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As the commercial motor insurance market continues to harden, many brokers will be forced to break the bad news to clients that their premiums are set to rise – however, one industry expert says there are some effective ways to soften the blow.
“Many brokers, particularly those younger or with less experience, will be, for the first time, faced with the prospect of delivering premium increases to their clients,” says Steven Hamilton, general manager of client services at Fleetsure.
While the increases can be due to a variety of reasons, Hamilton says it’s the external, market-wide issues that are hardest for clients to fully appreciate.
“The account specific increases due to loss ratio performance, vehicle acquisitions and the like are easily explained and, in most cases, expected by the client,” he tells Insurance Business.
“The increases driven by factors such as insurers exiting the market or no longer being prepared to write accounts that are underpriced are more difficult to justify.”
However, Hamilton says there are a number of techniques worth trying when communicating a change in premiums to commercial clients.
“Strategies that are worth considering when preparing renewal reports need to be more detailed with greater substance than in the soft renewal years,” he says. “Remember the simple math – if a client has been enjoying a 10% decrease per year for five years, a return to past premium levels requires closer to a 100% increase.”
It’s for this reason that Hamilton says brokers should consider showing not only last year’s premium when presenting renewal terms to a client, but also premium levels from four, five or even six years ago.
“Reminding clients not of the cheapest price from last year that they enjoyed, but the rest of the market pricing and canvassing exercise that showed the expiring premium to be 20%, 30% or even 40% below the general current market,” he says. “Often there may have been a stand out low price, that is no longer available, and the best premium options this year may well be at the level of what was the third or fourth best price last year.”
Hamilton also says that a “no secrets, no surprises” approach is vital in client communications during a hardening motor market, and alerting clients very early of the challenges they may face on renewal pricing is a must, well before due date.
“Providing clients with their loss history records at early pre-renewal meetings will help in setting premium level expectations,” he tells Insurance Business. “Most business people understand that pricing of commercial motor is heavily weighted on the clients’ loss history.”
Other recommendations made by Hamilton and Fleetsure include:
1. Early communication – don’t deliver surprise bad news a week or two before due date.
2. Year on year comparisons – make sure the client knows what the per unit premium cost or percentage rate for the last few years has been.
3. Understand any change in the make of vehicles in the fleet. Are expensive-to-fix European brands becoming much more prevalent in your client’s fleet, for example?
4. The sniff tests? – How much should you really pay to insure a $50,000 Ute or $100,000 Rigid Truck? It’s a lot more than $750 and $1,500.
5. Should check quotes be obtained, even if the premium is coming off a very low expiring base?
6. Offer alternatives – options with different excesses may be worth considering.
7. The client’s loss history is the key driver of premiums and analysis of current data for the last few policy years is crucial. Remember to factor in yearly fleet number size when considering loss trends.
8. Understand what external factors are pushing up premiums across the board, such as:
• Weather events such as floods, cyclones and fires
• More congested roads
• Large infrastructure exposures such as tunnel accidents
• Safer but more expensive technology in vehicles
• Replacing vehicle components instead of repairing them
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