Is market segmentation helping to soften pricing?

A softening, but segmented, insurance market is allowing commercial lines brokers to leave some aspects of the years-long hard market behind.

Improved pricing models are one key ingredient in the ‘stability’ now seen in commercial lines, brokers observed.

Carriers are now using advanced data analytics to differentiate between good and poor risks. That’s led to a segmented approach to pricing, even within commercial lines that have seen challenging times. Savvy brokers are responding by finding good deals for commercial clients with stellar claims histories and loss control procedures.

For brokers, this more refined approach to underwriting means ‘best-in-class’ risks — commercial clients that experience fewer claims losses — are better able to find pricing, coverage and capacity.

“In some ways, the markets [i.e., insurers], with the refining [of data] they’re doing, and the [pricing] corrections they’re implementing, are doing what the markets should be doing,” said Russ Quilley, head of commercial risk at Aon Canada. “They are looking for best-in-class business and giving them better rates.

“For those who have had claims, they would get higher rates. Carriers are doing a better job differentiating [between high-loss and low-loss] accounts. So, you always have this kind of mixed market, which is hard if you’ve got claims experience, but softer if you don’t. I’ve heard one broker say, ‘Well, maybe this is the market now. It’s not hard or soft.’”

Commercial liability lines have benefited from this segmented approach, noted Ilan Serman, president of Ontario for Gallagher Canada.

“Insurance companies really are starting to price according to the risk and location more than we’ve seen in the last three or four years, so I see differentiated pricing,” he said. “Liability is an area where we are seeing the silver lining through all of this.

“For companies committed to good risk management with low loss ratios, you’re starting to see in some areas not only flat [pricing in commercial liability], but some significant decreases in premium. Insurers feel they have now rectified the pricing on some of these risks. And now that they have fixed their own books, they’re starting to say, ‘Okay, we want to grow again, and we can we do that. So, let’s go and see what other good risks are out there.’ And in the liability area, we are seeing some significant decreases now.”

But segmentation by specific lines can cut both ways, changing on a dime for clients facing the headwinds of global financial uncertainty, Eric Osborne, chief growth officer at Navacord, observed.

“We are seeing more [economic] activity, so clients’ revenues are up, obviously, compared to COVID, and exposure grows with that,” he said.

“Now we are going into this uncertain economic period, and so lines like D&O [directors and officers’ insurance], which we thought were stabilizing, are all of a sudden getting a little bit more attention again. Underwriters want to understand the economic pressures businesses are under. They need to be prepared to underwrite bankruptcy exposure, for example. So, there are more questions and scrutiny in that area.”

As for clients in natural catastrophe zones, Osborne added, “that remains very challenged regardless of what size of business you are. Getting capacity in those in those zones is harder to come by.”

However, thanks to segmented data analysis, if clients are not exposed to Nat Cat perils in certain zones, that can be to their benefit when it comes to pricing, said Serman.

“We are starting to see almost a reverse trend in those cases where clients are not based in natural catastrophe spots [earthquake, hurricane and wildfire zones]. That is a very welcome trend for certain clients in Ontario, for example.”

 

This story is excerpted from one that appeared in the May print edition of Canadian Underwriter. Feature image by iStock.com/photoschmidt