Canadian Underwriter

Letter to the editor: Best Terms — the buyer’s point of view

February 26, 2021   by BC Risk & Insurance Manager’s Association

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To the Editor,

We would like to respond to your editorial titled “Regulators, leave subscription policies alone,” dated Dec. 7, 2020.

It is true that these are turbulent times in the insurance market, and that insurers have been experiencing losses from fires, natural disasters, and Covid-19, as well as lower interest rates. It is also true that capacity is limited, but we would submit that the inclusion of a Best Terms Clause has no impact on any of these issues that cannot be addressed through the usual process of underwriting.

The Best Terms Clause is a factor in this hard market, in which insurers are skittish to sign on to a risk and/or limit their participation on certain risks. In a competitive marketplace, more insurers are willing to sign on to a risk at a given price than there are layers to fill.

While outsiders may not understand the details of a subscription policy, that does not necessarily invalidate their opinions that the process, by current business practice, is patently unfair. The practice of Best Terms has raised the ire of regulators and risk managers, and has been noticed by the media, because it so markedly departs from a standard of fairness and transparency required by any other industry that its justification is incomprehensible.

The true importance for writing this response was a question raised in the editorial that speaks to the insurers’ justification for Best Terms. Namely, “Why are my competitors charging three and four times more for the same amount of coverage when I am the lead insurer doing all of the claims and administration work on the policy?”

The simple answer to this dubious reasoning is this: You said you would in your quote for the business. Had all the other carriers charged the same rate or less than the lead carrier, then the lead carrier would have been satisfied.  That has nothing to do with capacity or losses or interest rates, it’s simply sour grapes and greed.

While insurance is important part of the global economy, which no risk manager would deny, the industry continues to display behaviour that appears unethical and borders on anti-competitive. The Best Terms Clause appears largely to be a Canadian phenomenon. RIMS has been investigating this issue and discussing it with their contacts in insurance regulation. BCRIMA will also be providing input to the regulator regarding the practice on behalf of our membership and other commercial insurance consumers.

There will always be subscription policies and that is not the issue. The issue arises where a lead underwriter could low-ball a quote to the broker and then rely on other underwriters, or even collude with other underwriters, to raise the rates on other portions of the risk. With the ability to alter a price that is tied to the pricing of other competitive parties, how else can this practice be interpreted?



BC Risk & Insurance Manager’s Association


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6 Comments » for Letter to the editor: Best Terms — the buyer’s point of view
  1. Eric+Lapenis says:

    Do you want less capacity in the market? Because this is how you create less capacity in the market.

    • Eric says:

      False. Everyone is still able to charge whatever they want to charge. It may cause disruption in the short term as every change does, but in the long term, zero affect. Nobody is stopping the insurer from charging sky high rates. Just no copying rates.

  2. Tyrone Zumar says:

    Perhaps the lead Underwriter judges that their wording is a “better” fit for the prospective Insured (i.e.broader wording enhancements) over that of their competitors and ultimately a + for the client and not have to add X number of Endorsements to the inferior policy.
    In any event, all a Lead Insurer has to do is “indicate” a rate to the broker subject to completion of the line and then they can finalize their rate when meeting the broker to discuss final terms.
    Eliminating the Best Terms Clause would also “eliminate” other Insurers from quoting and how would an incomplete 100% participation “help” the Insured? Purchase a Pro Rata policy for the difference at what cost?
    Leave well enough alone-a soft market will eventually return!

  3. Sue Waterman says:

    Interesting that whoever wrote the BC RIMS letter chose not to sign their name ..
    Paying the lowest possible insurance premiums & commissions is part of a Risk Managers job so its not surprising that they don’t like the way traditional subscription policy rating works.
    But their position is counter productive in a hard market .
    Forcing a lead insurer to honour a low quote whilst still doing all the administrative work ultimately has two possible outcomes both of which we are now seeing – they either increase their initial quote to the highest number they think any other insurer might quote, or they don’t quote at all. The first increases everyone’s premiums & the second shrinks capacity and increases them even more

    • Chris says:

      Do you have any evidence to support your position from other provinces and countries which, by all accounts – do not use best terms pricing. It seems like whataboutism

      The lead insurer should honour their quote because it is based on actuarial data, which presumably would suggest that they believe they can turn an acceptable profit based on the quote that they provided. It’s shocking to see someone like yourself, who runs an insurance brokerage and is supposed to be advocating for consumers – advocate so vehemently on behalf of underwriters – who are generally turning pretty good profits on commercial policies to begin with.

      No wonder the BC insurance market is so fragmented.

  4. D says:

    I already am experiencing less capacity in the marketplace due to this change. Many Insurers will not take the time to enter these policies into their system as it becomes an onerous task for them. I totally agree with your comment regarding the Insurers behavior which appears to be unethical. We need Insurance to assist with our economic growth instead they seem to be putting up barriers/stumbling blocks to keep up with their own agenda at the moment. Disappointing to say the least!

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