The summer of 2020 was momentous in several ways, particularly when it comes to how the coronavirus pandemic continued to spread in Canada. However, it was also significant for the insurance industry because it marked a turning point in the marketplace for construction insurance, as well as many other lines of business and industry segments.
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“Last summer, the market went from being a difficult or firming market to a hard market – [and] a hard market that was different from previous [ones],” said Peter Toole, vice president and insurance practice leader at Petrela, Winter & Associates (PWA), a Navacord broker partner, speaking during Navacord’s 2021 National Construction Conference – CHALLENGE + CHANGE.
For many insurance professionals, this could be the first real hard market they’ve lived through, and it stands out for several reasons, mainly attributable to the impacts of COVID-19. The dynamics of this market, how long it will last, and how challenging it will continue to be are all questions that industry experts are mulling. Toole expects that “we’ll probably see more of the same through 2021, and, depending on economic recovery in the second part of 2021, we may see a tempering of it into 2022,” adding that there will likely not be a full return to the soft market seen several years ago.
One effect of the current marketplace is that it has resulted in a “flight to quality” as insureds look for brokers that are specialists in particular industries, like construction insurance. In this market, there are several ways that brokers can differentiate themselves.
“Lloyd Sadd has always been big on specializing in one or two industry segments within an individual’s practice – the more expertise you have in an area, the better,” said Lisa Neill, senior advisor at Lloyd Sadd, a Navacord broker partner. “Lloyd Sadd’s theory of having specialized account executives has paid off in a hard market.”
This focused expertise is particularly critical in the construction space. Currently, there are pockets of the sector that have more challenges than others. For one, insuring the construction of frame structures has always been a difficult area and has become even tougher now, while the hard market has also exacerbated project placements that are outside of municipal fire protection areas, typically in rural zones, noted Neill, adding, “There are certain trades that inherently have more risk and are more affected during a hard market.”
Luckily, there are tools that insurance professionals can use to arm contracting and construction clients and help them better present their risk profile in the eyes of insurance companies, when it comes time to assess and price their insurance policies.
First, brokers can take advantage of the many insights they have at their fingertips with respects to exposures and losses – from benchmarking studies to infographics and discussions with risk engineers – and find even better ways of translating that insight into actionable guidance for clients. Using this data and analytics, brokers can make sure that their construction customers are always up to date on the latest information and can take steps to apply the data in their operations and insurance-buying strategy.
The second component is to spend more time with risk engineers to ‘peel the onion’ on all operational risk factors as much as possible, noted Toole, and leave no stone unturned in the fight to further improve the risk profile of the construction company at hand.
Added Neill, “It’s also really important to know the story of your client … Something that I’ve found to be successful in the last 18 to 24 months is to almost do a new interview with my clients, and learn more about where their business is at right now, their health and safety practices, and their risk management practices. Our contractors are always working to better themselves, so there’s going to be more and better information to provide underwriters.”
An additional challenge in the construction insurance arena is that the exodus of a number of Lloyd’s of London syndicates from this marketplace two years ago left a large hole to fill for construction brokers. To gain access to better coverage and pricing for insureds in this environment, Toole provided a few pieces of advice, harking back to Neill’s insight on telling a better story.
“The word that comes to mind immediately when someone asks, ‘How do we get better results?’ is differentiation,” he said. “Having industry-leading risk management practices is definitely part of that equation, which a specialist brokerage firm can help you design and manage. However, if the right information doesn’t make its way to the insurance company, they’re not going to translate into better insurance premiums and coverage.”
The job of brokers is, after all, to help insureds manage risk and transfer risk to the insurance market in a manner that matches that customer’s appetite for risk, and a big part of that is in the presentation to the underwriters. “If we can limit uncertainty from our initial point of contact, we can instil confidence in the underwriters, and we will get better results,” Toole said.