With the hard market ‘still here with a vengeance’, brokers face ‘additional difficulties’ in explaining the impact on premiums to clients
Although the current hard market has been “a real tough environment” for brokers, it has also acted as “a saviour” by protecting earnings levels for broking businesses, according to John Read, managing director of regions at Willis Towers Watson Networks.
Speaking exclusively to Insurance Times, Read explained: “[While] the hard market has been a real tough environment for [brokers] to work in, what it has done is preserve the earnings levels because with exposures going down, you could possibly have seen earnings reduce [and] commission levels going through the business.
“But, because the market’s been so tough, whilst it has been a hard thing to get through, it has meant that there’s been stability there around [brokers’] own earnings and that’s been a bit of a saviour in some ways because otherwise I think people would be a lot lower down on earnings.”
Despite this financial silver lining, Read added that the hard market still poses difficulties for brokers in terms of conversations with their clients and explaining the reasons behind premium prices.
“If clients are perhaps unhappy about the fact they haven’t got cover in certain areas, then reducing their exposure because they’re having to lay people off and still finding their insurance premium is as high or higher than it was before and thinking ‘well, how can that be?’. Because of the hard market,” Read said.
“That’s another big job for a broker to explain the way that the market works and the issues that are currently in that market, so that’s definitely [caused] additional difficulties for everyone.”
The Covid-19 pandemic has contributed to this communication conundrum, added Sara Fardon, Willis Towers Watson Networks’ managing director.
She said: “You think you’re busy [because of the pandemic] and now you’re even more busy because your rating is going through the roof and you’ve got to keep delivering all this tough news to clients, all at one time.
“And in your own business, maybe some of your clients are in the leisure sector, you can’t get hold of your clients half the time.”
However, “the skill of the broker” has been “adapting to all of that”, Fardon continued. “They’ve been very resilient in that way.”
Fleet of foot response
Fardon noted that prior to the Covid-19 pandemic, the hard market was the number one agenda item for Willis Towers Watson Networks’ independent broker members.
In February 2020, when the network met with its membership prior to the onset of coronavirus, discussions centred around the promised hard market and how many broking employees, clients and insurer staff won’t have had experience of this before.
Despite the sector challenges arising from the ensuing pandemic from March 2020 and then the FCA’s test case around Covid-linked business interruption insurance claims, “in the background all the time, this hard market is gathering pace”, Fardon said.
“It’s still here with a vengeance,” she added.
Speaking on how independent brokers have faced the Covid-19 pandemic, Fardon said: “Insurers needed to get their act into gear to think about what do we do about unoccupied properties? What do we do about people delivering medicines in vehicles? So, whilst insurers were trying to work out their position, brokers have got clients on the phone saying: ‘give me advice’.
“Brokers are very fleet of foot in that respect, to find their way about it. They don’t want to make a storm in a teacup about [guaranteeing clients have] got cover under [their] policy.
“How they talk to clients and keep everything in perspective for clients when clients were going through a very uncertain time is a really good skill of a broker and that engagement – that’s where independent brokers, quite frankly, are really strong because they’re paragons of their local environment.
“They would know their clients really well, so they come into their own in that environment.”
Read, however, observed that “insurers working from home” has “been difficult across the market [from] a service point of view and from a rating point of view”.
Despite showcasing resilience so far in 2020 and 2021, Read and Fardon agreed that brokers need to remain on the ball as the UK eases out of lockdown and government support schemes for businesses, such as furlough, comes to an end.
“Watching what the economy does and how the government manages [coming out of lockdown] in that SME sector will or won’t have an impact on brokers because insurance, at the end of the day, is all connected with that,” Fardon continued.
“Insurance is often described as the backbone of the economy. It enables businesses to function. So, how is that support going to be carried on or withdrawn? Is that going to lead to business failure, which obviously the government is trying to avoid, but it can’t carry on indefinitely.
“[Brokers] need an eye over their business to see where do they think the vulnerabilities are in terms of their client bank.”
She added that broker clients that go into liquidation will impact on brokers’ businesses.
During the initial pandemic lockdown, Read explained that many brokers had “a bit of a cushion to an extent” because “businesses were continuing as they were” and were focused on getting “used to the new normal”.
“[Businesses] weren’t necessarily going to market with their risks too much, so brokers weren’t faced with every risk, which would have been the final straw,” he said.
Despite “a hiatus for last year, last period – there wasn’t as much business [going through to] competition”, Read believes “more and more now, we’re starting to see and will see more businesses coming out and challenging their brokers to say ‘can I make savings this year? I had a higher payment last year even though my business shrunk a bit, I really need to try and get some savings’.”
“There’s going to be a challenge there with the hard market and clients’ demands,” he noted.
Although brokers are still contending with a multitude of challenges, Fardon said: “Independent brokers are nimble, that’s a massive strength that they have. They’re resilient and nimble.
“All brokers are very adaptable and have proved that year in, year out. There’s always change going on in the marketplace and brokers always adapt.”
Read agreed: “You never cease to be amazed at how resilient they are to be honest; innovative and cope with the stresses and strains that they have.”