Market update

Welcome to Risky Business Commercial Insurance with Butler Byers. Paul Martin, the business commentator and CKOM here. Joining me today, Colin Rooke the commercial risk reduction specialist with Butler Byers. Colin, today we’re going to cover the waterfront, I think, hey. We’ve been talking about how COVID has impacted things, how cyber has impacted things. I mean of the big issues of the day that are impacting the commercial insurance industry, and maybe we can run through some of those major developments.

And that now we’re two thirds of the way through the year here. You start to get a bit of a handle on how insurance companies are responding. What are the latest hot buttons that a business owner or a business manager needs to be looking at? So we’ve talked about something called a hard market, which is where insurance companies are actually trying to refill their treasuries. And so anyone who is a policy holder in the commercial side, has probably seen either a reduction in coverage or an increase in premium or being told to move along, and all of these kinds of things. Is that changing? What’s the industry doing right now, and how are they looking at their capacity to be able to deal with things?

Yeah, really good question. We have covered a lot of the new and emerging topics in the last year around COVID. I think it’s just a really good time where kids are back in school, summer holidays are ending, and just … It’s a good time to take a step back and say, okay, we’re back to work, and we got to do some planning here. And so in the insurance space, yes, we’ve talked a lot about reduced capacity, elimination of coverages, increased deductibles, increased pricing, and then just the overall insurance company, leaving certain classes of business. And really no business owner wants to fall into any of those categories.

Now, there’s a lot that can be done, but I do want to reference more of a statement from Lloyd’s, right? So Lloyd’s, birthplace of insurance, and they have their hand in most policies that you would find. Their approach to navigating or dealing with the underwriting losses over the last few years is to reach out to all of their syndicates, every insurance company they’re involved with and to say, “Look, we need the bottom 10% to go somewhere else.” That’s not a great position.

That’s kind of rude, isn’t it? I mean, it’s a very blunt instrument.

Well, the challenge there too is they don’t define what that is. It’s really easy to say, okay, well the bottom 10%, if those are high frequency, high severity claims, it would make sense, right? I mean, it’s really easy to say, okay, well, if you’ve got 15 claims the last five years. Go lose money for another insurance company. But that’s not really the case. There’s a lot of subjectivity there. Whole classes of … Whole lines of business are being dropped as a result. If you find yourself in hospitality, which we’ve talked about before, you might be the best in the business. I mean, you might be the example that I’m referring to on this show when we’re talking about best in class. But if you fall into that undesirable line, you could still find yourself searching for a new insurance company.

I guess that really just reinforces the message you’ve been delivering for years now on this show is that it is about having a risk management plan. That’s not something you can do after the barn, closing the barn door after the horse has gone. You’ve got to do it. It’s a plan. It’s an advance by definition.

Yeah, absolutely. If you think of navigating the job market. I mean, it’s one thing to search for a new employer while you’re currently employed. It’s another to search for an employer when you’re currently unemployed. And so if we’re putting in the work and we say this client has improved significantly. We are going to go look for broader coverage, a better market, reduced pricing, more capacity because this client deserves it. Well, then we’re coming from a position of power. When we’re reaching out to the market begging for terms, because the current insurer said, “I don’t want you,” that’s not a great spot to be in. But again, if we put in the work now and we have our ducks in a row, maybe if we get news that your line of business is being canceled, there still is flexibility.

We can still go back to those markets. We could still be the one that they stick with because they know what’s being done, and at the end of the day, they all, every underwriter, every insurance company wants great business. I mean, they want best in class. We hear this all the time. I use it all the time, but if they just assume that you’re not, if they assume the whole class is bad, you could find yourself on the chopping block. So yes, work the risk management plan now. Start telling your story. Start formulating that approach, and get ahead of this thing is the message today.

It’s a really interesting point that you make. I mean, if you’re the one being told you’re being chopped, you just make the assumption, what the heck? Insurance industry can’t make any money without charging premiums. I mean, why are they getting rid of me as a customer? But your point here is that they’re not getting rid of all customers. They’re just going to where they think the best customers are.

Yeah, absolutely. And again, if you’re not putting in the effort to say, I am that best customer. Yeah. I am in a class of business that statistically has not fared as well as another class, doesn’t mean I’m a poor risk. But at the end of the day, if we’re just looking at numbers, statistics, they’re going to say, well, look at the hospitality book. Was it profitable? No. Okay. Drop the bottom 10% or drop the whole line.

And again, if they’re dropping the line or if they’re just saying any account under a certain size or any property value over a certain size, we just don’t want you. Again, it makes life difficult. And something that’s pretty challenging for … The business owners to understand about the insurance market is they don’t have to offer terms. Meaning just because you’re available, doesn’t mean there’s going to be 60 insurance companies providing quotes. They don’t have to do it. There’s no requirement to take on business.

And so again, if we’re forced to go find another home and there really isn’t a great story to tell, or at least one of continuous improvement, you are at the mercy of the market. A remarketing exercise could go something like this. This is what last year’s terms looked like. We’re hoping you could provide something comparable. Oh, and by the way, yes, they were dropped by the other insurance company. So we go to the markets with all that, and we get a whole bunch of nos.

Now, you go to the secondary markets. You say the specialty lines, we’re prepared to pay a little more money. We didn’t have great luck with the normal go-tos, and then you get some nos there. Now, suddenly you’re begging. And that’s not where you want to be when we’re looking for competitive terms, but you only get to that point when there’s really no story to tell. There’s no differentiator. Right? We can’t really explain why you would take one over the other. And now we’re at the mercy of the market and really any quote they’ll throw at us.

Colin, we got to take a little break, but I’m just going to get you to think about this question. About whether or not there are people who actually are just basically shut out. The insurance companies said, “No, we don’t want you.” We’ll come back. We’ll answer that question. You’re listening to Risky Business Commercial Insurance with Butler Byers. Paul Martin here. We’ll be back after this.

Welcome back to Risky Business Commercial Insurance with Butler Byers, and Colin Rooke is joining us today. Colin, just before the break, I asked you, do you foresee or is it actually an experience that you’ve seen where companies are just told insurance, you just can’t find insurance for them. Nobody will pick up the policy or offer you a policy.

Yeah. We’ve talked before about the condo insurance markets or Stratacorps depending on which province you’re in. And there are condo corps that are sitting either 100% self-insured or 30% self-insured. And in some cases, 70% uninsured. And that again, lends itself to the point of there’s no requirement to offer terms, so we really are fighting to get someone to take on the risk, to deploy precious capital to help with risk transfer. And if they’re not feeling comfortable that that’s going to be a profitable exercise, they’re not going to deploy that capital.

We’ve talked about, again, the reduced capacity at the beginning of the show. Now there’s less money to be deployed globally. And in order to reserve money for new business, we have insurance companies dropping the bottom 10% or more. And so when there’s less money to go around, you’re going to be a lot more cautious as to who you bet on. And again underwriting is, it’s a heavily predicted gamble, but at the end of the day, it’s a gamble. And you’re looking at the numbers. You’re saying this line of business traditionally performs poorly. Without any other plan, without any other new information, you’re going to find yourself in hot water.

I mean, we talked about directors and officers liability recently, and how difficult it is to obtain proper limits, affordable limits and reasonable deductibles due to COVID-19. And another strong factor right now is cyber crime. If you have a risk managed by a board and we have a data, if there’s a data breach, the board is going to be scrutinized for that, and chances are we’re going to see a directors and officers liability claim, or at least that’s the concern from the insurance market. And there’s been an increased amount of wrongful dismissal or employment practices liability claims at the DNO level, board of directors level, again as a result of companies handling COVID-19.

So again, there’s a lot of uncertainty out there, which is why we developed our directors and officers liability loss control guide, basically that self evaluation tool. Again, putting in the work. Now, you might be one of the fortunate that the renewal went fine, but if you didn’t do anything to deserve that, you’re just lucky right now. Your line of business just hasn’t been noticed yet, but people come, they’re getting there.

Count on it coming at some point. We’ve talked about directors. We’ve talked about some other areas. What about business interruption? I mean, at the beginning of COVID, there were people looking in their policies to see if COVID would be covered and lots of claims and court cases and noise about that. I mean, here we are, 18 months later, are those waters a little clearer now? We can start to understand how this thing is shaking out?

They’re a little clearer in the sense that the phone calls have subsided around the, “Do I have this? Why don’t I have this? I bought this for a reason, and now it didn’t come through for me.” Lloyd’s of London is very aware of the fact that most business interruption claims were not paid. The challenge though is in the wording, and most business interruption claims are triggered by a property, an insured property loss of some kind.

That ratio is seven to one? But you’re saying that for every dollar of premium, there were being $7 worth of claims?

Yeah, that’s right. And again, not just business interruption premium. That’s only about 250 billion globally. This is global premiums, all lines, all coverages, all classes. And so again, the number doesn’t work, but there are efforts being made now to revise wordings and to offer some lines of coverage around pandemic insurance or a business interruption claim triggered by pandemic. Now, it’s not going to be full policy limits. I don’t think they’re going to collect enough premium to say we can insure the world for up to two years including profits. But there is work being done on the wording itself, so I think we’re going to see more coverage options available.

It’s going to be pricey. You can bet on that. There’s also a lot of work being done with government to formulate a strategic partnership where the load can be shared. I guess really the update there is that it is being worked on. Our industry is very aware of the gaps. They’re very aware of the frustration of the policy holders, but just note that no one listening to this call or very few would have been able to predict COVID-19 and a global pandemic. Well, the wordings were written in a predictive manner as well, so things need to change on that front and are changing.

Well, I guess that probably answers the question, right? If for every dollar of premium, there’s $7 going out in claims, that’s why there’s a hard market, and that’s why certain classes are being cut. It’s just that simple. Nobody can sustain those kinds of losses. Listen, we’ve got little under a minute, and I know that you had seen the survey that caught my interest and maybe people in their thoughts on cyber. Quickly can you give us the thumbnail on that?

Yeah. Back to the proactive planning. I mean, a survey of the top 3,600 organizations in North America, just around at a high level, do you anticipate a data breach in the upcoming year? And 84% said, “Yes, we do.” If that’s not agile enough to one, make sure you have the coverage, and two absolutely have an incident response plan, get on it.

Well, and these are the big guys who actually protect themselves, that have the budgets and the IT departments for the little guys. We’re pretty much probably just standing around being a target.

Absolutely. And there’s no rhyme or reason. It’s not as targeted as you think. It’s basically a blanket approach, and it’s really effecting our industry.

Colin, thank you very much. As always, very insightful. You have been listening to Colin Rooke, the commercial risk reduction specialist at Butler Byers. Feel free to call him anytime. He’ll embellish on this. He’ll walk you through it. You’re listening to Risky Business. I’m Paul Martin. Thanks for joining us. Talk to you next time.