May 2, 2020 by Greg Meckbach, Associate Editor
Editor’s note: This interview took place three weeks before the World Health Organization declared COVID-19 a pandemic.
Dave Partington, appointed in December as CEO of Gallagher Global Brokerage — Canada, explains how firming market conditions bring new opportunities for commercial brokers.
cu | There seems to be a consensus that we’re in a hardening market. What are you observing in commercial P&C pricing?
It’s a very tough market right now for three reasons: Rates are increasing significantly in most lines; it’s not easy to get capacity for some of our larger risks; and insurers are changing their appetite on a regular basis. All of that creates a lot of challenges for our clients. In some instances, it is about higher pricing and the need to refine their budgets. For some clients, there are genuine insurance availability concerns. For some segments, like snow removal and residential realty, there are real challenges to finding coverage.
cu | What does this mean for underwriters and, ultimately, brokers?
Underwriters are putting greater focus on risk management and loss control now. So if clients want to get coverage at a competitive price, they really need to demonstrate that they are managing their risk effectively. That creates challenges for our clients and for us as brokers. It’s a lot of work and a lot of stress for our people. However, brokers are doing a tremendous job managing clients’ expectations and getting them the right insurance coverage. It’s really hard work, and it’s also an opportunity.
One thing you see in these market conditions is the quality of the broker. The leverage and market access of a broker makes a big difference to clients in this market. It’s tough times on a
day-to-day basis, but there are also a lot of opportunities coming through the door as a consequence of the market conditions.
cu | How do brokers show their value?
There are two opportunities. One is an opportunity for the best brokers out there to demonstrate the difference they make. It’s very satisfying from a professional perspective when you can show that you really know your stuff technically; that you know your markets; and that you know your clients and their operations.
The second opportunity is a lot of new business activity. A lot of businesses are inevitably frustrated by the increases they are seeing. That creates a lot of phone calls and opportunities to write new business. If a business gets bad news from its existing broker, that client may want to test whether it is getting the best service and the best program.
We spend a huge amount of time with our clients trying to project into the future what the market is doing, to allow them to: 1) budget correctly; and 2) demonstrate their risk management quality and develop their program structure. So maybe the price goes up by 10%. Maybe that could be mitigated by changing the amount of insurance that they purchase or changing their deductible levels. Good brokers are out ahead of that, making sure that their clients are in the best possible position to mitigate the impact of a very tough market.
cu | What are some coverages that small businesses tend not to consider?
I am very proud of the coverage we as an industry provide to small businesses. I think we do a good job of providing packages that cover our clients when an insurable incident occurs. That said, I think there is definitely an issue with cyber. Too few small businesses are buying cyber coverage, and typically that’s because they think cyberattacks happen to big businesses. And we are increasingly seeing that, whether it’s ransomware attacks or whether it’s social engineering, small businesses are being targeted. We actually had a small bakery client decline cyber coverage from us six months ago. They recently had an incident — a six-figure ransomware attack — and they were not covered. The cost of buying that policy would have been $1,500. These are real-life examples. This is not theoretical. Cyber coverage still needs to be sold.
cu | Some property managers use sensor technology to detect leaks from pipes and other problems that could cause damage. What trends are you noticing in the area of risk mitigation?
Specifically related to water sensors, we are seeing insurers either requiring those to be in place or providing incentives for sensors to be put in place in the private client sector and for some commercial properties. I think this is a pretty interesting part of our industry right now. Whether it’s water sensors, automatic shutoff valves or wind sensors, a whole bunch of new technologies are being applied to the insurance landscape. These are ultimately going to reduce the frequency and severity of losses. This is good for clients and good for insurance companies.
I think if you walk around a lot of the insurtech conferences and meetings these days, there are some great partnerships forming between technology companies with great solutions and insurance brokers and companies. And that excites me in our industry right now: It allows us to provide even better solutions to our clients to reduce losses and therefore to reduce the total cost of risk.
cu | What are the issues in commercial auto these days?
Commercial auto is tough. I would point specifically to trucking, where we’re in the most difficult insurance market we’ve had in maybe the last 15 to 20 years. It is really driven by insurer profitability and the fact that insurers have, over an extended period of time, not made enough money in trucking. That creates real challenges for our trucking clients. They are seeing significant increases in premium.
In some cases, there is an inability to get insurance in the way they have previously purchased it. In addition to dealing with increased insurance premiums, the trucking industry is also facing the issue of attracting and retaining drivers. They’re having to pay a lot more for their drivers. They’re having to be innovative about where they can find drivers to recruit. And they’re having to put in place different and potentially very attractive benefits programs.
So on the P&C side, trucking is a big focus for us and something on which we are working hard to mitigate the cost of insurance. Gallagher Benefits Services is also doing a lot of work to help trucking companies with attracting and retaining drivers. It’s obviously a very challenging sector, but it’s quite an exciting sector, too, because we can help provide solutions for two of the most significant problems facing trucking firms right now.
cu | How is the industry doing in terms of making commercial insurance processes easier to use and converting over to electronic format?
I think most brokers and insurance companies have removed paper. Where I think the Canadian market is maybe lagging others around the world is around electronic communication between the broker and the insurance company. I still see too many emails and documents flying around between the two. You end up with multiple data entry points, which increases complexity and increases confusion within that transaction.
I think there is an ability to automate a lot of that work by using systems that talk to each other. There are systems that allow single point of entry of the data and then that data is used the whole way through the transaction.