More choice is not always better. As commercial insurance pricing softens and capacity expands, brokers are increasingly having to decide when another quote adds value, and when it simply adds risk.
Greater capacity and falling prices are giving clients more options, particularly in property, but they are also creating pressure on brokers to distinguish between a cheaper quote and a genuinely better placement.
“Every account they have is under attack,” said Stephen Boyd, CEO of Arrowhead Intermediaries, the platform that operates wholesale broker Bridge Specialty Group. “When the market starts going like this, you have to hit every market you can.”
Boyd said the speed of the correction in catastrophe property has been particularly striking. After rates rose aggressively for five or six years, he described the current movement as “one of the most aggressive price decelerations I’ve seen in 31 years.”
That competition is creating situations where established insurers with decades of experience are being challenged by newer capacity willing to offer substantial discounts.
“You could come in with really good A+ XV paper,” Boyd said. “A market’s been in the space for 20, 30, 40 years. They’ve paid claims, they’ve been through hurricanes, they don’t leave, and they’re stable.” But at the same time, another market might enter with “less of a track record and underprice the incumbent by 20%”. So then, the question becomes how far they should pursue price once a client already has a stable carrier relationship.
Patrick Sullivan, CEO of Union Bay Risk Advisors, sees the same dilemma from the retail brokerage side. Speaking about clients who remain focused on the lowest premium rather than considering claims history, he asked: “Why would you want the one time when you’re going to use the product you’re buying and you don’t care if they actually deliver?”
He said conditions for small and middle-market commercial business have loosened compared with two years ago, with carriers increasingly willing to negotiate to retain accounts. “The conversations now are, ‘Hey, here’s our price. If you find a better price, just bring it back to me. Don’t change it just because someone else’s price is lower. I could probably work with you,’” Sullivan said.
That does not mean brokers should automatically take every account through an exhaustive remarketing exercise. “You could shop indefinitely, and there are tools now that can help you do that,” Sullivan said. “But shopping isn’t the only thing either.”
Instead, Sullivan said brokers sometimes need to advise clients to remain with an insurer that understands their business and has demonstrated its ability to handle claims.
The shift creates a different challenge from the capacity shortages that defined the harder market. When options were scarce, the broker’s value could be demonstrated partly through the ability to find capacity at all. In a more competitive market, brokers may instead have to explain why a client should reject an apparently attractive alternative.
Boyd said some insureds are already making that choice. “We see some customers saying, ‘I’m going to go with the partner that got me here and has covered my claims over the last couple of years versus going with a startup,’” he said.
Boyd is less concerned about property prices falling in themselves. After the increases of recent years, Boyd believes there was room for rates to correct. “My concern is on rule and form because that’s what will cripple an insurance company if they get that wrong,” he told Insurance Business. He pointed to earthquake exposure being incorporated into all-risk accounts, reductions in deductibles and changes to other terms and conditions as areas to watch.
Sullivan similarly said the market has not yet reached the stage where insurers are desperate for premium or coverage conditions have become extremely loose. “But it seems to be heading a little bit in that direction,” said Sullivan.
The temptation to treat commercial insurance as a uniformly softening market may also create problems for clients. Casualty remains much more challenging than property, particularly in areas including transportation and public entities. Loss trends remain significant and capacity in some segments is strained, meaning brokers still have to construct complex shared and layered placements.
“There’s no silver bullet,” Boyd said. “Pricing is not going to come down dramatically.”
That divergence can also give brokers an opportunity to look beyond the immediate property saving.
Boyd said some clients are using premium reductions in one part of their insurance program to rebuild protection elsewhere, such as purchasing an additional $10 million of excess umbrella coverage.
A successful soft-market renewal, then, may not simply be the one producing the largest reduction. It may instead involve deciding when further shopping has ceased to improve the client’s risk transfer — and persuading the client that carrier stability, claims performance and coverage quality can be worth more than another percentage point off the premium.
