Name: Robert G. Padula
Position: President, Gencorp Insurance Group in East Greenwich
Background: After serving in the military, Padula started selling insurance in 1969 for Glover-Padula Insurance, his brother’s company (now Gencorp). In 1986, he became president of the firm.
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Education: Bachelor’s degree from University of Bridgeport in Connecticut. He also attended Providence College’s graduate school for business administration.
Age: 56
Residence: Exeter
Gencorp Insurance Group, based in East Greenwich, was formed in 1992 with the merger of Glover-Padula Insurance of East Greenwich and Gallo-Thomas Insurance of Providence. Glover-Padula, a partnership between Joseph Glover and Fred Padula (Robert Padula’s brother), was founded in 1946.
Gencorp is now one of the largest regional financial services agencies serving individuals, business owners, and insurance professionals. The company’s work includes being a general agent to Blue Cross Blue Shield of Rhode Island, providing products to a network of small insurance agencies, and offering executive benefit plans. Gencorp has 15,000 personal clients and 3,000 corporate clients in Rhode Island and Southeastern Massachusetts.
PBN: Obviously, your company has found benefits of growing from a small Main Street insurance firm. How difficult is it for the smaller firms to do business?
PADULA: In our business, we sell products that are manufactured by companies other than ourselves. Agents are distributors of the products, while the manufacturers of the product are the insurance companies, who have the financial wherewithal to design the products. What is happening with these companies is they are getting larger and larger, like the banks have. The small insurance companies that were around 25 years ago are disappearing. Today, any of the major insurance companies before they give you a contractual appointment want one, two or three million dollars of sales. Small agencies most of the time do less than $1 million of premium, or certainly less than $2 million. What they may be able to do is support one or two companies. But, what that does to the client is like going into a CVS and finding only one or two kinds of aspirin.
What has happened is organizations like Gencorp Insurance Network has developed. Our network provides support systems for agencies and access to products. We do two things through this. The first is to help keep the small agencies in business, which helps them and we make money. These small agencies are important, because their clients know them and trust them.
Tell me about why premiums jumped in recent years?
In 2001, we came off a 10-year span in which the prices for customers were going down. As the stock market was growing and insurance companies were getting great returns investing their capital, they were competing for premium dollars. What happened while they were competing was they were reducing their price, so they could get more flow of cash so they could invest it. In the beginning of 2000, when the stock market turned, profits from investments started to go down, so insurance companies started raising their insurance premiums. That was driving price about 10-15 percent a year, which wasn’t bad considering 10 years of decreasing price. However, Sept. 11 changed that. Sept. 11 took about $50 billion of surplus out of the industry. When you take that out it has a tremendous impact on the industry’s ability to respond to the needs of the insurance public. We don’t have enough capital to support the needs, because it is a regulated industry and the regulators say you need so much surplus to carry so much premium. So prices went up dramatically, going from 10 to 15 percent to 25 to 50 percent. Now, we are beginning to see an unavailability of certain types of coverage.
What type of coverage is hard to get these days?
One example is terrorism coverage. Most companies used to include it, especially in workers’ compensation, which is statutory in Rhode Island. Now some companies are not covering terrorism coverage in their policies. The problem is the law has not changed…the employers are still responsible to pay the employee and his medical bills. Now the employer can’t transfer that risk to the insurance company. The reason the insurance company doesn’t offer it is because the re-insurers, which insure the insurance company, won’t offer it to the insurance company. Legislation has been before Congress…now it is in a House/Senate committee to try to get a combined bill out of it. The federal government has to respond to something that private industry cannot deal with financially.
We have seen a tremendous change from where we were ten years ago – everything was available, and there was very competitive pricing.
What do you think the impact has been on small business?
The biggest thing the businessperson at the shop on Main Street is seeing is price increasing. Where does a business get that 25 percent increase in premiums? In some cases, it’s coming right out of their profit margins, unless they can adjust the price of their product. Eventually, the consumer ends up paying the tab.
What about self-insurance? Are you seeing more of this?
Whenever the price goes up and the market becomes restrictive, companies always look at different methods of self-insurance. The larger companies can qualify for individual self-insurance plans…or there are mechanisms called group self-insurance plans. That’s when companies in a similar industry form a group and form their own self-insurance. What they are hoping is they can eliminate some of the administrative cost of the insurance companies. Usually the reductions save money in the short run, because they underestimate what the losses are going to be. In the long run I really don’t think you can save money off it.
What products do you predict will become more popular?
I think you’re going to see what I call designer products, almost like what we have seen in the life insurance industry. You used to buy a life insurance policy or health insurance policy that covers death or illness, then you saw specialty type products, like a policy for cancer. What is going to happen is you will see is a policy just for terrorism or policies for bio-nuclear or bio-chemical. Usually when they start taking things out of policies sooner or later someone starts selling policies covering what has been taken out. As society changes, policies change.
With the Enron scandal and others, do you see a growth in insurance that might cover financial losses related to investments?
One of my partners has been involved with something in New York in which a group of venture capitalists are looking at providing a kind of hedge fund, but in the form of an insurance policy. I don’t want to say too much about it, because it is a proprietary product right now. But, what it would do is be an insured leveraged product so that it would cap your losses if you had investments of stock in companies where these types of events happen. It wouldn’t pay you back all your losses, but it would be capped. It would say, ‘Look you have this stock if it ever goes completely under for these particular reasons, which have to do with mismanagement of the directors or wrongful acts, then we will cap your loss based on a formula. You pay a premium to the insurers for that.
People are always working to develop products they can make money on based on unfortunate occurrences in our society.
You’re a general agent for Blue Cross Blue Shield. What do you do?
Blue Cross Blue Shield has two general agents in Rhode Island, which are to serve the employer under-50-employee-market group. Any agent that has a life and health license in Rhode Island can access Blue Cross products by going through two of the general agents in Rhode Island. We provide certain services for Blue Cross and those independent health agents to provide Blue Cross health and dental coverage.
I understand that a segment of Gencorp serves other insurance companies?
We run a support operation for other insurance agencies throughout New England, in which we provide them with marketing services. We have about 60 agencies that are affiliates of Gencorp that we provide marketing and sales support services for.
How did you create that niche?
Through my years in the insurance agency associations…I came to realize that there are a lot of small agencies out there that needed support. The individuals who run independently–owned agencies have a lot of relationships in the area. They had all the contacts in the market, but they didn’t have the array of products and services because they had smaller operations. From scratch we started an operation, a support operation for these small companies, called Gencorp Insurance Network.
Tell me about the work you do for executive benefits for companies?
We have a company called Gencorp Insurance and Financial Services. I have a partner in that company, Ernest Baptista. We do executive benefits, deferred compensations for very large corporations all over the country. Many of the companies are Fortune 1000 companies. What we do is structure compensation packages. Rather than take an income today we design programs that can defer that income to a later day, so you can use the tax laws to lessen the tax burden on those individuals.
What is the biggest complaint from consumers when it comes to dealing with insurance companies? How do we deal with it?
Consumers say they don’t get the personal attention. They buy a product and they buy it from an individual at a company, but then they never hear from that individual again. They get treated like a number. I don’t think insurance is unique when you look at these customer service issues.
A consultant at a conference said something I have never forgot: ‘Get your company big, but always act small, especially to the consumer.’
