Out of all the challenges facing the broker channel right now, the hard market is the biggest one of them of all, according Canadian Underwriter‘s 2021 National Broker Survey.
Seventy-four per cent of Canadian P&C insurance brokers who responded to our most recent annual broker survey identified the hard market as their greatest challenge.
Canadian Underwriter’s 2021 National Broker Survey asked 234 brokers across the country to choose from among a list of 10 ongoing challenges to the broker distribution channel. This year, for the first time, we added ‘hard market’ to the list of options.
Other perennial challenges on the list include: The growth of direct-to-consumer models, P&C industry consolidation, rapid technological change, and a misperception of the value of insurance brokers. All of these challenges tended to score the highest marks in our previous surveys.
The contest wasn’t even close, with the growth of direct-to-consumer models falling to a distant second place, at 53%. That’s the lowest degree of concern that brokers have shown about the direct channel competition in three years (the concern is usually registered at the low 60% level).
Particularly vexing for brokers was explaining to clients the speed at which the hard market hit in some commercial lines.
Stéphane Lespérance, Aon’s president of commercial risk and health solutions in Canada, vividly recalls an uncomfortable presentation he made to risk managers back in January 2020, a couple of months before COVID-19 was declared a global pandemic.
About that time, Canada was rapidly moving into its current hard market cycle, which is something that Canadian brokers haven’t witnessed for at least a decade. Insurers were paying out high claims costs in many property and casualty lines of business. Premiums and investment income were not high enough to offset the claims losses. To return to profitability, insurers raised premiums and deductibles, and their risk appetites became much more selective. Capacity in difficult classes of business shrunk, if it didn’t disappear altogether.
Lespérance had to explain what was happening to the risk managers, who purchase insurance on behalf of their companies. “How can you explain to a CFO [why he has] a 200% increase on his portfolio when it has been the same sort of loss ratio [a measure of claims activity] for five years prior to that?” Lespérance asked rhetorically in a recent Canadian Underwriter webinar. “We were having [commercial premium] reductions being offered every year, even though losses were happening. And then suddenly, boom — a 200% increase. That is the part that was so difficult to explain.”
Then COVID-19 hit, and it was a “perfect storm,” Lespérance added. Government lockdowns to prevent the spread of the virus shut down businesses, the economy tanked, no one had any money to pay for insurance, and yet the hard market persists.