Julie Page explains the importance of making sure clients make the right decisions for what they face
We are in a tough commercial insurance market and positive outcomes for clients are harder to realise. Rates consistently trend upwards and very few businesses are benefitting from the reductions of previous years. That long-held expectation that you can improve on a premium if you test the market has been brought to an abrupt halt.
Of course, we know why the cycle has hardened; a surplus of capital created a competitive marketplace that drove down rates and provided broad coverage for clients. However, subsequent poor loss ratios, driven by a number of factors, and dwindling investment returns have triggered universal rate rises, tightening of coverage and capacity reduction in some classes. But there are also other factors at work.
The uncertainty surrounding the impact that the associated losses of Covid-19 will have on the insurance and reinsurance markets; and the operating costs of change that those same markets have absorbed as they have adapted to running their businesses in a pandemic. Then there’s Brexit, which might not be grabbing the headlines as it may have, but is still demanding management time and resources as businesses adapt their operating models.
A potentially greater long-term risk is the growing uncertainty around other areas of systemic risk, including climate change and the link to market-moving natural catastrophe losses. The consequence of all this – and the uncertainty – is an acceleration of rate increases. There are explanations offered for this, such as “it’s an inevitable market correction” and “insurers need to return to profit”. I would not disagree with either statement, but how do the buyers – our clients – make sense of this pricing rollercoaster?
Peter Blanc, deputy president of the CII, recently said that customers could be forgiven for asking: “Were your premiums crazy last year, or are they crazy this year?” It makes little sense to clients why they were so ‘cheap’ and now why they’re so ‘expensive’. But the problem follows that when the cost of something goes up, whoever you are – a large or small firm, affluent or otherwise – you start to think about what’s affordable and question the value of what you are buying.
Now we are seeing clients decide to bear more risk themselves, or we are seeing underwriters reduce cover, offering less for more. The protection gap is exacerbated just at the point when we should be addressing unmet needs for buyers.
How, as a profession, do we respond? We all have a role to play in making sure clients understand the choices they make when they elect to reduce or even eliminate cover; and to help them understand where they have options to mitigate the risk through other risk management measures at potentially lower cost.
It means doing three things. Firstly, prepare the client well at the beginning of the process by starting early to understand and quantify their needs. Secondly, simplify the understanding and implications of the trade-offs. Thirdly, get the best range of options and put the client in a good position to make an informed choice.
To all of my colleagues in the wonderful profession that is insurance, wherever you are on the buying journey, please think about the client – and play your part by helping them at every stage to make the right decisions against the circumstances they face. There may be a need to increase premiums but we should never lose sight of the clients and their needs.
Presidential term will run to December 2021, with the CII’s next president who will be elected at the 2021 AGM in the summer starting their presidential term in January.
Julie Page is president of the CII