Looking Back to Look Forward

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In this episode of Risky Business, Colin Rooke and Paul Martin talk about how looking back at 2018 will allow you to make the most informed decisions for 2019.

Listen to the full episode here, or read the full transcript below

Paul Martin: Welcome to Risky Business Commercial Insurance with Butler Byers. I’m Paul Martin and joining me today in studio is our regular participant, Colin Rooke, the commercial risk reduction specialist with Butler Byers.
Paul Martin: Colin, we’ve kind of been looking at a whole lot of kind of interesting but diverse topics in the last few shows, and I think maybe we can just sort of back up a little and take a look at a broader picture. A question today and that is what is the state of the insurance industry? We’re just about to the close of Q1 of 2019. I assume, at this point, we’ve got a bit of a handle on what 2018 was for the industry and how are they reacting this year. So if I’m going to be buying insurance what should I be expecting from a big picture perspective?
Colin Rooke: Yeah, we always like to have this conversation around this time of year because all the results are in for 2018, all the insurance companies have looked at lost ratios, profitability. The reports are out, the brokers are made aware of the previous year. So we like to create a document that says, okay, so what happened last year and then in going into 2019 what can you expect as a result of the results of the 2018? So it’s always around this time that, yeah, we’re having this conversation about what to expect in 2019. So if you had an early January or February renewal, you maybe have sort of dodge what’s coming, but I would say certainly from this point on the results are in and the adjustments are being made on that front.
Colin Rooke: It’s funny, there’s some of the main culprits are still there as far as what’s driving up costs and where they are. But there’s a whole new area that I don’t think I’ve ever or we’ve really focused on in this show, where we’re seeing large increases where traditionally, they haven’t been there. So it’s kind of an interesting year going into 2019.
Paul Martin: As an outsider looking in at this, I mean you live this every day, but I get to report on it periodically or just observe it. This is my impression, and I’ll get you to clarify where the changes are and where I’m misreading it. But in very broad terms, we’ve had a lot of natural disasters. We had big storms, hurricanes, that kind of stuff, and I assume that after a few years of this … We’ve had hurricanes for like three or four years that did a lot of damage in the US. Had big fires,California, BC, Alberta a few years ago with Fort Mac. But the treasuries of these insurance companies have probably been depleted, and they’ve got to rebuild it. The only way to do that is on premiums, right?
Colin Rooke: Yeah, and it’s funny. That really should be the case going into 2019. We, again, another year of record-breaking catastrophic losses. It’s funny, rather than have one main event that we can all focus on, it was really a series across North America just dozens of little events, and by little I mean there’s still catastrophic losses, but not any one thing in there. They’re really quite spread out and diverse. In Canada, we had basically the most amount of land ever burned in Canadian history. So horrible year for wildfires. We had some awful windstorms in May in Ontario and into Quebec, which is almost half a billion dollars in damage in an afternoon. But there’s pockets all over so that the first thing you think of is, “Okay, the next thing I’m about to say is everyone’s going to pay for this on their property insurance rate because of natural disasters.” But the reality is property rates or have been and, quite frankly, are predicted to be pretty flat.

The reality is property rates or have been and, quite frankly, are predicted to be pretty flat.

Colin Rooke: And certainly, any company that’s working on proper risk management, you could earn decreases. As far as the reserves of the insurance companies … Throughout 2018 there’s been a lot of extra capital available and in 2018 even, there was less reliance on even reinsurance. Again, surprisingly, despite the fact that yet again the cost of natural disasters is up over last year, it’s really not going to impact the market. But what is going to and has been impacting the  market is liability and you will see it liability premiums across multiple lines of coverage.
Paul Martin: All right. So you say liability. You better talk to me about … Let’s dig into that. So that sort of reputational stuff and that’s things like cyber and these topics we’ve talked about, we’ve touched on, but they’re the ones that are surfacing this year?
Colin Rooke: Yeah. So the big concern … Cyber’s always a concern. It’s a growing problem, it’s not going anywhere. Those that have cyber liability insurance currently, they are probably also walking to moderate rate increases, nothing shocking. But those for some reason, those seeking to obtain it now that the costs are increasing. We’ve talked about this in other shows where the insurance markets are a lot pickier on who they take and they’re asking that you have incident response plans in place prior. Whereas, if you kind of got in early, you’re almost grandfathered in the sense that they’d like you to have one but they’re not denying the coverage.
Colin Rooke: But on the reputation side, which you mentioned, with the Me Too Movement, for example, the prevalence of employment practices type liabilities and directors and officers or boards being affected as a result, those are on the rise. And if you think about really, just the landscape of the key economy. So we have changes to the Digital Privacy Act, which again, are causing employers and employees to sort of look at the practices of the company a little differently.

Changes to the Digital Privacy Act, which again, are causing employers and employees to sort of look at the practices of the company a little differently.

Colin Rooke: Then also, again, with the … so sure, we talked about the Digital Privacy Act and then also, the Me Too Movement, and then coupled with the legalization of recreational marijuana. So again, there’s a lot of uncertainty and uncertainty brings in the courts and lawsuits and changes to legislation. The policies are certainly affected by that. So, yeah, the big culprit going into 2019 is going to be liability coverage for multiple lines of business.
Paul Martin: What things such as recreational cannabis, it’s so early in the game we really don’t have a track record that insurance companies can kind of do their actuarial magic about, right? So they haven’t got a case history that they can rely on as creating their sort of patterns. So when in doubt, just charge more? Is that fair or is it …
Colin Rooke: Yeah. 
Paul Martin: Am I describing that properly?
Colin Rooke: Yeah. I mean I.
Paul Martin: I’m putting words in their mouth, but you tell me if that makes sense.
Colin Rooke: Yeah, it’s almost a wait and see type thing. So we don’t know what’s really going to happen. We’re starting to see increases. We’re starting to see liability claims that were … They’re sitting back saying, “We don’t know what’s going to happen. We don’t have the data.” Like you said we don’t have the actuarial evidence to predict. The model isn’t there. So we have to predict ourselves and really look at are we collecting enough premium to cover off what could be coming? So it’s turning into a real concern, right? And it will be throughout 2019.
Paul Martin: Well, I guess the moral of the story … And as we’re going to take a break here in just a moment, and I’ll get you to think about this during the break. But the moral of the story is in this period of uncertainty, there are certain steps that I can take as a business owner to reduce that risk or to perhaps position myself more effectively to avoid big rate increases or limitations in my coverage.
Colin Rooke: Yes, absolutely.
Paul Martin: All right. We’ll talk about that when we come back.
Paul Martin: You’re listening to Risky Business Commercial Insurance with Butler Byers and Colin Rooke. We’re going to be back after this break.
Paul Martin: Welcome back to Risky Business Commercial Insurance with Butler Byers. This is Paul Martin and joining me is Colin Rooke, the commercial risk reduction specialist. The Butler Byers Commercial Insurance. Just before the break, we were talking about all the uncertainty that’s out there around the liability side of the industry. And that insurance companies, for example, on the recreational marijuana file, don’t have a lot of data to base things on.
Paul Martin: So if I’m looking at this as a purchaser of insurance, what steps do I need to take to ensure that I’m not getting caught with some very big inflated price increases or not being able to get coverage at all?
Colin Rooke: Yeah. So I mean, we talk about this a lot in the show and those that will be looked at in the most favorable light are the companies that have their ducks in a row. They’re looking at the trends. They’re saying, “Okay, well, if sexual harassment in the workplace is now top of mind, we need to look at our business and say are we doing the right thing? Do we have the proper policies and procedures in place?”
Colin Rooke: One of the interesting facts for this upcoming year is the investment by the insurers on basically third-party, really, investigations into how business will react to claims, sexual harassment claims. How they’re reacting to data breaches. So how are they implementing their incident response plan? They’re actually investing into ways to predict the differences and have a concrete examples of those that do, those that don’t where they can adjust their pricing model accordingly based on fact really, rather than hearsay.
Paul Martin: So you want to be one of those companies that do, not one of those companies that don’t have your ducks in a row?
Colin Rooke: Yeah, and you know what comes up every single year is if you’re looking at any area that has increases. So I mean even on the property side, if you’ve had property losses coupled with the catastrophic losses that we’ve had in North America, you’re going to see double-digit increases. I’m trying to come from a place of, okay, what if the average business out there that has not has a claim, but it time and time again … even the insurers at the highest level with say for the price conscious consumer, those that are putting in the work that have proper risk management techniques with a proactive risk reduction plan, will pay the least, and be … Really, the terms I use all the time is, will be in charge of what they pay an insurance premiums.
Colin Rooke: In this report, it’s mentioned over and over and over again depending on who’s giving the update, it’s across every single insurer. They’re all saying those that put in the work and that can show it, will pay the least, will be looked at in the most favorable light.
Paul Martin: That’s where your step by step plan comes in because you’ve got forms that I as a business owner can walk through with you and fill them out and that will help to build my case to say that, yes indeed, I do have my ducks in a row. And where I identify or the two of you identify weaknesses, if you’ve got a plan in place to rectify those, that’s even more that the insurance companies love to see.
Colin Rooke: Yeah. At Butler Byers Insurance we speak underwriter. I mean, that’s what we focus on. We are aware of what’s out there. We are aware of this report. We are away of areas in the market that are hardening. We will walk you through what you can do as a business to combat that. We focus on risk so you don’t have to. We’ll discuss reports like this. So for example, the main culprit moving forward, for anyone that’s listening is you will see increases on your commercial auto insurance. Across Canada, really, the whole market has been plagued by underwriting losses. There’s a shortage of commercial drivers out there. This report suggests there’s about 34,000 drivers short, which means those interested in driving, this is not just long haul truck drivers, this is anyone in a commercial vehicle.
Colin Rooke: New drivers are basically getting pushed out onto the road with very limited experience just to get the job done so to speak. The cost of the insurance, the size of the settlements are reflecting that. I mean there’s been some 10 million plus liability awards for commercial auto claims and that number isn’t decreasing. So the only way to turn the tides is to sit down and have a plan to say, do we have a fleet safety manual? Are we giving our drivers the proper driver training? Are we discussing safety as an organization? Are we putting safety first? What are we doing? For those companies that are listening right now and saying, “Well, we already do all that stuff.”
Colin Rooke: Does your insurance market know that? I mean it’s one thing to do it, but is that being communicated? That’s the other big benefit of our process of having these conversations and documenting it and sharing that is … The work that you’re putting in now that no one knows about is that story being told to them?
Paul Martin: That’s all about capturing your best practices I gather.
Colin Rooke: Yeah.
Paul Martin: You have a proper policy manual and you can help instruct people as to what are the appropriate and pertinent things that should be contained in the manual, if you can do that.
Colin Rooke: Yeah, absolutely. I mean it’s really the bulk of our focus. We see that the whole trend in the insurance industry moving towards proactive risk management. Like I said, it’s right in this document gathered from the insurance companies. Proactive risk manager, proactive risk management. So if we’re not going to be on the forefront of that, our clients are going to pay more as a result. The industry’s going to pay more as a result. Now there’s always going to be culprits out there. There’s going to be business that say, “We don’t need to focus on risk management. That’s what insurance is for.” Those business can pay more if they want to. They can rely on insurance as a crutch. But for those out there saying, “This is a significant cost to our company and we would certainly like to see that reduced”, you have to put in the work. 
Colin Rooke: I’m just referring to at this point hard cost of purchasing insurance. We haven’t even got into the reputation side. The total cost of having a claim to a business. But again, if you’re going to put in the work, you’ll reap the benefits and you can leave the high-cost coverages to those that aren’t.
Paul Martin: We’ve got about a minute left in your program and I just wanted to sort of touch on one other thing. That this program or approach that you’re talking about, it’s being recognized by the insurance company, some of them. I mean we’ve even had them step up and become sort of sponsors of this program because they like what you’re talking about.
Colin Rooke: Yeah, again, we speak underwriter. I mean they’re having these conversations back at the office and the concern is the industry at large isn’t. And we say to them, “We are. We understand what you’re doing. We want to present the best risk possible for you and our clients and we want to work together.” So there is recognition there. We are recognized as a company that is focusing on risk management, and we get underwriters all the time asking, have they gone through the process? What did you find during your process? How can we help with the process? Even, how can we become part of the process? So, we have clients, especially on the cybercrime, cyber liability side, we are now working directly with underwriters where we’ll put our clients on the phone or even put our clients on the phone with ourselves, the underwriter, and the loss control team in advance of a loss to say, again what can we do together? How can we all work together and ensure that we don’t have claims?
Paul Martin: Colin, as always, great insights and great information for business owners and managers in the province that they want to be much more in charge of their destiny in this field. You’re the guy to talk to. You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers Commercial Insurance.
Paul Martin: This is Risky Business Commercial Insurance with Butler Byers. There you go, and almost tripped over my own tongue. This is Paul Martin, thanks for joining us. Talk to you next time.