Is it possible for brokers give clients a heads-up about rate changes?

Customers are looking for brokers to give them a heads-up about upcoming rate increases.

When Canadian Underwriter asked business and personal customers if they got an advanced warning of a rate increase, and an explanation of why it happened, only 56% of commercial and 49% of consumer clients either agreed or strongly agreed.

Obviously, clients would appreciate knowing in advance that their premiums will be going up. Trouble is, as brokers point out, brokers are not in control of market pricing. Often, they will find out about the impact of specific rate increases at the same time as their customers.

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“You don’t actually know,” Colin Simpson, CEO of the Insurance Brokers Association of Ontario (IBAO), says of the beginning of the industry’s hard market cycles. “That is the problem. Until you do a quote or a renewal, you don’t know for each customer [what the rate increase will be].

“For example, say an insurer says, ‘We’ve filed for a 4% rate increase.’ It doesn’t mean every client gets 4%. Some could be 15%, some could be minus-five. You don’t know until you pull the individual risk and get a new rate. So it’s very difficult for any broker to focus on a narrow risk and explain what is going to happen to that risk from a rate point of view. I know it’s frustrating from a consumer’s perspective as to why the industry can’t be more predictable. But if it was, we wouldn’t be employing hundreds of actuaries.”

Canadian Underwriter canvassed the opinions of 653 Canadians who purchased home and auto insurance from a broker, as well as representatives of 159 Canadian businesses (most of them small businesses), and asked them what they thought about the service they were getting from their brokers.

Survey questions were based on the very services that brokers say they provide to consumers. It was conducted Mar. 6 to 13, just before the World Health Organization declared the novel coronavirus to be a global pandemic on Mar. 11.

Consumers may not be aware of what brokers are doing in the trenches on behalf of their clients, some brokers say. And so what seems like a victory for a broker on behalf of the client may in fact be viewed differently by the client.

Roger Hacala is the past president of the Toronto Insurance Council (TIC), a national commercial brokerage association, and national practice leader of professional and financial services for BFL Canada Risk and Insurance Services. He provides the following example: In some lines, he says, commercial brokers “anticipated a 15% increase and [the client] ended up getting a 25% increase. We beat down the markets from a 35% increase down to that 25% increase. But I think that doesn’t translate well, as far as how that comes through [to the consumer].”

Hacala said the matter may come down to how the broker manages to deliver bad news to the consumer. In the hypothetical scenario above, for example, suppose the broker first tells the client to expect a 15% rate increase. Then the broker finds out from the carrier that it will be a 35% increase. The broker then negotiates the rate down to a 25% increase. One way to message that to the client, as Hacala says, is to make sure the client knows the full context.

“Giving advance warning about rate increases and explaining why they happen, I think that’s an opportunity for us to improve. We’ve been mired in a hard market, we’ve been there for a while, and we probably will stay there. I think it’s a lesson for us to have those discussions with our clients and we keep them informed and protected.”

For example, suppose the broker did the actual comparison for the client: “It was coming in at this, but we went back, we negotiated, and we got it down to this. I realize this is above your budget expectation, but it’s also better than industry targets.” Perhaps this a better way to message the bad news, Hacala suggested, although nothing is foolproof. “It is a tough thing, because the broker may have done a good job, but they may have fallen short in the client’s eyes because they said, ‘Well, you told me this.’”

More broadly, says Insurance Brokers Association of Canada (IBAC) president Kent Rowe, “giving advance warning about rate increases and explaining why they happen, I think that’s an opportunity for us to improve. We’ve been mired in a hard market, we’ve been there for a while, and we probably will stay there. I think it’s a lesson for us to have those discussions with our clients and we keep them informed and protected.”

In some ways, the hard market presents a good opportunity for brokers to connect more deeply with their customers, Rowe added.

“In the hard market, when we are operating in a challenging environment, it does provide more reason for brokers to contact their clients,” Rowe said. “That’s just the nature of the business. When you have capacity or pricing problems, we want to make sure we are trying to over-communicate in those instances, and making sure that we are managing client expectations. These are tricky circumstances.”

Feature image by iStock.com/AndreyPopov