Welcome to Risky Business, commercial insurance with Butler Buyers. This is Paul Martin, business commentator in CKOM and the host of this program. Joining me today, Colin Rooke, commercial risk reduction specialist with Butler Buyers and the man with all the insights into the workings behind the scene in the insurance industry and more particularly ,the commercial side of the industry and what that means for business owners and those who are in management positions and responsible are ensuring that they have insurance in place to cover their operations. Colin, welcome. Great to chat with you again.

And the topic that’s catching a lot of attention these days is inflation. As always, we wait with bated breath to hear what the monthly inflation numbers are. We just saw those and they’re down slightly. But what we forget to mention is that is something called the CPI, the Consumer Price Index, which is at the end of the chain. Insurance, it fits into more of the supply chain because it’s part of the business supply. And my understanding is that we haven’t seen inflation in that sector in the supply chain yet starting to see the same kind of reductions that we’re seeing at the consumer level. Is that a fair observation?

It is. So the largest insurer in Canada has come out and said this hard market, the idea that this year-over-year increase, it’s going to continue for the next few years. And they’re large enough to say that with confidence because they’re, for the most part, setting the terms that the others will follow. And the reason for that is of course, although inflation is lessening, still the full brunt hasn’t, it’s continuing to hit this industry. You look at the rising cost of claims, and from an insurer perspective, you’ve got the in-house capacity or their own in-house retention. So what level of claims they are able to pay in-house, and then from there they buy insurance. And unfortunately, due to reinsurance, they call it reinsurance, and due to reinsurance being used so often, and that’s due to the rising cost of claims, these reinsurance bills have skyrocketed despite insurers across Canada willing to take on more and more of the risk in-house.

And so really it’s a long way of saying that their costs are still skyrocketing. Their bills are skyrocketing as a result, and then therefore they need to recoup those costs from their customers, and that’s going to end up being auto, personal lines, and commercial. And so they’re saying, although maybe the increases will be lessened, this idea that inflation again has been curved a little bit or we’re on the right track, it’s certainly not going to go away anytime soon and we’re not going to return to a soft market for a while.

If I can put it another way, you’re saying that inflation is affecting insurance claims, so they’re getting bigger. Costs you more to fix a broken pipe, or if you have a fire in your house, it costs more to repair it, and so insurance costs are going up. So when the insurance companies buy insurance, that second tier of insurance companies, the reinsurance guys, you call them, their claims go up. And so now we’re starting to see this thing filtered through. A lot of the system that most of us don’t even know exists, we don’t even see it, and so there’s insurance for the insurance companies and their costs are going up and they’re passing it all along. And at the end of the day, the chain ends in the hands of the consumer or the small business owner.

Exactly. The impacts of the market are now actually hitting you the reinsurance side. And so now we’ve got the largest insurer in Canada and really all of those underneath it, they are saying it’s costing us a lot more to buy the insurance we need, and therefore the insurance the listeners are going to be buying, it’s going to be costlier. I do find it interesting too because you read a lot of these articles and they’ll talk about rising prices, hard market, soft market, and I have to be vague, what does that look like? What kind of increases are we talking about?

But in this case, they’ve come out and said it’s going to be in the high single digits. And so it’s interesting that they’re able to come out and say across the board it’s going to be 8%, 9% increases to all of our policies, which that’s going to be a barometer for the most part for the rest of the market. And so you can say with confidence that 7%, 8%, 9% is probably going to be what most people are going to see across all lines. Now, some segments will be higher, some segments will be lower, obviously, but it’s rare that we get a real indication of what they’re going to do. And we do have that now.

There’s something called the industrial input price index, which they alluded to earlier. There’s the consumer price index and then there’s one about what’s the inflation inside the supply chain? We hear consumer inflation sitting 5%, 6%, somewhere in that range, and the industrial one is 15%, 16%, and that still has to work its way through the system. So we probably should not expect that inflation’s going to go away or that premiums are going to start to decline in the very near term. Correct?

Yeah, absolutely. I couldn’t have said it better. It’s still working its way through, which is why they’re being cautious to say, we would love to charge you less, however, it’s going to be some time before we really get a handle of the true cost of inflation overall. And at a high level, they cannot get claims costs under control. And it varies by segment and it varies geographically. And so the average purchaser of insurance across Canada should anticipate, unfortunately, more increases.

And for not just this week, right? Probably for a relatively extended period of time is what I’m guessing is that it’ll take a while until all of the measures that central banks put in place and whatever. It took us a long time to get inflation up. It’s going to take a long time to get it back down too, I guess.

Absolutely. And as I mentioned too, being the largest insurer in Canada, they set the stage for the rest. And if they’re coming out saying, we’re going to be 8%, 9%, the others will follow suit because the door’s now opened for asking or commanding those higher prices as well.

We’ll just say to those who are listening, if you’re in the commercial realm and you’re thinking about budgeting or whatever for the coming year, this is something to keep in mind that insurance rates are not going to be declining for the near term anyway. Certainly, not in this fiscal year based on what you’re telling us and what the indications are from the big players in the market, that they’re still on the wrong side of that equation and their intention is to get that fixed.

Yeah. And I don’t think it’ll come as a shock to most when you look at all things in really any consumer good lately. I wish I had better news, but yeah, it sounds like don’t budget for any decreases anytime soon, but on the sort of happy note, less of an increase.

Right. You’re listening to Colin Rooke, the Commercial Risk Reduction specialist with Butler Buyers. We’re talking commercial insurance today. We’ve got to take a little break, but Colin, when we come back, I do want to move down the line a little bit to something that affects us at the personal level, and that’s just the auto industry and some of the interesting nuances that are going in there. So you stand by, we’ll come back and take up that subject right after this break.

Welcome back to Risky Business Commercial Insurance with Butler Buyers. Paul Martin here, and joining me, Colin Rooke, the commercial risk reduction specialist of Butler Buyers. And Colin, before the break had a little teaser that we’re going to talk about auto and not so much auto rates, but one of the interesting aspects that comes out of this is that it’s no secret the auto industry’s just been wrestling with supply chain problems since Covid and drive by any new car lot, and there isn’t very much inventory there. Dealers are struggling to get their hands on inventory, factories are having a hard time getting it out, but that filters through in some places you wouldn’t really expect like the rental business. So why would we even talk about that one today?

Yeah. I was just going to say, why are we talking about the rental business? And this is just something to keep in mind. And so a big issue when it comes to auto claims and insurance is length of rental. And so that number has been skyrocketing across Canada. I don’t have the data, but I assume North America and probably worldwide, but in Canada, that number has skyrocketed. So why am I talking the length of rental? If you are in any type of auto accident, whether the car is drivable or not, you’re looking at repairs. The length of rental in Canada, the average is 17.1 days, which is up from 14 days in 2021, which is up from 10 days, or sorry, up from 2022 and then up from 2021. And so what’s occurring now is if you need to rent a vehicle because your vehicle’s been rendered drivable, the time you’re going to rely on a rental is increasing.

Why is that an issue? Well, one, when it comes to coverages like loss of use, you get a lot of people that will say, well, I don’t need it if my vehicle’s in the shop for a little while. I’ll just rent a car. So I’m here to say that if you’re thinking it’s a few days, it’s not. It’s probably going to be up to a month or possibly longer. Another thing to consider too is in the event of a total loss, you say, okay, well I can’t use the vehicle, the damage can’t be repaired, and so I’m going to receive some sort of check and I’m going to go purchase a new vehicle. Well, the issue there is that it’s hard to a new vehicle. And again, now we’re back to length of rental. And so in Canada, the average time it takes from a total loss to being able to purchase and procure your vehicle is about 34 days.

So again, the idea that you’re going to take some money and go get a car, it’s not working that way at all. And then I guess last to consider is if you are in a accident and the vehicle isn’t drivable, you’re looking at the high twenties length of rental. So one, if you haven’t thought about buying lots of use, just keep in mind that you could be footing a bill for quite some time. If you could find a rental, it would be costly. But even if loss of use, make sure that you have enough there to cover off how long you could conceivably be without vehicle or needing a rental while you’re waiting for a repair. Again, wanted to point it out. This is of course caused by supply chain disruptions, parts delays, collision backlogs, people issues, technician shortages. But again, very important to keep in mind that if something goes wrong, you might be without your vehicle for quite some time.

I guess if it’s hard for car dealers to get their hands on new vehicles, it’s equally hard for the rental agencies to get their hands on vehicles too. So that makes some sense. But my guess is that as a consumer, not very many of us ask the question about the length of loss of use. That’s just like when you’re buying your auto insurance, it probably is, oh yeah, you’re covered for if you have an accident for a rental, but nobody talks about how long. Is that a question that a consumer should be asking?

Yeah, exactly. So if you have loss of use, how long do I have and do I need to look at extending that? And if you don’t carry loss of use, and again, you say, well, if I was without a vehicle, I’ll just drive something. Really take that into consideration. Now, there’s listeners out there that are probably saying to themselves, “Well, the body shop that I work with, they take care of the rental. They’ve got vehicles.” But again, challenge that because if you can’t get them, they can’t get them. And so again, just keep in mind how long the window to repair is, and we’re talking averages. So if you have luxury vehicles or anything from overseas, you can add to that. And so, depending on the incident itself, it could be quite some time between accident repair and returning you to your car back on the road.

Holy man, Colin, it’s getting hard to be a citizen out here and to be a consumer, isn’t it? This just isn’t as smooth as it was in the pre-pandemic era. Now we’ve got inflation, we’ve got supply chain challenges, and we don’t have enough people to do the job. And so stuff sitting outside in the parking lot because as you point out, there simply isn’t enough technicians to do the work. This is a new world, isn’t it?

Yeah. It’s pretty frustrating, especially in a total loss situation. You say, okay, well I don’t really have to wait for it to get fixed. I just get a check. And that usually comes quite quickly. So you think, okay, I take my check, I go find a car, and those people are waiting the longest. So you think, okay, I can understand the repair side of things, but it’s a total loss, I have the money, why am I waiting on average 34 days in Canada? And it’s because it’s hard to get something. And so again, take that into consideration. Maybe you have a old clunker that you were meaning to sell, high mileage that you sometimes drive, maybe keep that, I don’t know. But it’s just worth noting the length of rental time has been skyrocketing.

Well, listen, we only have a couple of minutes left, and I do want to touch on one more topic, if you don’t mind. And I don’t think we can do a show without talking cyber, but there’s a new angle on cyber that the cyber criminals are just getting so much more sophisticated. They’re finding more and more ways to… As a consequence, we need to protect ourselves more effectively.

So quickly, before we wrap up, what’s changed now is… So depending on the nature of the crime, and so I’ve talked about social engineering, someone pretends to be someone else, internally sends an email, you send it to the wrong place. Insurers are now getting sticky because sometimes those social engineering emails occur when there has not been a breach. And that that’s usually when information around the individual is easy to find. But technically, again, you could transfer money fraudulently but not have a breach within the system. Now the cyber policy is designed to cover you in the event there is a true breach, but not if there’s just plain human error, or at least not now depending on the carrier you’re with. So now that coverage falls to the crime policy, the old-fashioned crime policy, and it’s something that again, you need to look at. You need to make sure that you have adequate crime coverage limits, which most brokers are probably have been reducing over the years. Anyway, just so something to make sure.

Colin, we only have a couple of minutes left before the end of the program. And I want to touch on one more topic, and that’s cyber. We can’t really do this show without talking about it, it seems. But those cyber criminals are getting so much more sophisticated and there’s actually some angles now that business owners need to be just a little bit more insightful about. What kind of coverages you need because of the way the wording of some of these policies works. Can you walk us through that?

Yeah, so just quickly. Depending on the nature of the crime, so we talked about social engineering quite a bit on this show, and that’s when someone pretends to be the general manager, the CEO, the chief financial officer, and requests money to be transferred and it’s fraudulent. It’s intercepted somehow, and it’s off to the wrong bank account and gone forever. And so the cautionary note here is that the insurance policy is changing and they’re pushing a lot of this coverage over to the crime coverage. And so what the argument is is that if the system wasn’t breached, if it just wasn’t email, is it really cyber crime or is it wire transfer fraud? And should the crime policy pay this? So it’s very important that those listening to this show look into, do I have appropriate crime coverage? Because even though you’ll feel like it was sort of a cyber crime type breach, you very well can be transferring money and your cyber insurer says, no, that’s a crime issue and we’re not going to pay it.

So I guess from the buyer’s perspective, if you’re in business, you need to be asking questions of your broker to make sure that you’re covered cyber, but also this is the word of advice is to ask about the crime element of your policy as well.

Yeah, absolutely. And it really comes down to did the employee willingly transfer the funds or were they stolen. And so that’s the issue there.

Well, an interesting nuance on that and just a bit of advice for business owners that you need to be sharper on this one. You’re listening to Collin Rooke, the Commercial Risk Reduction Specialist and expert at Butler Buyers. You’ve been listening to Risky Business. I want to thank you for joining us. This is Paul Martin, we’ll talk to you next time.

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.