Welcome to Risky Business, Commercial Insurance with Butler Byers. This is Paul Martin, the host of the show, and also business commentator on CKOM. You hear me here regularly every day. And joining me today as always, our expert on all matters related to commercial insurance, Colin Rooke, the commercial risk reduction specialist with Butler Byers. And Colin, here we are early into 2023, and it’s this time of year that it’s kind of an interesting time because we’ve had the month or six weeks or whatever it is to, for the industry to kind of get the stats together for last year. And I’m gathering, we’re starting to get a bit of a sense for what 2022 looked like. And oftentimes that’s a pretty good bellwether indicator of what 2023 or the coming year is going to look like. So I’m wondering if we started now to see some of the statistical analysis. What were the big issues last year? What were the trends?

Yeah, so every year around this time, we used usually talk about this global report that does come out and they survey, it’s 2,500 executives from, again, it’s a global poll and it’s all different size companies. And then they also survey risk management experts as well. And they come to consensus on the global risks for 2023 based on the results or what occurred in 2022. And so yeah, they’ll reports in some big changes, but we’ve talked about it. Everyone’s heard this from me, but cyber incidents, so cyber liability, cyber crime is a very, very strong number one. And then with that is business interruption being a strong number two, in fact, they’re tied.

However, when you look at a cyber incident, they are almost always paired with some sort of business interruption depending on the severity of the attack. And so I would say a lot of that sort of percentage that’s attributed to business interruption would be more, again, around the concerns of a cyber incident. But also we’re still seeing that sort of trailer effect from the pandemic. In the event that I need business interruption, is it going to pay me? Do I have enough? Can I really rely on the insurer, the insurance market to be there? So I’m going to say that again, a lot of that concern as well is, and I guess you add in too sort of global unrest with the war in Ukraine. And again, so business interruption has become top of mind, but the two combined are almost 70% of the whole list. So it’s a big deal.

One of the things that fascinates me when we have this conversation is you’d think we’ve been talking cyber attacks and cybersecurity and all the risks to business that are associated with that for years now, it’s been four or five, six, seven years we’re talking about it. And you’d think, boy, after that period of time we’d figure out how to inoculate or immunize ourselves against it. But in fact, it’s the other way. The perpetrators are actually just getting better and better at this.

Yeah, they’re certainly outsmarting us. Yeah. Not only is it not going away, it’s not necessarily improving. Every year from a insured perspective, the minimum criteria just gets larger and larger and frankly costlier and costlier. And so it’s a big deal. It’s not going away. And the more you learn, the more you realize, the more you need to learn. For example, I’ve talked a lot about ransomware and weirdly ransomware has kind of gone by the wayside. The favorite last year was wire transfer fraud, social engineering leads to wire transfer fraud, very little ransomware all things considered. And then as just as soon as you sort of identify, okay, we really got to watch for wire transfer fraud, it’s changed again. And now the number one, I’ll say new and emerging threat is opportunistic attacks. And it preys on the public’s good nature. So as an example, a humanitarian aid website is created so you can donate money to Ukraine as to help in the war efforts and the whole site is fraudulent.

Or another great example is the idea of looming recession and high inflation. And so one of the most Googled terms in North America was inflation help or variation of what is inflation, what can I do about inflation? And so now you have these fake, completely artificial sites that look like they’re designed to help you. In fact, they will educate you. They’re very educational, they’re very well done. And of course, and there might be a document, download, a worksheet, something and you won’t think twice about it. And again, that’s that opportunistic attack. They’re preying on a weakness, they’re very good at getting the information out. And then you finally say, well, yes, I’d like to take advantages of some free resources. And now either you as an individual or the organization has a problem and all you are trying to do is learn something.

It is certainly getting more sophisticated, isn’t it? I mean, they’re just getting better and better at this and we develop our defenses, but they always seem to be one step behind what the perpetrators are doing. And so the point here, and I think you’ve made this comment many times is its human error that leads to this stuff, is that employees will click on something or you will inadvertently or unknowingly basically introduce yourself to having the attack because they’ve sent you something that looks innocuous, but it’s far from it.

Yeah, it’s so good now that we’ve talked about sort of the number one red flag is your server, your system asking for permission to download. Well, right in the body of the fraudulent website, they’ll address the fact that your system may have trouble downloading this free tool and then show a picture of the popup. You’re going to want to allow it in order to get it. And then people just, well, why would there be a government or a website to help me cope with inflation, budget better? You’ve gone all the way down the rabbit hole, you’re now trusting and now that they’ve even identified that you’re going to get this pop up, and of course you’re going to say yes. And now you’ve got an issue.

Colin, when you talk to industry players, is there any level of surprise on their part, if I could put it that way, about what we learned as the prevalent factors last year and what they expect coming into this year? I mean, are they surprised with these developments or is it just sort of, yeah, we could see this coming and we sort of anticipated it?

I think with cyber incidents, there’s not, I mean, they’re surprised. There’s some shock. It just seems, okay, well we prepped ourself for this and then now you’re saying it’s something different. We implemented all of these best practice tools and then now you’re saying they’ve essentially, they’re able to effortlessly get through that. So I think it’s more exasperation. When does this end? When do we quit talking about cyber and when do I get a clean report card where I don’t have to take on a whole bunch of onerous task to be compliant? I think that’s the real issue.

Yeah. More frustration than anything that you think. We always want a quick fix, don’t we? So you get frustrated when that isn’t readily available. Well listen, we’re going to take a little break, Colin, because we’ve kind of reached the midpoint of the program. But when I come back, I want to talk to you about some other trends that are going on and maybe some of the macro stuff. And you alluded to inflation, and I’m just wondering, we haven’t talked about that, but I’m guessing there are some implications there. So we’ll take a little break, we’ll come back, we’ll talk about inflation after this. You’re listening to Risky Business, Commercial Insurance with Butler Byers. Back after this.

Welcome back to Risky Business, Commercial Insurance with Butler Byers. Paul Martin here, and joining me, Colin Rooke, the commercial risk reduction specialist with Butler Byers. Colin, before the break I indicated I wanted to ask you a question about inflation. I mean, we talked about some of the other macro issues at play, things like the Eastern European war and what implications that has, but I’m sure that rising interest rates as we attempt to fight inflation are also because they’re financial matters, and insurance is largely a financial product base, is there some correlation there? Does a rising interest or inflation rate mean changes in the insurance world?

Yeah, it does. And then back to the list I referenced, the sort of, the biggest jump on the list as far as new and emerging risks was definitely inflation. And then second to that, financial market volatility. And so it’s certainly top of mind and it is something that we do have to consider when looking at the overall insurance program. So how does inflation directly impact our clients? And really, again, with the cost of everything going up as a rule, so do the cost of claims, so do the cost of any rebuild, labor cost, and do the policy itself, you really have to take a step or take a look and say, do I have the appropriate limit? The desk I bought five years ago for $3,000, what would it cost me today? And it’s very important to make those changes, and unfortunately, it’s going to turn into rising premiums as a result, but it’s unavoidable.

So again, building value is very important, and I know we did a show on that, but I can’t stress enough that you need a handle on what would it cost me today to rebuild this thing? Labor’s more expensive. All materials are expensive, but then also you have to take into consideration the delays, getting materials. The next sort of, kind of where that segues into is big concerns of under insurance. So you got to worry about inflation, and you really have to worry about under insurance, and when it comes claim time, we’ve talked about co-insurance, but at a high level, if you don’t have the appropriate amount of insurance, you will not get the claim amount you think you’ll get. There’ll be a penalty applied.

And so you have to say, okay, it’s a double-edged sword, but you say, okay, if I report that my building’s worth a lot more, it’s going to directly correlate to more premium. And absolutely it’s going to. However, failing to address that in a claim could result in you receiving a fraction of the payout you thought you were getting. If your limits aren’t adequate, they’re going to say, well, if you needed 5 million worth of coverage and you only had three, we’ve got an issue here. We’ve got a co-insurance penalty, and so we’re only going to give you a proportion of the claim, not the full amount. And so it needs to be on the insurer’s mind, am I underinsured and am I keeping up with inflation?

The question that pops through my mind when you say that is, we renew insurance policies for a year. Is a year too long? I mean, there’s a lot of inflation in a year. Right. I mean, how often should I be checking on this stuff if I run a business or I own a business, and how do I come to grips for that or how do I cope with it? What mechanisms do you recommend that I think about?

Yeah, that’s a really good question. And so at renewal time, you essentially have to predict what you think you’re, again, we’re talking building or building equipment stock. You have to predict what you think it will be worth during that policy period. And so you’d say, okay, I’m going to go with 7% inflation over the year, which five to seven is probably a pretty good idea, assuming that you’re building values today are correct. However, you’re not an expert at predicting the reconstruction costs and inflation. And so it’s very policy dependent. So I don’t want anyone to think, well, this is how it works, but built in the most policies is a buffer. So you might have a 10%, you might even have up to a 20% buffer where you can be over or underinsured and still be okay. And they do that for that reason.

They’ll say, well, you need to be at 90% of the value of the building, or in some, you need to be at 80%, but you have to watch for the policies that say, nope, you have to be at 100% of the value, $1 short, and we start subtracting from what we pay. And so it’s very important you have someone review that and explain and that you understand, which is also part of our risk reduction workshops. We talk about coinsurance strategies and making our clients aware of what they are self insuring and what they aren’t. So again, if there’s a gap there and you’re okay with it, that’s fine, but it’s very important that you understand where you stand and how close you need to be to that number.

The question that came to mind as you were talking about this is one of the services you provide free of charge to anybody, whether you’re a customer or not a client of Butler Byers is these step-by-step guides that help people kind of ask and answer the relevant questions when you’re thinking about insurance. Presumably you have to update these on an ongoing basis too, because the marketplace and the landscape is changing.

Changing.

I’m assuming that every once in a while, probably even if you’ve gone through the step-by-step plan, say three years ago, probably time to come back and revisit it.

Yeah, another really good point. So say five years ago, we weren’t spending as much time on inflation, building values, and co-insurance. Now we start with it. And when we go through our risk reduction workshops, it’s important to us to point out first and foremost, frankly, what you aren’t covered for. It’s really easy to say, you have coverage for this, you have coverage for that. But where we find you’ll get into trouble is when you’re unaware of what is not covered. And so if we say, oh, let’s take the reverse. We’re going to talk about what you don’t have coverage for, and let’s assume everything else you do, and that’s what we get into the co-insurance proper building values. But you’re right, Paul, we’re constantly adjusting based on what’s impacting business today. Cyber hasn’t moved, cyber comes up right away for almost everyone. But yeah, we certainly spend a lot more time talking about building values now than we would’ve in the past.

Well, I guess I take from this that we probably in this program should encourage business leaders, business owners, business managers to reach out to you and just ask, say, I’d like to take a more current walkthrough, the step-by-step assessment. You’d welcome that, right? If anybody called you up, you’d be more than happy to provide them with a free consultation effectively.

Yeah, absolutely. It’s a deep dive into the program, and it’s a discussion about where were you, where are you now and where you’re going, and how can we help from a new and emerging risk standpoint and from a proactive risk management standpoint.

Well, Colin, it’s amazing, but the time has gone by. We’ve run out of time. So thanks again and really appreciate your looking back and assessing what did we learn in 2022 and how does that inform decisions we need to make so we’re really well armed going into 2023? You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers. I’m Paul Martin. Thanks for joining us. This is Risky Business. Talk to you next time.