What To Expect In 2024

Welcome to Risky Business Commercial Insurance with Butler Byers. I’m Paul Martin, the host of this program, and joining me as always, Colin Rooke, the Commercial Risk Reduction Specialist with Butler Byers. And Colin, it’s that time of year. We’re entering a new calendar year, and it takes a few weeks into the new year when we start to get the numbers and the summary on what happened in 2023, are we starting to see those numbers trickle in and get a bit of a flavour for what was 2023 for the insurance industry and what’s that mean for all of us who are in business and need to buy the coverage?

Yeah, we’ve talked quite a bit about how 2023 looked, and certainly, I mean, if you look at Canada large catastrophic losses, we’ve talked about it on the show that I believe 2023 was the second worst year on record. However, although that certainly does impact the insurance market from a global perspective, and this really does pertain to more to commercial insurance than it would residential. But on a global perspective, claims have been pretty low and returns are improving. And so as a result, we’re seeing in the industry more capacity released, so about 20% more capacity coming out of Lloyd’s of London or London itself. And then on the reinsurance side, so that’s the insurance of the insurers are buying more capacity there as well. So if you follow the show for the last three or four years, I have spent a lot of time explaining why the rates are so high and referencing reduced capacity, unwillingness to deploy capital.

They’re saying there’s no benefit to me, claims are out of hand and returns are low, and so we’re going to keep that money. And that capacity has been a term that every single broker, broker around the world I’m sure has been hearing and using frequently with their clients is capacity. I don’t have any capacity. I can’t find capacity. And as the risk gets more complex, as you look into specialty lines, excess liability layers or towers they call them, it just gets worse. I mean, trying to build a hundred million liability for a client was darn near impossible. And again, it’s capacity. It’s capacity. And so we’re looking at reinsurance renewals, and reinsurance renewals really are the telltale sign of what the prediction is for the upcoming year. And so it’s, again, insurers buying insurance on their book. And if the pricing is going through the roof, which it was in 2023, and in 2022, you’re going to see rates go through the roof.

Why? Because there’s not enough in-house capacity, meaning the insurance companies, they don’t have enough internal funds to back their book. They’re buying reinsurance, so insurance for large claims. And as that price goes up, so does your premium. And so on a global perspective, and certainly in North America, we are seeing reinsurance renewals are decreasing. But the interesting thing about this report is capacity has gone up, reinsurance capacity has gone up, and yes, reinsurance renewals have lessened, but not for everybody. In fact, not for most, but just overall it’s down. And so you think, well, why is that and why would some insurers bear better than others? And that’s really the lesson of today’s show. So there are savings on reinsurance, meaning there are savings out there for a lot of policy holders, certainly in the property space, not all lines of business, but certainly if you’re just looking at property insurance, there is room to move.

But the industry was very quick to reference that. Those that had a diversified book with proper risk management plans that are keeping track and working through claims and working on mitigation techniques, keeping loss ratios manageable, they are seeing premium relief. So you think about it, you’ve got insurance company putting in the work, steering their story, how they’re going to get better to the reinsurance market. The reinsurance market is now listening, and they’re saying, we can give you a renewal that’s less than what you’ve seen in years, in fact, lesser than your competition. Then on the flip side, they’re going to those that are saying claims are out of control. We don’t see those coming down. Proper risk management protocols are not in place, and the book is not diversified enough. Those insurers are getting, I don’t really have a better term than walloped, meaning they’re just sizeable 50, 60, 70% increases. So the industry itself is rewarding those putting in the work and punishing those that aren’t at the highest level, the reinsurance side.

It’s kind of music to the ears to hear that there is some premium relief in the year ahead. But as you’re very quick to point out, it’s not for everyone. And when I’m hearing this, what do I hear as a buyer? I hear lower, lower. I don’t hear all the caveats that are attached to it. So let’s focus on that for a second. And as a buyer, obviously I want to be in that getting the lower rates with the better coverage and all of that stuff. So what do I need to do to qualify or to get myself into that elite of the elite, if I can use that terminology?

Yeah, it’s a good point. And what I’m not trying to suggest is you say on this show there are lower rates out there. I should immediately remarket and try to find the insurer that has lesser rates. It is not going to work in this case. What you need to take away from this is say, okay, so the insurance companies that understand proactive risk management that are telling proper stories themselves and have favoured or weathered the storm better than their competition, they have more flexibility, but they only have that flexibility because they’ve been placing insurance the right way. So those companies have room to move, but they’re not going to move for everyone. They are going to also in turn be looking for businesses that are looking to place insurance the right way, and that involves face-to-face delivery of the story. So we’ve talked about the art of storytelling at Butler Byers Insurance and why building relationships and really selling the risk matters so much, and how do you do that?

You explain where the business was, where they are now, where they’re going. We talk about new and emerging risks, and we talk about education and the approach our clients are taking to better prepare themselves. We talk about deductible management and their view on claims. We talk about educating the staff from employment practices perspective or cyber liability perspective. And so to answer your question, what can we do? Get your story straight, work on your relationship you have with the insurance market, and if you’re one of the lucky, there is a ton of room to deviate, probably more than you’ve seen years and years, but for the right story and the right plan.

Well, you’ve tweaked that age old adage that is the harder I work, the luckier I get because you used the word lucky and I want to explore that a bit, but we’ve got to take a bit of a break, so hold that thought. We’ll come back to that, Colin. You’re listening to Risky Business Commercial Insurance with Butler Byers, I’m Paul Martin. We’ll be back after this.

Welcome back to Risky Business Commercial Insurance with Butler Byers, Paul Martin here, and joining me, Colin Rook, the Commercial Risk Reduction Specialist at Butler Byers. Just before the break, Colin, we referenced that old adage about the harder I worked, the luckier I get, and I think you used the word lucky in saying that people who obviously are trying to be budget conscious or trying to figure out how do I get more for less? And you’re saying it’s not out there for everybody, but it is out there for some who are willing to do what it takes to get it. So let’s talk about that and doing what it takes to be in that small group of people that may see some benefit this year in terms of perhaps lower rates or better deductibles or better coverage. What do we need to do to get them there? And I guess I’m alluding to something we talk about fairly frequently in this program, which is your step-by-step programs.

So if you’re saying, okay, well, how do I take advantage of room to move amongst insurance companies that haven’t been profitable for a while have seen their own costs increase, but now they have room. These are the ones that learned their lesson. They took drastic measures, and in fact, I would argue these are the companies that were the leaders in refusing to write certain lines of businesses. They’re the ones saying as a whole, this group is bad and we’re not going to renew. And they may say, okay, there are some diamonds in the rough out there. We are prepared to look at these high risk categories, but we need to know everything and we need to know everything because our reinsurance needs to know everything. The industry itself is telling the insurers that you have to leverage relationships that you have to tell your story. And so if we can’t pass that story along, if you can’t find someone that really understands the why behind the businesses that you are working with and it has the ability or a new approach to selling that risk, these credits aren’t going to be available to you.

There are certainly people out there that through no fault of their own will see less lessened increases, but again, if we’re really talking about going the other way, taking advantage of some relief and additional capacity markets that have said not a chance to your business for years that may look at it again, we need that proper proactive plan. You need to be working with someone that could sell your business in a way only the owner or the management team could. And that involves skipping the typical application, spending time with the broker, talking about everything, educating both yourselves and those around you in order to sell yourselves effectively to the insurance market.

It almost, I don’t think it’s humorous, but it really peaks your, it catches your ear when you say one of the primary tools is storytelling is you got to be able to tell your story, and a that means start with having something to talk about. So you’ve got to actually have some action or facts or something that you can then craft into a narrative that an insurance company can hang their hat on. But historically, I would say that is not the way most people have the impression of the way insurance industry works. It’s mostly about, it’s a financial play, not certainly not a storytelling play, but you’re saying no, this is about your ability to explain why you’re different.

Yeah, I need to stress that working with the broker, there’s always an underwriter. I mean, for outside of small, simple commercial, you have a human being that is making a judgment call on your company, and they have their own book to manage. They have their own loss ratios to manage, and they are compensated based on the performance of their book, and they have room to move and they have room to expand, and they have larger premium quotas they need to hit. And the best way to do so, and to grow in a low risk fashion is to hunt for best in class. And it’s a term that every single marketing rep in the insurance industry uses best in class, best in class, but we know that they don’t stick to their guns. We know that they can’t only insure best in class, but what they can do is reserve the rate deviations, reserve the broadest coverage, reserve the deductible relief, and write down to their approach to claims.

They can do that for those that truly are best in class. But if there’s no vehicle to explain that, if you’re just relying on your broker to say, oh yeah, they’re good, no claims in the last five years, or I know them personally, it’s not good enough because every broker’s job is to place their client somewhere and the insurance market knows, but they all know when they truly uncover a real best in class example. The problem is getting that information out of them, and so you have a conversation around risk if you approach it the right way, put together a plan that is agreeable to both parties and you understand that your company’s being presented to the insurance market. That’s how you can open doors that have been closed for a while. That’s how you can get an underwriter excited about the prospect of adding your company to their book of business

In the beginning of 2024. There’s no better time than now to do that because there is on the edges and marginal amounts, some increased capacity available where there are wins to be had if you are one of those very select customers that can qualify for that win.

And you actually made a really good point without, I don’t even think it was your intent, but February, March renewals are probably the best, especially in a good year, some of the best times to have your insurance renewal because it’s a new year, the underwriters haven’t used any capacity yet. It gets a lot more challenging October, November, December. Whereas you ask any broker, when are your busiest months? And they’re going to say, October, November, December. And so we can maybe say that for a different show, but there’s certainly a strategy around when you renew. And so for those listening saying, I’m up in March, I’m up mid-February, great timing for you because there’s more room, whether you look at moving markets or even staying within, but it’s a new year. The mistakes of the past have been wiped away, so to speak.

Sounds like another book for Malcolm Gladwell. But listen, we’ve got just a minute left. So put it to you this way. If you had to give advice to a business owner or someone managing a business, what would be your objective for 2024 on the insurance front? What should I be thinking of as my objective this year?

I mean, if we’re thinking working on best in class, it’s really thinking about new and emerging risk and what you’ve done. So cyber liability, cyber crime is not new and emerging anymore, but do you have a plan? And if you have a plan, who knows that plan? And so with all things risk related, do you have a plan? And if there is a plan in place, are you sharing that plan? And so if you need help working on it, reach out to one of us at Butler Buyers and we’ll take care of that for you.

Colin, as always, very insightful and very interesting. Thank you for this. You’ve been listening to Colin Rooke, Commercial Risk Reduction Specialist with Butler Byers. I’m Paul Martin. Thanks for joining us for Risky Business. Talk to you next time.