Pricing Update and New Cyber Threat

Welcome to Risky Business, Commercial Insurance with Butler Byers. This is Paul Martin, the business commentator on CKOM and joining me today, Colin Rooke, the commercial risk reduction specialist with Butler Byers. And Colin, we’ve been covering the waterfront lately. I mean, there was a time when we were doing these shows, it would always be about the same thing, because there was these flurries of activity that had many angles on it that we’d have to … it would take us weeks to get through it all. But I thought, well, let’s step back and take a look at just those big picture business issues we’re hearing these days. I guess those are related to labor shortages, inflation, that’s the big one, inflation, pricing, market conditions, all of that.

Can we take a minute to take a look at what is inflation doing to the insurance market? And I guess probably about a year ago, we spent a lot of time talking about something called the hard market. We haven’t talked about that for a while, which my newsman’s senses are tingling on that. If you don’t talk about something for a year, it’s probably gone away. So, has it gone away? I mean, what is the hard market versus soft market? What it’s doing with inflation? And let’s just do an update on how’s the insurance industry faring? And as a consequence, me as a buyer of insurance, what am I facing when I go to talk about policy renewal?

Yeah, that’s a very good topic. And for anyone that has been involved with the purchase and placement of insurance, whether it’s for a commercial policy or in this case, even a personalized home insurance policy, you’ve seen prices increase. And you’ve probably been told that we’re in a hard market, COVID has certainly impacted that, but really not as much as claims have. I mean, COVID really was just bad timing. And so, we’ve spent a lot of time talking about, okay, why are my costs going up even for good, risk managed businesses? Why every year am I just seeing increases regardless? We’ve talked about, even though prices are going up, do you want to be the one that gets the 80% increase, or just the 15% increase? And we’ve explained the impact on the overall premium.

What’s changed now is, for some time there are signs that the marketing, or that the market sorry, is shifting or is becoming stable. We are not in a soft market yet where you’ll see insurance companies with a lot of capacity, a lot of cash, gobbling up business. When they do that, you see rates race to the bottom, which most people appreciate. But what we’re seeing now is as is renewals, or slight decreases, or very slight increases, we’re not seeing as much, and again, there’s certain lines that would fall outside of this statement, but just from a broad perspective, we are seeing rates stabilize.

Now, that doesn’t mean though that your insurance renewal is going to be at zero increase. Where inflation plays a role, again impacts the overall pricing. So, there’s the rate you pay and then there’s the number that goes into that formula.

Now, if you’re building valuation, the cost of your stock is increasing with inflation, we have a larger number going into that rate formula, which hasn’t changed and therefore you’re still seeing increases, but it’s very important to separate what the insurance market is doing versus … and really out of the control, I guess, of the consumer, and then the customer side or the role they would play in the overall increase. Meaning, if you had a million dollars worth of stock and due to inflation, to replace that would be $1.2 million, you do have the option of just reducing your inventory levels. That would stabilize your premium, but it’s really important, and certainly if you’re dealing with a broker that’s focusing on education first, that you understand there’s two sides of a premium increase.

So, it’s the typical make sure you’re looking at both sides of the coin and don’t get confused about left hand versus right hand. There’s two components here. One of them’s playing in your favor, one not so much.

Yeah, absolutely. We have had a lot of questions around the, okay, well, what’s going to happen to my policy if inflation decreases? If the current rising interest rates causes people to borrow less, will the cost come down? Absolutely. If your inventory, that used to be a million dollars is now due to inflation, $1.2, and now that same … you can buy that same amount of goods for one or less, we would adjust the policy and you would save that additional premium.

And so again, it’s just really important that someone explains. And if anyone has any questions on how that works, that you understand that it’s not all insurance companies getting rate. There are all sorts of factors outside of their control that are causing the premium to increase. And again, I touched on home insurance. I mean, that’s certainly the case. You look at construction costs now and in this province, SGI is a very large player in home insurance. Well, again, there’s SGI saying, “We need to get more rate on your home,” and then there’s just, your home would cost another 30% more to rebuild, therefore you need to pay more. And so very, very important distinction. Now unfortunately, it’s still all turns into more cash out of pocket. I’m just more or less bringing light to who to blame for it.

And it’s always good to understand when you dissect your premium costs, what’s impacting and what can you consciously make a decision about and what really is beyond your control. And that’s the price of cabbage in the marketplace today. I think your point here, that there is a difference between rate and inflation, and that’s the point you’re trying to make, that there are these two elements that go into the calculation, but as you were talking, I couldn’t help but think that if the value of my inventory goes from $1.2 to $1 million because of lack of inflationary pressure, what’s happening to my insurance premium’s irrelevant. My inventory just went down by 200 grand, that’s the story, isn’t it? I don’t want to get caught with inventory that’s overpriced.

Yeah, absolutely. So, I would say now, it’s more important than ever, to make sure you’re having regular conversations with your broker and that you truly understand how the costs associated with your policy are derived. You do want to make sure too, that if the value of your inventory has decreased, that you aren’t continuing to pay for again, a premium on inventory or dollars, that just aren’t there. So, it’s important that you’re monitoring. If you’re in the construction industry and everyone’s talked lumber, and maybe you’re a lumber yard. Well, as the price increases or decreases, it’s important to let your insurance provider know, so you’re paying an accurate amount, whether positive or negative.

Well, we’re going to take a break here in a second, but I just want to, before we change topics, I want to capture of the headline here too, in that you’re saying we are moving off of the hard market and we’re in that shift towards the soft market right now. Did I get that right?

Yeah, absolutely. So, I had a situation where I told a client that, “Hey, great news, your rate’s decreased.” He said, “So my premium is less.” “No, it’s way up.” “Why?” “Because of the value of your inventory.” But pricing relief is here and assuming that inflation is reduced, there would be relief and I see good things coming.

All right. Well, good news at last. You’re listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers. We’re going to take a little break. We’ll be back after this.

Welcome back to Risky Business, Commercial Insurance with Butler Byers. Paul Martin here, your host and joining me, Colin Rooke, the commercial risk reduction specialist with Butler Byers. Before the break, we were talking about changing market conditions. And so, what insurance buyers and your clients, commercial customers, will be … what issues they have to digest as they go forward. But now I want to shift back to a more common subject for us, unfortunately, which is threats.

And cyber security, cyber threats have been … they’ve just been rising in terms of frequency, costs, size, headlines. We’re getting lots of stories, big companies getting caught up in this stuff. But I gather that, just like everything else in the world, the criminals get better at what they do too. And there’s a new threat out there and it is getting far more sophisticated and going to be much harder on you and I to protect ourselves against these things. You want to talk about that one?

Yeah, absolutely. And you’re right. If you’re in the cyber crime business, I mean just like anything, you’re working to continuously improve. And so, what worked six months ago may not work now. So, you’re always brainstorming to find better ways. And in some cases, and this is one of those threats, in a way you’re reinventing the wheel. So, when you talk traditionally to the lay person around the idea of malicious code, or to use an old term Trojan horse, the idea of clicking a link comes up.

So, a lot of people associate cyber crime with, “Oh yeah, I got a wonky email. They wanted me to click a link. I didn’t do it and I knew it was a virus and hopefully no one else did.” Or they’ll have stories of a friend that, “Old Tom wasn’t thinking, he clicked it.” So, that’s your paradigm.

And then, there’s this whole idea on a much smaller scale, where you get these fraudulent phone calls, or maybe the text message saying you’re entitled to some money or your computer is infected, please give us your credit card number and we’ll fix it. Well, it’s easy to say, “Well, how do you know what computer? I’ve got five of them, which one are you talking about?” And they don’t know. And so, that’s the old traditional.

What’s happening now is it’s called bizarre call. And I’m not 100% sure why they call it bizarre call, but I mean, it is a bizarre call, but they said, “Okay, well, how do we revive an old trick that works very well?” The reason why clicking a link works very well is that you are actually choosing to download something into your system. You’re okaying it and therefore it’s in place, but the delivery method needed to change.

So, what’s happening now is this bizarre call, is you’ll get a call from a call center that will be mimicking a trusted provider. So, it will be a very well-known company, that most business owners will have some relationship with. So, just for this example, and I don’t want to say that this is one being used all the time or the only one, but let’s just use it’s Microsoft and it’s the business center. So chances are, there’s a lot of business owners out there, small business, medium business, large, that have some relationship with Microsoft. So, they phone and they say, “This is from our business center. We’ve noticed an issue. Please go to da, da, da, da microsoft.com.” They do. And they have you fill in your business information, which you do. And they want to show that there was either a malicious receipt, there is some sort of issue and you log into this system, there it is.

You click an Excel spreadsheet to download, to show the error. And something pops up that says, “Will you enable macros?” And they’ll say, “Oh, I got pop up. Should I click, yes?” “Oh yeah, you should. Sorry, it’s a security protocol. It won’t download otherwise. But go ahead.” When you do that, now you’ve successfully downloaded the virus and the whole scenario was fraudulent. The call center with fraudulent, the website was fraudulent, but they took great pains to replicate everything, so you’d have no idea you’re not dealing with Microsoft call center. You’re not on the Microsoft website, which will be virtually identical. And they’ve walked you through how to sort out the error in a helpful manner, which ultimately has now caused the virus.

Boy, I’ll tell you when they start to act like your friend, you feel disarmed in all of that, don’t you? If you’re not even at a high level of skillsets in terms of your technical knowledge, you can be conned by this pretty easily, if it all looks … They’ve replicated everything to make it look fancy, they don’t sound sinister. They’re actually helpful, and they really have sophisticated the process haven’t they?

They have too. And a lot of organizations, and we certainly are helping our clients do this, is have email protocol where look, you are not to ever click or open any ZIP file unless you’re told to. And if you’re ever asked to enable macros in an email form, don’t do it. And that’s a very common thing. But again, the cyber criminals are aware of that and going into a website, it usually falls well outside of those policies and so, it’s not even something you’re thinking about. And unfortunately, when it’s derived by the individual inside the organization, your firewall is not going to pick up on it or stop it. This is not an IT issue. It is a 100% human error issue and they know that, which is why it’s working so well.

Another trick they use is they’ll call to say, “We just noticed a subscription that was renewed automatically.” And it will be … it may not be a very legitimate company, or be a company that for example, you would never want to use. And you’d have 14 days to cancel this automatic renewal, or you’re going to be billed further. Well again, not wanting to waste money on subscriptions that were not needed, or just wondering what’s going on, you go to their site, you log into your account that you aren’t sure you have. And of course, you download the receipt, you enable macros and the damage is done.

This is getting much more sophisticated, isn’t it? I mean, it’s now time that this isn’t off the corner of your desk. This is time when, if I’m a business owner listening to this, I probably need to put some kind of tutorial or lunch and learn together for my staff on this, don’t I? This is getting more sophisticated and certainly, the threat level is going up.

Yeah, and that’s the real point of this, is that if you’re not talking about it, you absolutely have to be. The frequency and the severity is increasing each and every year. I looked into the bizarre call. And for example, one of the, I’ll say larger cyber providers in North America, which is a Lloyd’s of London syndicate, has now posted that bizarre call is 10% of all claims in the last three months. I mean, that’s a big deal and it’s growing rapidly. And so, the real point is if you’re unsure, really anything to do with cyber, it’s important that you’re working with someone that’s educating you on what to look for, what it is and how to prepare yourself.

Colin, thank you for educating us on this and to put this flag up. I think it’s important that we all know about it and no doubt you and I are going to be talking about this further in the future. You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers. This is Risky Business, I’m Paul Martin. Thanks for joining us and we’ll talk to you next time.