How the challenges of restricting terms are an opportunity for brokers to show their value

“It’s a different market in which to operate.” 

 

Current conditions in the insurance market may come as a shock to those who have not worked in the industry long enough to experience more stringent trading.

Rather than viewing it as an obstacle, the correction of a prolonged soft market is a chance to advocate, and deliver on, your insurer connections.

“You would arrive early in the office to check the day’s broking requirements. Then into Lloyd’s to register at the box of a particular Syndicate confirming what time you had ‘signed in’. You then waited for the next broker to arrive who would validate your presence allowing you to return to the office in the knowledge that you were now in the queue for a strict 15-minute broking appointment booked from 11am.

This was the Syndicate way to manage their book of business when faced with limited capacity and brokers fighting for their fair share of that capacity.

Then you would go through your broking for that Syndicate and ask yourself ‘what stands best chance of being quoted today and what are our most pressing enquiries?’. The underwriter would only allow every broker a maximum of 15 minutes. After that, you’re out.”

Paul Montgomery, Broking Director at Compass London Markets reflects on broking in the early 2000s, when a series of events including 9/11, natural catastrophe and the demise of insurance carriers – all in a short space of time – sent Insurers running to the hills. Market capacity went through the floor, and rates through the roof, and thousands of commercial clients were faced with the prospect of huge premium increases or in some instances, with no cover.

Today, despite frequent mentions of a “hard” or “hardening” market, the picture looks very different. Indeed, insurers are at pains to stress that rather than the hard market of 20 years ago, the current conditions represent an overdue correction of rates, which have been supressed in a long-prevailing competitive market.

Buyers have benefited from lower prices on their policies, while claims costs, as Adrian Saunders, Commercial Director at Ecclesiastical puts it, “have been going in the wrong direction.”

Regardless of how it’s framed, the shift in pricing and capacity, as well starker limitations in specific areas of business, such as Professional Indemnity, is new territory for those who haven’t been in the industry long enough to have been part of the Lloyd’s early bird brigade. 

“You have brokers that have been in this market for 10 years therefore maybe they are in their early 30s and maybe they are on their third job and they’ve not had to broke in a market where insurers are putting up prices, restricting terms and reducing line sizes. It’s a different market in which to operate,” Adrian Saunders observed.

 

Restriction and correction – the contributing factors to the current market position

 

“A number of these providers withdrew their products as their performance was not sustainable.”

 

The softening and hardening of the market is cyclical and can be determined by any number of factors. Some of these are easy to predict, others less so.

Adrian Ewington, Underwriting and Markets Director at Home & Legacy recounted how “The Beast from the East” led to a higher than usual amount in claims around escape of water which contributed to narrower profitability for High Net Worth insurers dealing with complex risk, and more limitations on cover as a result,

“At a Defaqto round table in September, they reported seven less High Net Worth products and six less providers in 2019 compared to 2018,” he said.

“A number of these providers withdrew their products as their performance was not sustainable.”

Professional Indemnity is another area which is experiencing rate correction following poor results for insurers over recent years, as Paul Montgomery explains,

“A continual cutting of rate to secure business saw this culminate last year in the reduction of capacity by Lloyd’s for this particular class of business in order to stem the losses. Aside from the low rates over the previous few years, we are living in a more litigious society where clients are more aware of their rights and ability to seek recourse from a third-party PI policy when events conspire against them.”

The overall reduction in flexibility and higher costs to the client, while presenting a challenge, are also an opportunity for brokers to test the strength of their existing insurer connections and call upon what they do best as an intermediary – communicate.



Planning ahead and talking upfront

 

“The last thing anyone needs is to be shocked by renewal rates, so start those conversations with clients early.”

 

There are no definitive strategies in approaching a difficult renewal beyond looking ahead, transparent conversations with the customer, and engaging with the insurer or underwriter.

“We just need it to be quite clear,” says Paul Montgomery speaking of insurer-broker discussions. “if the market rate is hardening, then early warning to the broker that the premium will be rising or the coverage and/or capacity may reduce on a particular account provides the broker with advance warning and manages expectations”.

It’s imperative that this clarity extends to the client to avoid a shock at renewal, without scaring them away altogether. It’s a delicate balance in terms of messaging, as Adrian Saunders explains,

“What the broker doesn’t want to do is push their clients out to tender to go to another broker. Equally what they don’t want to do is turn up with a surprise in the significant hike in the renewal date and almost present that as the fait accompli. It’s a difficult balance but it comes down to how brokers work with their insurer partners,” he said.

“You need to start thinking about the way that the market is moving in that particular area and how you might want to start messaging that.”

Adrian Ewington agreed that early communication was critical to renewal at times when products may be harder to come by, at least at the price clients have come to expect,

“The last thing anyone needs is to be shocked by renewal rates, so start those conversations with clients early; talk to them about the market, find out what is important to clients, price or service; and be prepared.”

These types of conversations should be nothing new to an insurance broker, but the way in which the new cost is explained needs to provide enough clarity without going over their head with an in-depth market analysis that will mean very little to them. Without this discussion, clients will be left questioning why they’re paying more when they’ve not made a claim.

Once this conversation has taken place, brokers can be looking at other ways in which to enhance what’s on offer with the new renewal, drawing once again on those insurer relationships.

 

Taking the edge off

 

“It’s a lot of hard work involved for the broker which the client would probably expect them to do.”

 

A premium that has doubled in price, even with an explanation of market conditions, is always going to be difficult to swallow.

Following conversations with insurers to see what premiums are going to be worth writing, and how clients can mitigate risks, the next port of call would be to see how the bigger premium can be justified in other ways, such as added an additional product absorbed within that cost.  

Members of Compass and Broker Network have the benefit of strengthened relations with carefully selected insurer partners, providing an open dialogue around clients’ cover needs, and working on an alternative way to meet them, if the obvious solution isn’t available. It’s these existing affiliations which can be invaluable as the market shifts its way through the cycle.

A client’s budget should be a basis for improvement, allowing brokers to show clients what they’re able to achieve when working on their behalf,

“It wasn’t a question of ‘the client has £10,000’, it was more of a question of, ‘OK, so the renewal has doubled from £5 to £10k, is there anything to soften the blow perhaps?’” Paul Montgomery says.

“If the premium is going to go up dramatically in one policy then is there any room for negotiation and manoeuvre on the others? If there are three policies could a cheaper rate be obtained there to create a level playing field from last year on price? That is an option that the retail broker does have available, but it does engage a lot more work than just saying ‘let’s just get a renewal from five different policies and see what it goes up.’ It’s a lot of hard work involved for the broker which the client would probably expect them to do.”

But, as accounts of almost no capacity for commercial property insurance at the turn of the millennium have shown, it could be a lot harder. 

To find out more about becoming a member of Broker Network or Compass Network and gaining access to insurer partnerships, get in touch with Scott Bennett, Networks Sales Director on 07919 397182, or by emailing scott.bennett@bravo-group.co.uk .

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