As the promise of 2021 looms on the horizon, most people are anxious to close the books on what is likely the most unsettling year — from the pandemic to politics to PPP loans — we will ever experience. Strong leadership has never been more essential than it is today. To share some of their best leadership practices, Az Business magazine sat down with some Arizona business leaders to watch in 2021, including Jody Sarchett, executive vice president of sales for Lovitt & Touche, A Marsh & McLennan Agency, LLC
As a key member of the leadership team, Sarchett is charged with leading the business development effort at Lovitt & Touché, which includes overseeing the broker team, leading sales efforts, setting the direction for strategic marketing activities and lending her years of expertise to helping clients with complex and diverse insurance needs.
Here is the full transcript of the interview with Jody Sarchett
Az Business: Let’s start with a major issue. Can you tell us why insurance rates are going up?
Jody Sarchett: There are many reasons that insurance rates are going up are.One is the economic climate. Rising medical cost inflation and prolonged low interest rates could play a major role on workers’ comp loss ratios and margin erosion, thus driving rate increases. In addition, you have workers’ comp/presumption laws. Many states, including California and Illinois, are enacting COVID-19 presumption laws that require workers’ comp benefits to employees who contract the coronavirus; likely leading to higher compensable claims and higher medical treatment costs.
You also have the umbrella effect. Rising severity in general liability and commercial auto losses contribute to rising rates for umbrella and excess coverage premiums, which are climbing faster than other insurance lines, putting pressure on budgets and limits purchased. Then, there’s social inflation — the rising costs of insurance claims resulting from things like increasing litigation, broader definitions of liability, more plaintiff-friendly legal decisions, and larger compensatory jury awards. Speaking of which, we now have to deal with “nuclear jury verdicts, ” which are legal verdicts of damages in excess of $10 million. All those factors are leading to increases in insurance costs.
Az Business: What factors are contributing to these larger verdicts?
Jody Sarchett: Private equity is financing litigation. There is also an anti-corporate sentiment — a sense that someone needs to pay when there is damage or an injury regardless of negligence.
Az Business: What can businesses do to protect themselves or limit the possibility of such verdicts?
Jody Sarchett: The best thing that you can do to protect yourself from a nuclear verdict is to make sure that you have all of the right policies and procedures in place and speak with an attorney. Also, make sure that you document document document. That is the best thing that you can do in the event of a claim so that you can show evidence that you’ve done all that you can in your part to prevent it.
Az Business: In the wake of COVID, most companies are experiencing work from home like they’ve never done before. Is there anything that the typical business should be doing in terms of revisiting their insurance coverage?
Jody Sarchett: With the increased number of people working from home, some of the things that business needs to do to help protect themselves is to have an official telecommuting policy. In addition to that, you are going to have more exposure to data security and privacy breaches, so I would recommend also that you make sure that — from a cyber insurance perspective — you reevaluate your limits, reevaluate your coverage, because you are going to have more exposure.
Az Business: How important is cyber insurance in 2020 going into 2021?
Jody Sarchett: Cyber insurance and data security and protection of privacy is becoming one of the most important issues businesses and individuals need to consider going into 2021. As you’re seeing more technology being utilized in various forms, there’s more exposure for data breaches and privacy breaches. And so to protect yourself, you need to reevaluate what you have in the form of policies, procedures, what you’re doing from a risk management perspective, penetration tasks, consulting with different cyber security firms to make sure that you have the systems and policies in place to protect you.
And then on the back end, you still may have a claim. So you need to have adequate insurance and make all cyber insurance policies are unique and they’re different. So you need to evaluate your coverage and make sure it fits your business and your risks.
I understand that some companies feel they may be too small to have the cyber exposure and risks that other larger corporations have. And I would say that’s not necessarily true. In fact, I think if you read some of the statistics of claims, you’ll see that more smaller companies are hit than larger companies. For instance, you’ll see that there’s been an increase in ransomware attacks on organizations and they’re able to target and hit smaller companies even more so than I would say they are larger companies.
Az Business: What can businesses do to reduce the risk of ransomware attacks or cyber attacks?
Jody Sarchett: They can do various testing with their employees and education with their employees because it’s usually a lot of times employees clicking on something they shouldn’t click on or transferring money is a lot of what we see for cyber attacks. And they’re getting in and they’re pretending that they’re somebody legitimately that you should be paying. And it is not, it’s false. Companies need to have policies and procedures in place to go an extra step, which is usually a phone call to the bank or whatever the organization is that’s requesting the money. If they would adhere to those and be consistent, you usually would catch those and realize that it is not legitimate.
Az Business: What can we expect going into 2021?
Jody Sarchett: So what we can expect to see in 2021 for insurance costs is for business insurance and for employee benefits. We are still going to see costs continue to rise. It’ll vary per the type of insurance and per the industry. For instance, we just received Q3 results for business insurance and we continue to see Directors and Officers Liability as one of the biggest increases at over 11%. Umbrella Insurance has continued to increase over 8%.
And on the benefit side, we are predicting you have various predictions, but we’re seeing around 4%, maybe as an average. Some consultants are predicting more. A lot of health insurance companies are being cautious. We hear a lot of claims weren’t as high in this COVID period because people didn’t go in and get their normal procedures that they maybe would have had. They’ve delayed them, but that’s what a lot of the insurance carriers are cautious about. And they’re actually pricing that into the plans going into 2021.
Az Business: What’s your outlook for 2021 for the insurance industry?
Jody Sarchett: On a business insurance side, we’re going to still see increases going into the fourth quarter, but hoping they’ll start to taper off. I feel like we’ve had gradual increases for almost the past two years. And at some point in time, we’ve got to get to a stabilization period. So I believe sometime in 2021, we’ll start to see some stabilization on the business insurance side.
And on the benefits, my prediction is what we’re seeing is a lot of employers are not going to be changing their plans and reducing benefits to employees that we maybe have seen in the past to save costs. I think what some of our surveys have told us is that employers are concerned about their employees, concerned about their mental health, and they don’t want to do anything to restrict any coverage or make any drastic changes. I do see that we will see an uptake in procedures and claims from that. And we do not see an end in sight on the RX trend in the specialty drugs. We are encouraging employers to start to work with more non-profits and other groups that there’s some transparency consultants to help employees understand their options and employers regarding some of these specialized treatments.