September 18, 2020 by Greg Meckbach
Brokers with more than a decade of experience could be experiencing their first real hard market right now, and they could probably use some advice about how to break bad news during renewals, an Alberta managing general agent (MGA) suggests.
“We spend a lot of time as MGAs saying to the younger brokers, ‘Here is how you are going to have to present this, and you are going to have to explain why. Keep it simple. Don’t start talking in insurance lingo. Speak the language they understand using the simplest terms you can,’” said Nona McCreedy, owner of Aurora Underwriting Services Inc., an Alberta-based MGA and Lloyd’s coverholder.
Breaking bad news is definitely a common undertaking for brokers these days. For example, McCreedy is hearing about some condo and strata corporations whose rates are more than doubling on renewal. She also knows of a client in the hospitality sector who now has pay $12,000 a year — up from $3,500 a year before renewal — for a $2-million commercial general liability policy. “They had no losses. Nothing in the risk has changed,” she said of that client.
After nearly 40 years in the industry, McCreedy has seen multiple hard markets. The last major one happened almost 20 years ago, she said, following the Sept. 11, 2001, airliner attacks that destroyed the World Trade Center buildings in New York.
“It seems, from the retailers I talk to, that there are a lot of young brokers who have never seen a hard market,” said McCreedy. “This [hard market] has been extremely difficult for them because it is so different and we haven’t had a proper hard market for over 15 years. Some of them think they have had a long career, at 15 years, and they have never seen this happen.”
Her main point is that MGAs play a critical role in helping retail brokers; and they are absolutely necessary in today’s commercial insurance marketplace.
Several things are different about this hard market, McCreedy told Canadian Underwriter. For example, she cannot find one Lloyd’s syndicate who will cover business interruption for any client in the hospitality sectors — even with a pandemic exclusion. This includes restaurants, hotels, motels, convention centres and event venues.
“In 40 years, this is probably the fifth hard market I have seen,” McCreedy said. “Each one is different. Each one, we think, is the worst we have ever seen.
“What is different about this one is that we have [domestic insurers] doing a lot of things at once. They are trying to harden their rates. They are trying to clean their books. They are cutting lines. They are having to look at how cost-effective their [reinsurance] treaties are and cut lines just because of costs with treaties.”
The Corporation of Lloyd’s in 2018 asked its syndicates to conduct in-depth reviews of the worst-performing 10% of their portfolios and of all lines that are losing money, and to submit remediation plans. Then in 2019, Lloyd’s announced that eight syndicates stopped trading at the end of 2018.
After making an underwriting profit in each of 2014, 2015 and 2016, Lloyd’s reported combined ratios of 114% in 2017, 104.5% in 2018 and 102.1% in 2019.
“They went after every syndicate and made them clean up their books and tidy up,” McCreedy said of the Lloyd’s market. “It’s one thing when your domestic market hardens, but when Lloyds does the same thing, at almost the same time…it makes it extremely difficult for retail brokers.”
Feature image via iStock.com/fizkes
Aurora needs to improve their applications. They have the worst in the industry and are not at all consumer friendly. Better applications will equal yield better results, in both financial and loss ratio terms.
All insurers and MGA’s should review this but Aurora, in particular, needs help in this area.
If you have a problem with an organization’s forms, it’s bad form to single them out in this manner. You should take the issue up privately with them.
Now retired, I worked at Canada’s leading Industrial & Commercial Brokers from the late 1970’s through the first decade of 2000. As such, I weathered the two hardest markets: the mid-1980’s [the “claims-made” crisis] and again in early 2000’s. In the almost 40-year tenure there were other lesser “market adjustments”, but nothing to compare with those two standouts. Advice? Well….1. Intelligently compile all factors causing the market change, and what its impact MAY be on their insurance programme. 2. Arrange those in a cogent presentation 3. Deliver that presentation to your clients….hint…..do so WELL in advance of their renewal dates. 4. In those Stage 3 discussions, be prepared ahead of time to offer/discuss various possible alternatives to contain the TOC of risk, while maintaining the broadest coverages.
In those aforementioned hard-market times, I could not believe the number of brokers – and frankly, yes, some within the brokerage I was working – who refused to bring these issues to the clients in fear of their going to other brokerages…..that is not acceptable. Could give more detail, but will leave it there. Good luck.
Good to see Peter Robertson still taking interest in the practice of retail brokers. A first class broker.