Danny Simmerman and Holly Veenker of TIA Group join Karl to discuss the skyrocketing insurance rates.

Karl Eggerss:                      Hey, good morning everybody. Welcome to the show. This is Creating Richer Lives. The podcast with Karl Eggerss. I’m your host. If you’d like to get ahold of us, (210) 526-0057 or our website. It’s CreatingRicherLives.com.

Karl Eggerss:                      In just a little bit I have an interview that I recorded a couple of weeks ago and it’s with a gentleman that owns a insurance company in South Texas. And they’re seeing some really crazy rate increases, just at the time we really don’t need to see that right now, both on the commercial and the and the personal side. And so, I had him come in.

Karl Eggerss:                      I’m going to have him discuss really what’s going on on the commercial side primarily, especially for those of you owning in your own business. What are they seeing? What are some things that you can do to mitigate some of those costs? So I’ve asked him to come in. Danny Simmerman and Holly Veenker are here to discuss that.

Karl Eggerss:                      But before we get to that, of course, let’s talk about what’s going on in the financial markets. Obviously, a lot of you’re paying attention to what’s going on. So there’s not a bunch I can add to some of the news events that’s happening this week. I will tell you this, and this is probably the most encouraging thing I could say right now, is that we’re seeing, at least late in the week, we’re seeing some stability in the bond market.

Karl Eggerss:                      You may be focusing on the stock market, but the bond market is really the reason that the stock market, part of the reason, that it continues to struggle. The federal reserve came out a week ago Sunday and essentially said, “Hey, we are going to lower interest rates to zero and we’re going to do quantitative easing,” and you saw the market really just go down after that.

Karl Eggerss:                      And then we saw a pretty bad press conference with the president, who hasn’t really helped himself with some of these press conferences, kind of downtrodden, talking about this could go to July or August. Those types of things just really didn’t get the market in a good mood.

Karl Eggerss:                      If you’re wondering why the market didn’t initially react positively to the fed, it’s because this is a demand shock that our economy is going through. There is no demand for stuff. And so, for the fed to lower interest rates, that doesn’t really do anything right. Yes, they probably had to do that, but that wasn’t a fix.

Karl Eggerss:                      Since that time, the federal reserve has done all kinds of things really in very short order. I think the government’s doing everything they can regarding monetary policy as quickly as they can. You’re seeing them really address the mortgage market, all types of things. A trillion here, a trillion there. It’s pretty amazing how much money is being thrown at this.

Karl Eggerss:                      The fiscal part, of course, we’re still waiting on. There’s different versions of it, but it’s going to involve some sort of helicopter money. Literally getting money to people. Directly deposit it in their account to pay their bills. We already know that foreclosures are being postponed. We heard that not only do you have to not pay your taxes till July 15th now it is actually, you don’t have to file your taxes until July 15th that was something that came out Friday.

Karl Eggerss:                      So there’s a lot of things that are fluid here. But this all goes back still to, and this has been a really just a whirlwind of not only information but a whirlwind of cascading stock prices. This is something that none of us have really seen before.

Karl Eggerss:                      This is my third professional financial crisis. The first was the dot com bubble, second was the global financial crisis, and the third being this Corona crisis. And they’re all very different, right?

Karl Eggerss:                      Back in the dot com bubble simply stocks were too expensive. That’s all that really was. 2008 was of course caused by the financial system, by the excessive leverage and the lending for houses and all of that really led to that.

Karl Eggerss:                      This was a demand shock. This was a stop in your tracks. You’re not buying anything right now. And that’s causing a lot of people to not be able to work and we’re going to see some very large unemployment numbers next week. It could be over a million and a half to 3 million people. Remember this was averaging 200,000 or so unemployment claims. You get that each week. This is going to be a large, large number.

Karl Eggerss:                      Now some of those people are being told, “Go file for an employment, get your stuff, and then when all this is over you come back and have a job.” So that’s part of what’s going on. But the government’s really trying to prevent people from doing that because they want to get people money in their pockets so they can feel comfortable staying at home and still be getting paid not to do anything. Very interesting. We’ve never seen this before, right?

Karl Eggerss:                      And we also haven’t really seen where the government is going to bail out as many people as they are. We know what happened in ’08 there were people that were chosen to be bailed out and the government chose not to bail others out. A lot of theories on why that happened, who got bailed out, who did not.

Karl Eggerss:                      Maybe the same this time, right? You have a restaurant that may get bailed out. What about the food supplier? So where does it stop? Where does it end? We don’t know. For anybody who tells you they know what this is going to look like, they don’t.

Karl Eggerss:                      How you treat this is you have an allocation coming into this based on your life, right? That’s what you based on fairly normal circumstances with some variables thrown in there to take into consideration drops in the stock market. But no financial planning software, no advisor has ever had to deal with a virus like this that causes the country to essentially shutdown for who knows how long and what that does to the demand side. So stock market obviously is selling off to reflect that.

Karl Eggerss:                      Here’s the thing though, and again I’ve said this in the past few weeks and it’s very, very important. I don’t know and you don’t know exactly what the stock market has priced in. The stock market does not always go hand in hand with the freshest, newest information being released. So we could see the news continue to get worse and the stock market go up.

Karl Eggerss:                      Now, I mentioned earlier, this is my third financial crisis professionally. They’ve all been different as I said, but one thing that has been similar is that regardless of how far stocks fall, ultimately number one, we’ve always come out the other side. Number two, they don’t go down in a straight line. You have big spurts of rallies, which I think will come.

Karl Eggerss:                      I wish I could tell you when, but when you have those rallies that makes you feel as if the worst is behind you and that’s when people relax and that’s when people say, “Oh okay, I’m glad I didn’t sell.” And then, sometimes it has a, usually has, another leg lower or at least a retest or something like that. Very likely this time to do the same thing.

Karl Eggerss:                      So we’re likely to get a very strong rally at some point that’s going to make you think it’s over. That’s the time you have to really assess, do you want to take some risk off the table or not? Personal decision is going to be playing a part in that and also just a tactical decision as well. So those are a couple of things to take in consideration.

Karl Eggerss:                      Now really, again, if you want to, I’ll shine the bright light on this in terms of what I saw later in the week. All the things the Fed’s doing hopefully are helping the bond market. As I mentioned, we saw Friday inflation protected bonds up considerably actually erasing the last six, seven days worth of losses. That was a big, big deal. We saw corporate bonds up about almost 2% for investment grade corporate bonds.

Karl Eggerss:                      Now, the thing is you have to remember the reason corporate bonds are getting hits the hardest because a lot of corporate bonds are going to become junk bonds. And so, you’re seeing that pressure, but we have to get the bond market stabilized and the pipe flowing again and that’s what the Fed’s attempting to do.

Karl Eggerss:                      The issue is prior to the financial crisis, the fed could do some of these things without congressional approval. The treasury could do some things without congressional approval. That isn’t the case anymore. So we have to have the Congress working with the fed and the treasury to be able to get these things done so they can go in and buy corporate bonds.

Karl Eggerss:                      You also heard, and by the way, we also saw despite the drop in the market on Friday, we saw a drop in the volatility index still at 65 which is a really high number, but down from this thing was was was sitting at, I don’t know, 80 something earlier in the week.

Karl Eggerss:                      So the fact that volatility index has come down, 85 was the high, the fact that it’s coming down was a good thing Friday. Let’s not discount that. So we saw volatility come down. We saw small caps hold up relatively well. International hold up relatively well. There were some green on the screen even though the Dow Jones was down over 900 points on Friday. So those are little nuggets to pick up on.

Karl Eggerss:                      And actually the market was hanging in there and really until oil sold off late in the day on Friday as well. But we need to watch for those little nuggets of positive because those are the things that can indicate that we may be getting to a point where we can stabilize. And so this wild extreme volatility that we’ve never seen before nor lifetimes, once that calms down a little bit, then people can start cherry picking on things that make sense to own and so forth.

Karl Eggerss:                      And again, if you don’t want to change your equity position, you could at least be tax loss harvesting, meaning sell something and buy something else so that you still have equity in the market. You just get to capture that loss for tax purposes. Or it could be upgrading, right? You’re moving from one type of ETF or fund or stock to another one, and it’s a better quality or it makes more sense in this new environment.

Karl Eggerss:                      By the way, in terms of things that you can be doing now, if you go to CreatingRicherLives.com our CEO, John Eadie, did a post an article on there early in the week, we posted it on there, called Making Lemonade Out of Lemons. It’s all the things that people can do in this environment from a planning standpoint. Let’s not lose focus of that because if you abandoned all your plans in ’07, ’08, you still had 2009, 10, 11, 12 and so on to deal with this. This isn’t the end. This is a part of the process,

Karl Eggerss:                      But this is a challenging part of the process, and part of the reason it’s challenging, and I mentioned the credit markets earlier, is because the bond market, not only the stock market, but the bond market is moving well out of its normal range for things. Things that maybe move a half a percent in a day are moving three and four and five percent in a day in the bond market. So, the bond market has been hit just as much as the stock market.

Karl Eggerss:                      In fact, interesting chart by Jason [Geffert 00:12:34] describing that when you look at stocks, government bonds, corporate bonds, gold and commodities, that’s a diversified basket, right? Well, right now that basket is losing pretty much as, not quite as much as that basket would have lost in ’08, but very similar to ’87, very similar to late 1979, early 1980 and in the late ’70s, and most of those were getting close to a bottom for the market. And I don’t, I’m not telling you that’s a timing tool. I’m telling you that this does show all-out panic where everything is being sold and diversification isn’t helping you in the short run. cash helps. And there’s things obviously moving differently or up than the market because they’re direct hedges or something like that.

Karl Eggerss:                      But in terms of the normal, asset allocation hasn’t really been helping during this environment, and that just tells you there is panic and it rarely pays to sell into that panic. Generally, you like to wait for that panic to abate a little bit and then readdress. Very challenging, though, guys. I’m not going to sugarcoat it. Very challenging right now because we don’t have a template for this type of environment. Continue to manage the portfolio, though. That doesn’t mean make drastic wholesale changes, but manage it, tweak it, take advantage of tax loss harvesting, upgrade the portfolio. Get ready for the time when you will play offense and not be on defense.

Karl Eggerss:                      Some of you want to play offense right now, and that’s fine. We haven’t been rewarded for playing offense thus far, but at some point, we will. We will be rewarded for that because that’s how all of these have ended. Great depression, you name it, the ’87 crash, the ’08 financial crisis, dot-com bubble, all of these ultimately were great buying opportunities. It’s just you don’t know when and how far down, but ultimately, I have confidence it will be. That’s my personal opinion about that because we’ve seen crisis before.

Karl Eggerss:                      All right. As I mentioned at the top of the show, we’ve got some guests in studio today. I have Danny Simmerman and Holly Veenker from TIA Group, and they are an insurance company out of San Antonio, Texas. I asked them to come in because we have a lot of costs going up around us. There’s some costs going down, but we have costs going up around us, especially we know with health insurance and so forth.

Karl Eggerss:                      But I also want to talk about today what’s happening on the business side of insurance because we have a lot of listeners who own their own companies, small business owners, and their costs are going up. When I talked to Danny off mic couple of weeks ago, I was really surprised how fast some of these rates are going up, and so I wanted to bring them in to talk about that and bring Holly in to kind of just elaborate on what they’re seeing and why and maybe what you can do about it if you’re a business owner.

Karl Eggerss:                      With that said, Danny, Holly, welcome to the podcast.

Danny Simmerman:         Karl, thanks so much for having us. It’s great to be here.

Holly Veenker:                  Yes, thank you so much.

Karl Eggerss:                      I have to admit, I’ve been doing podcasting for over 10 years, this is the first time I’ve had two guests at the same time, so we’ve got this cool little round table. Appreciate you guys coming in.

Karl Eggerss:                      Danny, I’ll start with you. When you told me some of these rates going up, I was kind of surprised, but then I know what’s happened with health insurance the last several years. Tell me a little bit on the commercial side, kind of what the lay of the land is and what you’re seeing.

Danny Simmerman:         Sure. What we’re seeing, we’re continuing this edge towards what we would call a hard market in the insurance space, and so that hard market just continues to drive prices up for consumers. Really, what’s happened over the last really five to … If you look at the five to 10-year charts on insurance, pricing losses have just continued to go up. And losses, when I speak to losses, we’re talking about losses on the property side, we’re talking about losses on the commercial auto side, and then we’re also seeing losses that are continuing to go up on the liability side. They’re going into what are called the excess or the umbrella layers.

Danny Simmerman:         What that means is two things. One, the existing insurance companies are seeing higher loss ratios and, two, these losses are going into the reinsurance layer, which is driving up reinsurance costs. And so-

Karl Eggerss:                      Wait. Let me stop you there. Reinsurance is basically getting a second or third company to help with that insurance to spread the risk, right?

Danny Simmerman:         That’s correct. Typically, what will happen is the insurance company will carry reinsurance over a certain attachment point. It could be over a $5 million attachment point, $2 million attachment point, or anything like that. It’s the insurance company’s insurance that they’re buying, and when they do that, those prices are going up, and so we saw a lot of reinsurance contracts that were renegotiated at the first of the year that saw significant pricing increases. Insurance companies have a choice. They either take more risk themselves, pass that cost along to the consumer, or they lay off that risk to the reinsurance company and then still turn around and pass that cost back to consumers.

Karl Eggerss:                      We’ll get to the jumps that you’re seeing in a minute, but why would losses be going up? Are we talking about distracted drivers? I mean, is that-

Danny Simmerman:         Yeah.

Karl Eggerss:                      Is that what we’re talking about on obviously auto side?

Danny Simmerman:         Correct.

Karl Eggerss:                      But why would losses be going up just in general?

Danny Simmerman:         What we’re seeing, and really, if you kind of look at it from a micro standpoint in South Texas. In South Texas, traditionally we did not have a significant amount of property losses if you look over the last 10, 15 years. Really, if you go back to probably 2014, 2015, we started to see more hail losses than you’ve traditionally seen in South Texas. We saw some wind events, some tornadic activity. And really, when you look at San Antonio that wasn’t common over in the preceding years, and so we’ve seen a lot of those claims. And now what you’ve seen is the significant development in greater San Antonio. When you have that much development and then all of a sudden a hailstorm comes through, you’re talking about a $2 billion event to insurers, both on the personal side and on the commercial side.

Karl Eggerss:                      And it happens all at once, right?

Danny Simmerman:         That’s correct.

Karl Eggerss:                      These risks aren’t spread out.

Danny Simmerman:         That’s correct.

Karl Eggerss:                      They happen all at Once.

Danny Simmerman:         Yeah. Then you throw in the Harvey incident where we had massive flooding over in Houston, and while the flooding event kind of seems cordoned off to typically flood coverage, which is going to be excluded under property coverage, but again, you look, there’s comprehensive coverage covered under your automobile policy, so you have autos that were totaled, that were wiped out.

Danny Simmerman:         Again, what we’re seeing as … Whichever side of the aisle you’re on with regards to climate change and everything else, weather patterns are changing. It’s impacting insurance companies. There’s more development that’s gone on across Texas. Texas is one of the fastest growing economies in the country, and so insurance companies are just having a hard time keeping their pricing adequate for the losses that they are incurring.

Karl Eggerss:                      Either one of you can answer this, but what type of increases are you guys seeing across the commercial side, whether it’s workers’ comp, property, whatever it might be?

Danny Simmerman:         Yeah. I’ll speak to that a little bit. On the commercial side, kind of the standard starting point with auto right now is probably anywhere from 10 to really 15% increases on a fleet of trucks and autos. That’s if you’re doing well. If you’re not doing well and performing well, by that I mean loss ratios, if your loss ratio is anything north of 40 to 50%, which loss ratio is defined as your premium divided by your claims, figure out what that number is. If that number is in the 40 to 50% range, you’re probably going to get something north of that 15% rate increase.

Karl Eggerss:                      Wow. And you’re talking about … I mean, this is almost like preexisting conditions, right?

Danny Simmerman:         Correct.

Karl Eggerss:                      Because when you go to these companies, insurance companies, they’re going to look at your history.

Danny Simmerman:         Yep.

Karl Eggerss:                      Yeah.

Danny Simmerman:         That’s correct. That’s correct. Everybody has their thumbprint, their loss history that that’s unique to them, and so insurance carriers are reacting to that. Even if you’ve had a really good clean four-, five-year run and not had any losses, carriers are still coming back and asking for 10, 12, 15%. If you’ve had some losses, we’ve seen accounts with 30, 40, 50% rate increases on these. So that’s impactful to-

Karl Eggerss:                      And that’s one type of insurance. I mean, you’re talking about, too, worker’s comp?

Danny Simmerman:         Correct. Right.

Karl Eggerss:                      So …

Danny Simmerman:         Now, and I’ll get to comp in a minute. When we talk about property coverage, property coverage we’re continuing to see increases on that. As I mentioned with the property losses that we’re seeing with hail events and things of that nature, we’re continuing to see clients that had … We have a client up in Kerrville that had a large roof claim, and that was a half million dollar new roof that they had to get put on. Well, when you’re paying $30,000 a year for property premium, the insurance company’s going to react in this market, and when they react, it was, in this case, it was probably close to a 50% rate increase. But not only the rate increase was what frustrated the client, but they went from a $10,000 deductible to what was a 5% of wind and hail deductible. That for them was $150,000 deductible that they took on.

Karl Eggerss:                      Wow.

Danny Simmerman:         That was a very frustrating experience for them. We worked through different options on that, but that’s what we’re seeing as well is not only the rate increases on the property side, but the deductible changes and the deductible strategies that carriers are trying to bring to the table to increase the client’s participation in that.

Karl Eggerss:                      Yeah, and, I mean, this is a situation where you can literally … This can be the fork in the road, whether a company stays in business or not.

Danny Simmerman:         Agreed. Agreed. Yeah.

Karl Eggerss:                      Just to be clear for everybody listening, TIA Group, why I asked them to come in is because they’re not captive agents. In other words, they don’t work for one particular company, so what they can do is go out and actually shop insurance and compare rates and make sure everybody’s being honest out there and try to get the best deal for their clients. When we’re talking about these rate increases, obviously, you’re giving generalities, but this is not just X, Y, Z company telling you that the rate’s up. This is kind of across the board because you’re looking at this from a 30,000-foot view.

Danny Simmerman:         Correct. Yeah. I literally just had a call this morning with not somebody we work with, but a prospect, and his first … He’s like, “I just got hit with a 30, 40% rate increase. What can you do?” We talked through his auto rates and we were talking about numbers, and it’s $1,700 a unit that he was looking at. I said, “Honestly, if you’ve got that number, take it and run with it. You’re in a great spot.” Sometimes we can just provide a trust but verify. They may have a longstanding relationship, but this gives us the ability to build some trust on our end.

Karl Eggerss:                      What I think listeners need to understand, too, is when you’re talking about insurance companies, they’re getting hurt by these low interest rates we’re seeing, because insurance companies are kind of like banks where they benefit from long-term rates being higher than short-term rates. We don’t have that right now. We have interest rates almost zero across the board, so you’re seeing insurance companies are going to be getting squeezed

Karl Eggerss:                      … used the next several quarters perhaps. And so that can be another reason why they raise rates.

Danny Simmerman:         Correct.

Karl Eggerss:                      You know, I mean they’re not going to just sit there and operate at losses. So this could be a double whammy for people looking for insurance, which is obviously everybody in some form or fashion, especially on the business side.

Danny Simmerman:         No, and it’s a great point Karl. And the term that we use in the insurance industry’s combined ratio. And so combined ratio shows, how is an insurance company performing on the underwriting side and so what they want to do is they want to operate it with a combined ratio of 95 to 94. Really in the low 90s then they’re going to earn profit from the interest rates and from where they can invest that free cash. What they’re running at these days is in the 105 to 111 and you’re seeing specifically, they’ll drill it down by line of business.

Danny Simmerman:         So like Auto is running a 110 to 115 combined ratio. You can’t make money on that. So they have to react and ask money from the customers to say, “Look, I’m sorry but I have to go up because I have to be able to stay in business.” They have shareholders that they have to report to and expect results.

Karl Eggerss:                      Which you’re probably going to see some mergers and acquisitions happening over the next few months and quarters because insurance companies can say, “Look, we do this well. You guys do that well. Maybe there’s some synergies here because we can’t operate on just one line of insurance. We have to be more diversified.” Are there any areas that you guys… And I’m going to have Holly speaks more to the personal side and we’re going to do a second podcast in a few weeks on more of the personal side than commercial, but this is for both of you on personal and commercial are there any insurance across the board that you’re not seeing big increases?

Danny Simmerman:         The one… Holly, do you want to speak on the personal side if there’s any that were?

Holly Veenker:                  I’m not… I’ve been out marketing quite a bit and networking and I think one of the biggest questions that I get asked when I’m talking to people is my auto rates keep going up. So I think the auto rates, again they’re having the high rate increase also on the personal side. And what people aren’t saying anything about is like the dwelling coverages and stuff. They’re not too worried about that. I think that staying pretty level as of right now-

Karl Eggerss:                      Is it distracted drivers? Is that the kind of the main?

Holly Veenker:                  … yeah, it’s… I’m not really sure actually what’s causing the personal lines, auto rates to go up other than the fact that a lot of uninsured drivers and stuff like that. But yeah, I mean, as of right now, I think the only thing that people aren’t really complaining about are dwelling coverages.

Karl Eggerss:                      Wow! So on the commercial side, now that we know what the problem is and this is where you come in to try to help people as best you can, obviously you’re not a magician, but as best you can, what are some things business owners can do? I mean obviously shopping around, which is what you help them do, but what can they do where some practical things?

Danny Simmerman:         You know, there’s certain things, there are certain strategies that they can look at and again, we don’t want to beat up on on commercial auto, but there’s things that you can do where if, say you’ve got an older group of trucks and you may have a business that has 10, 15 to 20 trucks that they may be a 2008, a 2010 and a lot of folks just, they carry liability coverage and they carry comprehensive and collision.

Danny Simmerman:         A lot of times what we’ll do is we’ll sit down with clients and look at it and say, “Look, you’ve got this 2010 Chevy with 150,000 miles. You’re paying $2,000 for that truck and premium, but you’re also paying $400 in what we would call comp and collision coverage on that. Why don’t we delete that comp and collision because you’re carrying $1,000 deductible and you’re only going to get $2,000 back for that truck, so why don’t you just pocket that money and when that claim does happen, you’re just going to use that money to fund it?” And so we’ll look at that on a fleet size and say, “Let’s go ahead and put $10,000 of premium that otherwise you would pay on that. Put that in your pocket.” So there’s strategies like that. There’s things that you can look at. There’s valuation methodologies.

Danny Simmerman:         When you start looking at property rates, you know we talked about that and you can say, “Well, maybe we just went through a hailstorm and we’ve got a brand new roof. Maybe we want to go ahead and carry that 5% deductible now, because that makes sense versus carrying that low deductible, which increases your premium.” So there’s deductible strategies, there’s different coverages that you can look at. Maybe you carry the roof on a ACV basis. A lot of carriers are doing that now versus on a replacement cost basis.

Danny Simmerman:         So there’s different ways to structure the coverage so that you may not be able to find a better rate, but you can say, “Okay, well let’s look at how this coverage is ultimately going to respond at the end of the day.”

Karl Eggerss:                      It seems like too, I mean, what consumers need to watch out for is another option for insurance companies if they can pull it off. Well not the insurance companies, but the businesses that are getting insurance as the businesses end up raising their prices to consumers.

Karl Eggerss:                      So company A premiums went up 15% and they say, “You know what, we’re not getting squeezed.” And they’re selling a widget. Right now that widget cost 15% more and we’re seeing very low inflation in today’s world. But that is an area where you could see where inflation could rear its ugly head if they can pass it along, which maybe they can, maybe they can’t.

Danny Simmerman:         Yeah. And the other thing that I would comment on Karl is, is these increases, these really started probably first part of Q3 of last year. And so they’re just now starting to impact the business owners where a lot of them had created their budgets and pricing and said, “Hey, we think insurance costs are going to be X.” And then the renewal comes in and it’s just a really big shock.

Karl Eggerss:                      Sure.

Danny Simmerman:         And so they’re having to react. So you may be starting to see some of these potential cost increases flow into the marketplace, into business, into consumer products that people are buying. And so that’s going to be a real impact on people. And the one thing that I would say is if you look back over the, really, up until again, probably the middle to end of last… Middle to end of probably ’17, we would tell you the… If you’ve got a bunch of insurance people in a room, they would tell you we were in a soft market, prices were going down, rates were very competitive. We could bring decreases to customers and they were just like, “Oh, this is great.” Or it was flat. Those days are over and we continue to move into this hard market. The interesting thing, if you go back to ’08 and a lot of us remember ’08 what happened.

Danny Simmerman:         Very few times if you look, have we had a hard market in insurance and a declining economy. Anytime there’s typically a hard market, you’re going to have a robust economy, because insurance companies are saying, “Okay, this is my time to pass off these increases to the consumer.” And they’re making more money. They’re having more money in their pockets so they could pass that on. What’s going to be very interesting as we go through and see the market change right now, how long can the insurance companies hold up a hard market in a declining economy if we move that way? We’ve been… The dough has been running so well and so fast for so long. If there is a correction, can that hard market survive with a soft economy?

Karl Eggerss:                      Yeah. And it’s kind of how long it lasts. We know the market’s corrected. The question is, is it long? And more importantly, how long is… How slow does the economy get for how long?

Danny Simmerman:         Correct.

Karl Eggerss:                      Because people don’t make changes in over a couple of weeks, but couple of quarters, all of a sudden they’re making some real changes. So I think that you brought up a good point about as opposed to just shopping other companies, which you help them do, really understanding what the client’s trying to do and looking at the age of their fleet, that’s a really good example. And figuring out what other things can we do that to try to help offset some of that increased premium as opposed to just go into price. Cause if you just go to price, you may be getting subpar insurance.

Danny Simmerman:         Correct.

Karl Eggerss:                      D is there… And we’ll talk more in another podcast on the personal side about obviously the way insurance is purchased nowadays, but on the commercial side, is it still primarily through an agent or a company as opposed to… There’s no such thing as direct for commercial. Is there?

Danny Simmerman:         There’s actually been some carriers like travelers or like a… Sometimes [inaudible 00:32:24] had done this where you can buy a small commercial policy direct from the insurance carriers and not work with an agent. What we’ve seen is… And that was something that the insurance industry as a whole became, from the agent’s perspective, became concerned about. You know, how was the internet going to change how a consumer bought insurance? What we always found is that most people will tell you they don’t like insurance, they don’t understand insurance. I want somebody who’s going to understand insurance and I’ve got to have that. I’ve got to like them, I’ve got to value them and I’ve got to trust them. And that’s where we as the insurance agents have continued to maintain a place in that buying process.

Danny Simmerman:         And so we believe that people will still continue to buy business insurance through agents. It just makes sense because it’s such a large purchase. And to not have the advice of somebody to go, “No, you really need to have this coverage or you really need to consider this.” To lose that trusted advisor would be something that would be very… It would create a difficult process and would leave the potential for gaps of coverage, it would become significant on that side.

Karl Eggerss:                      We see that in our industry as well. There’s a lot of things advisors do outside of just managing somebody’s portfolio. It’s trying to find social security strategies or should you be doing your 401k in a Roth versus pretax. Those are all things that computer’s not necessarily going to tell you. And so it’s about a relationship.

Karl Eggerss:                      That’s interesting. So I mean, I guess the bottom line is people need to… And I would imagine when they see rate increases like that, they’re going back and looking at what they’re doing. But if you’re kind of stuck with the same insurance company and you’ve kind of been doing it the same way and you just kind of accept what’s going on, I mean that’s I think where you guys come in to say, “Let us take a look. We can at least provide some analysis and see if there’s something that can be done.” And if there’s not, I’m sure you’ll tell them, “You know what, you got the best deal going right now. But if there is, let me work with you.”

Danny Simmerman:         Yeah, I know. And that’s exactly what we see a lot of times. And what we try to do is, there’s some in our industry that will come in and try to be the white knight and say, “Oh, well we can do this and we can do that.”

Karl Eggerss:                      Yeah, right.

Danny Simmerman:         Honestly, that’s not what we try and do. We try to come in and lay a realistic groundwork for people and say, “Here’s what’s going on in the market. If you’re not happy with this, we understand.” We have a lot of clients that aren’t happy with it. The best thing we can do as agents is be proactive. And when we know that a rate increase is coming, get out there early and talk to the client and set the expectation because it’s never fun when you tell somebody, “I’ve got to take another 30, $40,000 from you this year for the same product that you’ve purchased in the past.” That’s frustrating. Where people really get frustrated with it is when you do it five days before it renews. That’s when we get people that are just like, “Wait a minute, hold on. This isn’t… You can’t bring this to me five days beforehand.” That’s where we try and do our best to get those renewal information out in front as best we can. Sometimes the market doesn’t allow that, but we try to do that as best we can.

Karl Eggerss:                      That reminds me, I had a stress test actually yesterday, and you’d think that they would say, “Okay, now when you come back, here’s what it’s going to cost. We’ve already talked to the insurance company.” They didn’t do that unfortunately. And so I’m about to go in there to do it and they say, “Okay, how

Karl Eggerss:                      Would you like to pay for this at $1,600? So to your point, a little bit of advance, right? Fortunately, I was able to pay it, but what if somebody wasn’t able to pay it? They may have had to cancel their appointment. So again, transparency is very helpful.

Danny Simmerman:         And like I say… we always try to do that with as many customers as we can. Sometimes what happens, and again this is an informational piece for the listeners, sometimes the carriers will wait and wait and wait, and not give us, the agents, the quotes until six, seven days before.

Danny Simmerman:         And we’ll tell customers, “Look, we’re beating on the carrier to obtain the quote,” and what the carriers are doing is, they’re trying to leverage their place in the market because we know we have others, so they’re going to bring a quote last minute… to back the client into a corner.

Danny Simmerman:         And it stinks, it really does. But unfortunately, those are the messages we have to deliver sometimes.

Karl Eggerss:                      So the reason I brought you guys in is because you are independent and that’s how we operate. We don’t work for a company, we’re truly independent. That way, we can give our own advice and we can put our client’s assets at different places, depending on their situation.

Karl Eggerss:                      And it’s the same with you guys. So anything else that either one of you would like to add? Holly… You’re sitting over there very patiently, but we’re going to get to the personal side on another podcast, which…

Karl Eggerss:                      Little secret for the folks listening. We’re going to record it after this one, but she’s not actually having to come back. But is there anything you’d like to add?

Holly Veenker:                  No, I just that every customer is unique, they all have their own story. And I think us, as an independent agency, we’re able to ask the questions that are needed to find out that story, just to make sure that everybody’s insurance needs are met, their assets are covered, whether it be personal, commercial. And I think that’s why it’s just so important to use an agent, versus the online.

Karl Eggerss:                      You guys are like referees, right? We don’t really want to talk to you, [inaudible 00:37:54] I’ll see you when I pay those premiums. But when we need you, and the referee doesn’t get any accolades until they make a bad call, or nobody really notices they’re there.

Karl Eggerss:                      I mean, I think people don’t take in consideration, when you’re looking at somebody’s situation, whether it’s me on their personal finances, or you guys, risk is a risk, and a lot of people neglect that. They’re under-insured.

Karl Eggerss:                      Obviously, in the life insurance world, sometimes people are over-insured because there’s life insurance salesman just cramming stuff down people’s throat. But again, sometimes we will look and say, “You have the right amount of insurance. You have the wrong kind of insurance,” and I’m sure it’s the same thing with you guys.

Danny Simmerman:         Yeah, we see a lot of those instances where somebody, their intent was good, but… what they purchased was different, and we see that a lot.

Danny Simmerman:         And unfortunately, there are some times where competitors, they may not craft the program the way the customer really needed it, they crafted it the way they thought it should be set up. And it’s unfortunate sometimes, but we do see that.

Danny Simmerman:         And that leads to uncovered claims situations where client expects to have coverage, but they don’t. And so we get into a lot of those different scenarios where it’s unfortunate that a commercial policy may be 85 pages long, and there’s this endorsement that changes coverage, or this or that.

Danny Simmerman:         And we just had a conversation with a client the other day where a former employee made a claim of wages not being paid, in accordance with the Fair Labor Standards Act. Well, there’s a sublimit on the policy for that specific type of claim.

Danny Simmerman:         We show it, we talk about it, client didn’t recall that. And so we get into those situations. We just try to craft everything, as best we can, to those specific businesses, but…

Karl Eggerss:                      Before we wrap it up, what’s the biggest increase that you guys have seen recently, and on what, specifically? On what type of insurance?

Danny Simmerman:         So the worst one that we saw was auto, and it was a company that was delivering fuel, and it was in the neighborhood of 400% increase.

Karl Eggerss:                      400?

Danny Simmerman:         Mm-hmm (affirmative). And it was driven, based on losses. They had purchased companies over time, and then kind of caught up to them and so they had a significant increase. So we’re seeing some of those. That was an anomaly, I would tell you.

Karl Eggerss:                      But you’re seeing stuff, consistently 15 to 30%?

Danny Simmerman:         Oh, easily. Easily, yeah. I mean, we’re seeing some that are 15 to, or excuse me, 50 to 75%, there’s some increases. Again, with loss activity, see stuff like that, so yeah, there’s a lot of unfortunate stories out there and-

Karl Eggerss:                      And you don’t hear a lot about this on the news. You hear more about coronavirus, but you don’t hear a lot about this on the news, and this is something that… That will pass, in my humble opinion. This probably won’t.

Danny Simmerman:         Yeah, and what really needs to happen… and I always say, “Don’t bring me a problem without a solution.” I mean, we talk a lot about the problem of what’s going on with rate increases.

Danny Simmerman:         But as long as the plaintiff’s attorneys continue to pursue auto claims the way that they do… and everyone sees the billboards out there. As long as those claims continue… and I would tell you the frivolous claims that continue to come in.

Danny Simmerman:         Saw one the other day. A client sent us a… One of their trucks cut off a car. I believe he clipped their front bumper, paid to have the bumper repaired, and then, all of a sudden, an attorney’s demand shows up for a million dollars a claim. It’s like, what are you supposed to do about that?

Danny Simmerman:         Now, think about it. Even though it shows up, you have to defend it. The carrier’s going to spend-

Karl Eggerss:                      Oh, there’s cost, yeah.

Danny Simmerman:         … probably $20,000, $30,000, they’re probably going to want to have a race to the courthouse to settle this thing and just say, “Look, if we give you a hundred grand, will you go away?”

Karl Eggerss:                      And usually they do, which is why that continues.

Danny Simmerman:         And so this is kind of the unfortunate cycle that we’re on, on something like this, and it has to stop at some point. And until there is tort reform on that, I just think we’re going to continue going down that path.

Karl Eggerss:                      Hey, those billboards aren’t cheap.

Danny Simmerman:         No, no, and…

Karl Eggerss:                      All right, Holly Veenker and Danny Simmerman from TIA group. If you want more information from Dan, if you’re a small business owner who said, “Hey, I need somebody to help me look at my stuff and just take a fresh set of eyes on it from the business side,” tia-group.com. And how about a telephone number?

Danny Simmerman:         Yeah, phone number’s (210) 428-2500, is the main line.

Karl Eggerss:                      All right, very good. Thank you guys very much. We will have you back very shortly, talking about personal insurance. Thanks a lot for joining me.

Holly Veenker:                  Thank you.

Danny Simmerman:         [crosstalk 00:42:52].

Karl Eggerss:                      All right, I hope you enjoyed that interview. Of course, at a time where we don’t need costs going up, that’s what we’ve been seeing, so I wanted to report that to you.

Karl Eggerss:                      Hey, just a reminder. Keep the faith, everybody. Very important to continue to pray during these times for health, wellbeing, all of that, and your fellow neighbor and so forth.

Karl Eggerss:                      And do what you can. I mean, there’s older people in our neighborhood we’re getting groceries for. This is the time to help each other. We saw a lot of that really coming together after 9/11. I don’t think this’ll be any different at all.

Karl Eggerss:                      So have a wonderful weekend and we’ll see you back here next week on Creating Richer Lives, the podcast. Don’t forget, (210) 526-0057, or creatingricherlives.com.

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