Canadian Underwriter

Brokers urged to help their commercial clients using these traditional, proven risk assessment tools

February 4, 2020   by David Gambrill

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In addition to using modern data analytics, commercial brokers can use traditional, proven risk assessment tools to help business clients understand and cope with price increases in today’s hard market, says a veteran of three hard markets.

Inspections have been around for hundreds of years to help P&C insurers price correctly for commercial property risk, says Greg McCutcheon, president of Opta Information Intelligence. In a recent interview with Canadian Underwriter, he said it’s time for the industry to get back to these basics to help commercial clients navigate through this difficult market cycle.

“Data and analytics are essential, but there are underwriting practices that have been with us that have always worked [in determining risk and total insured value], and we’d be remiss not to use them,” McCutcheon said. “When a consumer calls up a broker and says, ‘My business insurance is going up significantly,’ I think it’s important to arm brokers with tools to say, ‘Here’s why,’ and also, ‘Here’s what we can do to protect your business and also advocate for better pricing.’”

Losses have escalated in several commercial lines. And blaming higher insurance premiums on poor investment returns and/or lax underwriting discipline isn’t likely going to cut it with your commercial clients. That’s where data analytics and tried-and-true methods such as inspections and appraisals can be a broker’s best friend, says McCutcheon.

“If a client calls up a broker [about their increased premium] and the broker says, “Well, you know, the industry isn’t getting a good return on bonds or investments like it used to, so insurers have to put through a price increase,’ that would be a pretty tough conversation,” he said.

“As a broker, you would add a lot more value to the conversation by saying, ‘Look, we have seen these are the past [loss] experiences that have been happening with businesses like yours. The frequency and severity of those losses have increased dramatically. So that’s first and foremost why we need to look at price.’ Secondly, while we are doing this, we need to take time again to examine your business and go through it from a risk management and risk mitigation perspective to make sure that we can get you the best price. And also make sure you are protected.”

Data and analytics can help the broker with the first part of that conversation, which is to show a client the type, frequency, and severity of insured losses within their class of business. As McCutcheon points out, data analytics has advanced to the point where individual risks within the class can be pinpointed to a level of detail never seen before.

The next step is to employ tools such as inspections and appraisals to assess the total insured value of the client’s business. What’s the difference between the two?


An appraisal assesses the value of a commercial building that holds many occupancies. An example would be office buildings that may have dozens of different businesses in them. An appraisal would determine, for example, how much insurance would be required if the building were to be damaged or destroyed.


Inspections are based on individual locations. They identify underwriting risks and recommend risk mitigation strategies for that specific business. Examples would be identifying the risk of a slip-and-fall accident in a grocery store, or making recommendations on how a jewellery store can enhance security to protect against the theft of its gold watches or diamonds.

Both appraisals and inspections can help to identify and mitigate risks. In turn, that helps a broker make the case to an insurer that the client’s premium should be lowered, since the risk of a loss has been reduced.

“If you think about it, that resonates more with a consumer than coming back and saying, ‘I’m sorry, the market has changed, it’s hardened.’ Business owners don’t know what that term means,” says McCutcheon, who has witnessed three hard market cycles over the course of his 30-year career in the P&C insurance industry.

If the business can prove that they have taken some kind of risk mitigation measures, then the broker can probably advocate that the client deserves a better price. “But there has to be some quantification of that, and that’s where appraisals and inspections have always been a tried-and-true method,” says McCutcheon.

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1 Comment » for Brokers urged to help their commercial clients using these traditional, proven risk assessment tools
  1. Marc Lefebvre says:

    Well said Greg. We have moved towards a reliance on data analytics to tell underwriters older buildings perform worse than newer buildings. Without knowing the specific’s of a risk and its characteristics it is lumped into a class of risk. Underwriters know that there are good older building risks and even poor newer building risks. Using traditional underwriting, including inspections & appraisals, can help distinguish the good risks from the bad risks. Using algorithms and analytics helps our industry better understand classes of risk, but they have also resulted in market disruptions in commercial insurance, as decision are made based on classes of risk as opposed to individual risks.

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