Canadian Underwriter

What brokers are asking of their underwriters

February 12, 2021   by David Gambrill

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In the midst of a hard market in several Canadian commercial insurance lines, several senior Canadian broker executives are urging underwriters not to substitute data and analytics entirely for their own good judgment about what constitutes a good or a bad risk.

“The Canadian economy is dependent on certain industries,” president and CEO of Marsh Canada Sarah Robson observed Wednesday in Canadian Underwriter’s webinar, Brokerage Executive Outlook. “I think we need to make sure in our role as brokers that we are working with insurers to make them understand that [they need to underwrite] the hard stuff as well to support the Canadian economy, and allow the economy to continue to thrive. That’s the industry’s obligation.”

Robson prefaced her remarks by noting that insurers are investing heavily into data and analytics to help them assess risk in all lines of business. She encouraged underwriters to be as transparent as they can possibly be with clients about why they are turning down particular risks — especially during a market in which it might not be easy for the client to find coverage for their risk elsewhere.

“I think sometimes, not always but sometimes, the black box, if you will, of the underwriters is still not being opened up to allow the clients to understand how the insurers’ analytics are really driving their risk-taking analytics in the design of their products,” Robson said. “That is something that would certainly be well-received by the insureds, who are trying to make themselves better risks.”

Brian Parsons, head of Canada at Willis Towers Watson, was asked during the panel discussion how underwriters can help brokers during a time when it’s difficult to find coverage for risks in certain classes of business. For example, hospitality, snow plowing, commercial real estate, travel, and residential nursing homes have all been cited as extremely difficult risks to cover during the pandemic.

In these times, Parsons said, it is important that underwriters not reject a risk exclusively on the basis of data and analytics. “We [as brokers] feel the effects every day of the push-and-pull that happens with insurers between underwriting judgment and data and analytics,” Parsons said. “There is the old-school, ‘gut-feel’ judgments that underwriters make based on their experience, and then there is the data and analytics.”

What’s needed is an approach that uses the strengths of each tool, he explained. “The trick for insurers, I think, is to find room for both. I don’t want one to win and one to lose between judgment and analytics. We want human judgment built on a foundation of analytics. This is the only way to ensure that this business is going to be sustainable and there for our client. So we want both. [But] to avoid insurers being considered a commodity, they have to show that relationships matter and leave some room in decision-making for judgment.”

Dave Partington, CEO of Gallagher Brokerage Canada, whole-heartedly agreed. “Data and analytics is important, but my one ask is that we do see real underwriting happen,” he said.

Clients do understand that data and analytics will have the impact of rewarding good risks while punishing bad risks, Partington went on to observe. And clients do want to know how to improve and develop the risk to make bad risks better. But they want underwriters to show they appreciate the differentiation of risks as well, which requires exercising judgment.

“The need for imagination in underwriting strategies to find a way forward [for a client] is my biggest ask as well,” he said.

Tina Osen, president of Hub International Canada, said brokers need to assess their own analytics as well, and use that data to form the basis for creative solutions for their clients.

“What I think has been demonstrated in this market is that we need to get creative and look at other ways to garner capacity,” Osen said during the panel. “So, is that working with reinsurance brokers to find capacity? Is that looking at our books of business and grouping it by segments — and potentially stretching facilities, where capacity is pre-arranged — and really examining data regarding qualities of risk and performance of segments?

“I think it’s extremely important for us to understand the data and the characteristics of risk for us to be able to offer solutions to our customers. And getting more creative around not as many traditional placements, perhaps, but more primary excess layer arrangements — especially in areas where you have Cat-prone geographies or high-severity risk. The goal is achieving sustainable win-win-win solutions. Unfortunately, I don’t think there is an easy answer for finding most solutions right now.”


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2 Comments » for What brokers are asking of their underwriters
  1. Thomas+Young says:

    All the data analysis and high level underwriting assessments that restrict the brokers ability to place business in a difficult market is explained as necessary by the actuaries as necessary to the survival of the company and in the cycle of things at some point they are sometimes right. When they are right and the underwriting losses become surpluses and the ROI’s are generating double digit returns, the strategy is corrected at the board room table when Directors ask why the companies market share is diminishing and why the company isn’t taking advantage of the opportunities the profitable and robust market is offering.

    Proper underwriting management doesn’t care a wit about a brokers gut feelings and those charged with oversight of the underwriting process are more interested in the results of the partnership than the niceties between brokers and their underwriters. Sure, a good relationship is part of the process but the relationship is only as important as the profitability of it and it’s the profitability of the whole class of business being presented that drives the appetite and rate without deference to the “good” broker or “difficult” broker. If this sounds terse or cynical to you then you are not understanding the basic economic fundamentals of our business, or any other for that matter.

    It is my experience that when the “alpha” houses start complaining about steadfast underwriting restrictions being imposed on them and they feel the need to remind their suppliers of how important they are to their profitability, then we can be assured that the pain being inflicted by the hard market cycle is being universally shared. This is also a good indicator that disruption in the market place is occurring on a large scale, the routine of old assumptions about the factors driving price and risk are changing. This disruption presents great opportunities for both insurers and brokers to realign the classes of business with an eye to profitability and preferred risk selection. It will also force the insureds to get their act in order and bring their operations up to the level needed to mitigate risk so that they can take advantage of better coverage and lower premiums.

    The simplistic explanation is usually the best one. We are moving in the right direction and while we’re not humming “happy days” yet, these are exciting times for brokers and for those companies that are tempted into dipping their toes in the pond of better market share. Those who go first will be very well rewarded by their brokers!

  2. Piero Tiseo says:

    If it’s not vanilla, if it’s not boring, dull and presents absolutely no perceived risk, you can forget about trying to place a risk.
    And, it will not get any better as everything is moving unfortunately into artificial intelligence (artificial means that machines are substituting common sense – underwriting judgement ).
    The problem is not necessarily computers or artificial intelligence but rather how at it is used and how higher management perceives it and shares the vision. We have heard many speeches and presentation where telematics, GPS positioning and artificial intelligence have been touted as the best thing since sliced bread. Most do not understand it and are repeating the flavour of the day. Excellent underwriters are being hampered to decide and those of the new generation will rarely stick their neck out as most lack experience and knowledge to be able to think out of the box( not to mention being burned at the stake).

    However and in spite of this, we are optimistic that this storm will pass!

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