What brokers are asking of their underwriters

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.”

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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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