Two things you need to explain to your clients

Risk and insurance professionals need to address two common client misunderstandings about how the property and casualty insurance industry works, a risk professional suggested to Canadian Underwriter Tuesday.

First, clients may not fully understand the interconnectedness of the P&C industry, Steve Pottle, chairman of the Rims Canada Council (RCC), said in an interview. Second, many clients remain unaware of the links between macro-level events in the P&C industry and their individual insurance premiums.

Canadian Underwriter interviewed Pottle about the RCC’s endorsement of certain recommendations contained in a recent report issued by Insurance Bureau of Canada (IBC). Among other things, the IBC report calls for more risk management education for consumers, as well as for organizations to strengthen risk management strategies.

To identify areas in which insurance clients and consumers most needed to be educated, Canadian Underwriter asked Pottle about which aspects of the P&C industry were most commonly misunderstand by clients.

“The interconnectivity of the insurance market,” he replied. “The fact that a devastating hurricane season in Florida, in that area, is going to impact you, who has a car in Saskatchewan. The interconnectivity of the insurance industry is something that I think isn’t really well understood by most people.”

For example, damage losses caused by that Florida hurricane may be paid by global reinsurers, which charge premiums to primary insurers in Canada. With reinsurance rates increased generally, that might lead some primary insurers in Canada to raise rates to offset their increased reinsurance premium costs. That kind of nuance might elude many Canadian clients who aren’t educated in how the P&C insurance industry works.

iStock.com/MikeMareen

Also, risk and insurance professionals need to keep in mind when they talk to consumers that they have to connect the macro-level financial trends down to the level of that individual client.

“We put out on an annual basis, you know, the dollar amounts [of the claims losses, for example], but how does that translate down to the individual organization?” Pottle asked rhetorically.

“That’s on us as risk managers, when we’re talking to our own bosses in our organizations, [to say something like], ‘Hey, we had a good year, but the insurance industry as a whole across the world has not. And we might be impacted by that, we hope not.’”

Led by representatives of its 10 Canadian chapters, the RCC is a standing committee of the New York-based Risk and Insurance Management Society (RIMS), a professional association mandated to advance the practice of risk management. The RCC welcomed the client education mandate of several recommendations contained in the IBC’s National Commercial Insurance Task Force Final Report.

IBC set up the task force in response to hard market conditions in the insurance industry that were making it very hard for clients in some commercial business sectors to find affordable insurance — if they could find any insurance at all. The task force held roundtable meetings with four business sectors particularly hard-hit by the hard market insurance and the pandemic, including condominium and strata corporations, restaurants, trucking carriers, and non-profit organizations.

Pottle stressed that the education mandate is a shared responsibility by all stakeholders in the P&C industry, including insurers, brokers, risk management and claims professionals alike.

When educating clients, Pottle said it’s important to make sure you aren’t using industry jargon — or if you are, at least define your terms. “Capacity,” for example — the maximum liability an insurance company agrees to assume from writing policies — is probably an industry term most clients wouldn’t necessarily understand. (Indeed, if they even know what you mean by “liability.”)

Also, it’s important to give the right information at the right time.

As for the “right” information, that could mean showing what impact, if any, the increased cost of building materials may have on an insurer’s claims costs (and the downstream effect on the client’s premium). Or it might mean letting a prospective business owner in Richmond, B.C., know in advance that they are planning to open an office in one of the hottest earthquake zones in the country. Or advising a business owner in the Ottawa area that they might be facing higher premiums because of an elevated flood risk.

In another example, in the strata/condo insurance line, risk and insurance professionals “need to educate condo boards on what generates losses and claims, and that sort of thing,” Pottle said. “I think to a certain degree, a lot of the brokers do that. But I think there’s probably an opportunity for commercial risk managers to help facilitate those conversations and educate strata boards and strata councils with the cooperation of our industry group.”

Timing of the education is critical, Pottle said. It should be done well before the renewal process. To make his point, he outlines the following scenario in which a condo board meets with its broker.

“You’ll meet with your broker, probably a month out from renewal, and the broker may say, ‘Here are your terms,’ you’re presented with these terms, and then you say, ‘Okay, obviously it’s “Yay” or “Nay,” or “Can we go back out to the other markets?”‘ By then, it’s too late.”

Armed in advance with a knowledge of how claims costs affect their rates, condo boards would have time to explore or put in place mitigation measures that could significantly lower their premiums, as Pottle suggested.

Feature image courtesy of iStock.com/kate_sept2004