Simon Cooter, distribution director, Brit Insurance
The commercial market is undergoing a subtle change. More mid to large corporate clients are going out to tender, a trend that looks likely to accelerate as the market hardens.
A number of things tend to happen in a short time when the market hardens.
First, rates increase – and not always in a fair and considered way. Most brokers understand the need for rate strength. But they find it difficult to sell the broad-brush increases that some insurers push for.
Second, many insurers centralise decision-making and become more risk averse. A target sector or client yesterday could be an automatic declinature tomorrow. It is all too common for clients – and their brokers – with excellent risk management practices and good claims experience to get caught in the crossfire.
This shift away from the frontline is one of the most bizarre trends in our industry. Surely this is the very time when it is needed most. Experienced underwriters who know the market, know the broker and, in many cases, know the client, are best-placed to understand the specific characteristics of that client.
Rather than taking control, surely head offices should be helping the frontline underwriting teams find solutions for the client – either conventional or non-conventional.
Third, service can begin to suffer. An increase in referrals can put pressure on already stretched resources.
The service from insurers – not at world class levels with start with – becomes pretty grim, especially if it coincides with restructuring and staff cutbacks.
Essentially, there is a real danger that, as in previous hard markets, brokers will be faced with this triple whammy of increasing prices, decreasing risk appetite and deteriorating service.
Brokers are left with some difficult choices.
Do they persevere with markets that are taking this approach? Mutual loyalty between trading partners, in good times and bad, is a good thing, but only if it works both ways, and certainly not where it puts brokers at risk of losing important clients.
Many brokers look for alternative markets, building new trading relationships to complement the traditional ones.
Some insurers do commit to trading locally through a hard market, but for some the only sensible way forward is to focus on those brokers who are genuinely committed to working with them in a long-term partnership. For their part, these insurers can offer strong underwriting service and easy access to
decision-making. In return they want a sustainable relationship that will grow and prosper over time.
These insurers will resist the temptation to open their doors to all-comers to maximise short-term growth. They realise that it diverts valuable resource away from supporting relationships that wil endure in the longer term. It is just a matter of time before their service and underwriting response begin to deteriorate as well. They will also realise that this approach is not sustainable. Easy to win normally means easy to lose.
For the most part these insurers know who their trading partners will be for the next phase of the market. They will have been trading during the soft market and will have got to know each other’s businesses.
Understandably, many brokers have a real dilemma on their hands. They want to carry on supporting their old “friends”, but they also recognise that they need one or two new ones. The truth is that it is impossible to keep everyone happy and everyone has to make choices about who to trade with.
The time for brokers to be aligning with these insurers is rapidly running out and, in some cases, may have run out altogether.
When the market hardens further, these insurers will have their hands full, working with their existing trading partners. It will be too late for others knocking on the door; they are likely to remain firmly closed.
Insurers and brokers that have strong and carefully selected relationships in place ahead of the hard market are likely to be in pole position to meet the changing needs of clients, maximising retention and new business successes in the process.
Brokers that have been developing these relationships with insurers during the soft market can rightly expect support during the hard market.
They won’t want the service they receive to be compromised at just the time when they need it most. It’s up to insurers to make sure that doesn’t happen.
There is no doubt that in the medium to long term, a relatively small number of significant and meaningful broker relationships is better for us as insurers, better for our broker trading partners and – mostly importantly – better for our clients.
Now is the time to make those choices.