Hard Markets – Part Two

Colin and Paul continue their discussion about hard markets, and what that means for you and your business.


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

Paul Martin: Welcome to Risky Business, Commercial Insurance with Butler Byers. Paul Martin here, the business commentator on CKOM, and joining me, as always, our expert in commercial insurance matters, Colin Rooke, the commercial risk reduction specialist at Butler Byers. And oftentimes, Colin, that characterization I use, your title, the commercial risk reduction specialist, kind of just flows off the tongue, but we should once in a while stop and just sort of analyze each of those words.

And there likely has never been a more appropriate time to have that conversation than here we are in between, I guess, wave one and maybe wave two of COVID. Wave two is in some parts of the country. And six or eight months into this thing, we’re starting to see some of the stress on the seams tearing a little bit. And that’s really what I want to talk about today is oftentimes we get caught up in the events. We cover the events. There’s breaking things happening, and we need to step back once in a while and take a look at the news, not just the events of what’s going on.

So the events have been around COVID and cybersecurity and some of these things, but the news is that if you’re in business, getting insurance is getting to be way more challenging these days. Why? Because it’s really, really challenging for the insurance industry. Now, you’ve been talking to them. What are you hearing from those folks? It’s and interesting approach. I mean, instead of Colin’s customers today, we’re going to talk about Colin’s suppliers today. So tell me what your suppliers are saying to you.

Colin Rooke: Yeah, it’s a really good point. I would say it’s never been more challenging to obtain insurance terms than it has been today. And notice, I didn’t just say reasonable pricing. It’s actually the terms themselves. So it’s one thing to say, “Well, for a certain amount, anyone will ensure this XYZ business.” Not true. We are in a position now where just getting terms at all is extremely difficult for our industry. Not a Butler Byers thing, not even a Saskatchewan or a national, but it’s a global issue that is occurring now.

And we’ve talked about the hard market that we are in. We’ve done a couple of shows talking with that. And we also touched on the idea of the rising nuclear claims, claims exceeding $100,000,000, liability claims that are just astronomical and the impact it’s had. And we’re certainly having those conversations with our customers, explaining what got us here, what the industry is saying, how long we anticipate this hard market to last, which I’m going to amend what I’ve said previously. I don’t think it’s going to change for the next two or three years. I think we’re going to keep seeing pricing increase, reduced capacity, reduced coverages, higher deductibles, but I’ve been spending time speaking with the underwriting staff.

So we’ve been focusing on our clients. We’ve been focusing on the risk work we do at Butler Byers. But what about on the other end of the chain? The person behind the scenes that has to find coverage for our clients, and it’s not a great time to be an underwriter. I mean, one, we’ve got most of the industry working from home. There’s technology challenges there. There’s pricing challenges. But then we have the industry as a whole focusing on, during a time where lower pricing isn’t available, using a lower pricing strategy. Meaning, if you don’t have anything else to talk about when it comes to your clients or any other sort of value add you can bring, you say, “Well, I’m going to try and find lower rates.”

Well, now we’ve got everybody doing that. Everybody’s doing it. So we have underwriters that are seeing 10 times the submissions up to 50 times the submissions that they’re used to seeing from brokerages all over North America. The challenge there is it’s hard enough to stand out from the crowd. It’s hard enough not to be labeled a certain class of business during normal times. Now, we’ve got this increased traffic, and the underwriters are exhausted. Every single day, there’s a couple hundred people asking for a favor. They’re asking, “Quote this competitively.” They’re saying, “I just got some bad news. Rates are up to this point.” And every single one, it’s not unique to any particular insurance company, it’s every single one. And the problem is this behavior is making the problem worse as we go.

Paul Martin: So just as a business owner or someone who manages a business, I come to Colin, and I say, “I need insurance.” And traditionally, the industry would have said, “Well, we’ll shop it around.” And now, because it’s what you call a hard market, which means rates are going up, everybody wants to shop it around. And you’re saying that the industry is just overwhelmed? You’re not doing yourself a favor by shopping it around. That’s sort of not the traditional way to do business, Colin.

Colin Rooke: Yeah. So we talked about strategies as to why it’s not a great thing to shop every year. Underwriters are people. They have memories. They know that every single year I see Paul Martin, and every single year I’m unsuccessful with Paul Martin. So they get a bad taste in their mouth. Now, you magnify that and say, “I’m getting every single restaurant. I’m getting every single condo. I’m getting every single manufacturer.” And the patience is wearing thin.

And the problem is, what’s happening now is they’re at the point where they’re saying, “We will not even look at this.” And they’ll say, “We’re going to decline.” Or even worse, for those that shop around regularly, they’re saying, “We have seen this over the years. We haven’t been successful then. We are closing the file.” They’re not even willing to listen.

So you think about, okay, in a time where pricing is increasing everywhere for almost everyone, we’re going to use a strategy that’s really conducive to looking for lower pricing in a soft market, right? When you have dozens of competitors trying to undercut each other, trying to buy up business, that’s a strategy that could work. I mean, you can shop around and drive to the bottom. We’re in the opposite of that yet we’re using the same technique when prices are higher.

My point in all this is now is the most important time to have your story straight and save the marketing for a time when you have to. You might be with the market right now, and you might be a fantastic company. You might be claims free. It might be one of the most profitable accounts that your insurer has ever worked on. And you might get some bad news in the mail. They are not going to renew your policy, which happens every single day now.

So now you’re in a position where you must move. That is a time to look. That is a time to get your story straight. That is a time where you need to find someone, but now you’re up against hundreds, if not thousands, of other companies just plain looking, just plain poking, poking around, rendering it almost impossible to even have the underwriter allocate the appropriate amount of time to your account.

And I hate to pick on contractors, but when times are slower, the pricing is a lot more competitive. When times are busier, the cost drives up and there’s no harm in that. But that’s what we’re faced with now. You know what? I don’t have time to even look at this account properly, so I’ve got to price it at X. And that’s what’s happening. And then we’re getting into the position where companies are forced to take those terms.

Paul Martin: If you’re even lucky enough to get them. Colin, you’re painting a very, I could say, a dark picture here, and I want to continue to discuss this. And we’ve got to take a little break. Maybe when we come back, we could find that there is actually a little backlight in this story somewhere.

Colin Rooke: Yeah, there is.

Paul Martin: That there is a little light to shine on this. And we’ll explore that. You’re listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers Commercial Insurance. This is Risky Business. Back after this.

Welcome back to Risky Business, Commercial Insurance with Butler Byers. Paul Martin, your host, as always, and joining me Colin Rooke, the commercial risk reduction specialist with Butler Byers. Now, Colin, you are the pointy end of the stick, if I can say that. You’re sort of the face between the insurance provider and the insurance buyer, the needer. So you’re really hearing the story from both sides of the equation. And as a customer, prices are going up. It’s even harder to get insurance. I can’t even get a share of mind or attention from the insurers to tell my story. So what do I do in this market? What are you counseling your clients to do to shield themselves as best as possible from the challenges of this marketplace?

Colin Rooke: Great question. You have to work on your story. You have to have a rationale as to why, if your competitor saw a 60% rate increase, why you deserve a 20% rate increase. That’s where the focus needs to be. If you are looking or are forced into a scenario where you need to re-market, maybe there’s a capacity issue, something that’s occurred, you have to have a reason why your submission, which is the application going to market, stands out. Or we refer to it as top-of-stack submission.

If you are using an insurance application only as a way to sell the behind-the-scenes of your company, it may have worked in the past where there’s a fight to the bottom. It’s not going to work today when prices are shooting through the roof. You’ve got to have a story to tell. You have to have a reason why that underwriter wants to look at your application, because maybe it just came with a word document with a description of the company. And I don’t mean operations. I don’t mean the application, but it’s the thinking behind it, the level of risk tolerance.

When every single restaurant is challenged to even find coverage, let alone reasonably priced coverage, why are you the restaurant that is insulated from what the industry feels is the inevitable? You have to tell that story. And I’ve said this a lot. But on your application, if you’re listening now and you say, “Ah, but I’m claims free. That’s what they love,” it doesn’t matter. They don’t think that your claims free because of anything you’ve done. It’s luck. They’re looking at the numbers. They’re looking at the stats. They’re saying, “This will happen. It just hasn’t happened.”

Paul Martin: We’ve used the phrase in this program before that you have to become a better customer of the insurance industry in order to get a better rate. That’s probably never been more valid than today.

Colin Rooke: Absolutely. When you’re the buyer, it’s easy to think, “I have money. You sell a product, and you want my business.” I’m telling you right now. They don’t. They don’t want your business. The reason why pricing is going up at such a steep angle is that they’re looking for ways for the bad to go away. Meaning, they’re saying, “Last year’s premium was $60,000. My quote’s at 110.” That’s the go-away quote, and sometimes the broker writes back and says, “We’ll take it.”

And so with losses the way they are and investment returns for insurance companies being in the toilet, they don’t want your business. That’s why coverages are being reduced. That’s why capacity is being reduced. That’s why deductibles are increasing. That’s why premium is skyrocketing. They’re looking for no, but you have to have that story that’s going to help get to the yes. They are writing business. They’re gun shy.

Paul Martin: But the imperative for me as a business owner is still there. I still need insurance. So I have to take new tactics. I think you’re saying the tactics we’ve used in a traditional market don’t work today. We need new ones. You always talk about your step-by-step risk reduction plan. Is this where that comes into play?

Colin Rooke: This is where that comes into play. It’s having those discussions and allowing us to sell your account the appropriate way, the right way, telling that story, learning your business inside and out. So when we are speaking with underwriters who don’t want your class of business or any class of business, depending on the company, that we aren’t just talking about the application, we are talking about those behind the name. We have to increase their level of comfort, or it’s just not going to work.

I mean, if you think about it, it’s rare that you have hundreds of people knocking at your door, knowing your pricing is increasing. It makes some sense of it’s decreasing. So they’re saying, “Why are you leaving your current market? Why do you even want to work with me? My pricing is going to be higher than where you’re at.” And we’re still saying, “We want you. We need you.” And yet we aren’t providing a rationale as to why. What can we give an underwriter that’s going to have them work until midnight to try and acquire your business when hundreds of other people are doing the same thing? It’s going to be that explanation.

Paul Martin: You need to stand out.

Colin Rooke: You need to be the diamond in the rough, in this market.

Paul Martin: And I’m guessing that your perspective is that most businesses are in business, they’re succeeding, for a reason. So they obviously have something going for them.

Colin Rooke: Absolutely.

Paul Martin: And what you want them to do is to embellish that, to actually bring that forward. Don’t tell me how many buildings you’ve got and what value they are. Tell me why you’re a good business. That’s what the insurer wants to see today?

Colin Rooke: Absolutely. I need to hear the story you tell to other people. I need to hear the success tale. I need to know what got you. Where were you? Where are you now? And where are you going? That’s what’s going to sell the account, the way you think, the way you operate, not the value of the building. If you say, “Well, my building, Paul, is valued at four times the building as your building. That might imply I’m a bigger, better company to an underwriter.” That’s saying I’m going to have to write a check that’s four times larger for your building than I do with Paul’s. I’m a lot more comfortable with Paul’s building. It’s a smaller amount, smaller check, less risk.

Paul Martin: And so this is about just chronicling the story of the business. And in a way you’re kind of like a business writer for The Globe and Mail here. You’re less of an insurance sales guy, if I could put it that way, and more of a business reporter. Really an interesting approach. And I’m guessing this story that you’ve been telling clients over the years, they’ve been less interested in hearing about this idea of yours until now. All of a sudden they’re starting to pay attention? And we really don’t have any time left to go into that, but I’m guessing that’s what you’re hearing.

Colin Rooke: Yeah, it is. Again, in a soft market you think, “Well, I could put in the work, or I can just try and shop it. I might be able to realize some savings now.” It’s just not happening. Now, you have to focus on being a better customer to the insurance markets.

Paul Martin: Colin, thank you. As always very insightful stuff. You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers Commercial Insurance. I’m Paul Martin. This is Risky Business. Thanks for joining us.