During this hard market cycle, there has been an abundance of exclusionary wordings introduced that have contributed towards the lack of capacity in the marketplace. Many are pulling away from specific coverages, forcing brokers to come up with creative solutions for the way they engage with clients.
“The two biggest spots that we’re seeing impacted is predominately the residential condo and hospitality segments,” Andrew Voroney, COO at SGI Canada told Insurance Business.
“Traditional broker underwriting relationships are really coming into play at this point,” he added. “We had a long cycle of more transactional relationships in a softer market - now the value of having those in-depth conversations and understanding clients’ needs is increasing.”
As capacity tightens, there are many that are blanket withdrawing from certain risk profiles rather than digging into the quality of a specific risk, according to Voroney.
“What I’ve seen to be very successful in relationship-based organizations are ongoing discussions between underwriters and brokers to get a clear view on risk quality and what makes a specific risk unique,” he said.
“It’s been tough for some markets, particularly during COVID and moving to remote work - communication broke down for a short period but most of that has reclaimed itself.”
Voroney outlined that brokers can help clients stand out to carriers by highlighting the mitigating strategies their customers have taken and the investments they’ve made in their business.
“It’s a lot more work at this point,” Voroney explained. “Brokers are really earning their commissions by splitting risks up between multiple markets and looking at options to spread that capacity around.”
Different markets have different appetites, and brokers should also take the time to understand comfort levels with respect to regions or markets being served when putting together a portfolio.
“This particular situation demonstrates the importance of being broad early on across the board. While there is a good strategy in focusing your portfolio, it’s difficult in a hard market where you’re trying to find capacity,” he said.
For brokers’ sanity, they need some wins and Voroney noted that they should be actively looking for the areas where capacity does exist and where customers aren’t dramatically impacted, so their time isn’t being completely taken up by difficult conversations.
However, with regards to those more challenging broker-client conversations, Voroney emphasized the importance of setting expectations very early in terms of deductible changes, rate increases and evaluating needs, so that clients are not surprised by coverage and premium changes.
“Brokers should be looking at different options that will keep clients insured but perhaps in a different way than they have before,” he said. “Coming armed with decisions for a client that’s not about them individually but looking at the industry overall eases the conversation and makes driving factors more clear.”
There are many clients who haven’t yet made a claim but still see their rates going up, which is both confusing and frustrating. Education and transparency will therefore play an essential role in keeping clients happy.
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“It isn’t the time to dance around risk mitigation, upkeep or business investments,” Voroney explained. “We’ve learned the importance in preemptively asking, ‘are we reinvesting? Are we ensuring upkeep is there?’ So, when a hard market cycle occurs, and insurers are picky in choosing their risk, you’ll be in that best-in-class bucket.”
The pressure has increased as brokers try to ensure that there are not continuous losses in an extremely competitive market. “It’s really highlighted the need for rate adequacy and ensuring we’re looking at risk appropriately,” said Voroney.
“We’ll likely see more of an ability to separate the best-in-class risks from mid to low-level risks and make decisions based on that,” he added.
The COO also mentioned that several other factors are likely driving more specific hard market actions, but the industry overall is getting better at segmenting, using data, and understanding what their portfolio looks like.
The use of technology and the leveraging of data is still in its infancy, however, according to Voroney.
“We’re in an industry with a ton of data that we use for pricing and responding,” he said. “I’m happy to see there’s a number of initiatives in the country around resilience and using data on the client initiative side for loss prevention and risk mitigation.”