Wholesale Changes

As property and casualty insurance companies continue to post improved profitability and performance numbers, we can expect to see a further softening of the market. There is now greater capacity and the issue of availability, so prevalent in the last three years, has at least partially subsided. For favorable commercial and personal classes of business, price competition is the order of the day.

This state of affairs presents both challenges and opportunities for the wholesale, or “specialty,” insurance market in Canada. While many wholesalers benefited from the recent hard market with double-digit growth, huge increases in submissions and solid earnings, the situation is now turning – faster than many of us would have predicted. Some of the key challenges facing wholesalers are anticipating the lines of business that will still require innovative insurance solutions, communicating the range of product options to brokers and using technology to streamline application and policy processing.

COMPETITIVE CHALLENGE

There has been a real trend over the last year for standard markets to aggressively price and move on certain kinds of business, such as property risks formerly seen as sub-standard. The relaxation of terms and conditions, especially risk qualifications for start-up businesses, has been particularly evident. This is especially true for small to medium-sized business accounts and trade contractors with good loss experience and solid risk profiles.

The issue for many specialty markets today is identifying precisely what kind of business is flowing back to standard carriers. The classes that mainstream insurers wanted nothing to do with during the height of the hard market were expansive – such as licensed establishments and hospitality risks, gray-area errors and omissions (E&O) exposures like consultants, various trade contractors (especially start-ups), any manufacturing or retail operations with U.S. exposures and many hard to place commercial properties. Some of these risks have already moved back into the standard market and we can expect more as competition heats up.

VIABLE RELATIONSHIPS

For the wholesale market, and the many brokers that rely on this segment, the changes may appear confusing. What insurance companies previously viewed as a sub-standard risk may now be a preferred class of business. Brokers will likely have to explain why a new business client received a better rate than a renewal account, as insurance carriers start to emphasize growth and volume. And many clients and industry sectors will question why terms, conditions and risk qualifications – so intractable at the height of the hard market – are now being removed.

As such, the choices facing wholesalers are more difficult now than over the past three years. Each account has to be scrutinized based on loss history and the appropriate premium. How far should wholesalers compete on price? Are competitor rates for certain products really sustainable? Is this a short-term or a long-term deal? Every insurance provider, whether wholesale or standard, has to be prepared to walk away from certain accounts if the price is not sustainable for the risk profile and loss experience.

One thing we believe brokers must consider is not just price, but the long-term viability of the insurance relationship. Is the insurance carrier prepared to write the business for the long-haul or just capitalize on changing market conditions? Is there a 10 year, or even 20 year, commitment to the line of business? Are brokers protecting their clients from the actions of offshore, unlicensed carriers? These are the questions brokers should ask when faced with unrealistically low quotes and aggressive new players in the business. If any aspect of the partnership between client, broker, intermediary and underwriter breaks down, the whole relationship is threatened.

RISK SEGMENTS

While many wholesalers anticipate a return of standard homeowner and some general liability risks to the regular market, the same will not be true for other exposures. For example, standard markets have continued to show little appetite for areas like hospitality, environmental insurance and cross-border business, especially product liability.

Specialty lines players are well aware of how quickly the standard market can change. That is why we are defining niche areas and developing unique programs to provide more services to brokers. We want to continue to offer much-needed capacity in areas showing few signs of softening.

In addition, more wholesalers have branched out to different kinds of products and offer solutions that may appeal to a broker’s clients. For example, some wholesalers have expanded their product offerings to include retirement, benefit and travel lines of insurance. As well, some existing products have been extended to include new lines (as in TWIG’s expansion of its garage auto product to write heavy truck repair). There are many other instances of how wholesalers can continue to focus on product areas that are under-served in the standard markets. A future market we have identified is coverage programs for U.S.-based clients looking to conduct business in Canada.

Brokers need to be aware of these options, even if it is for only two or three accounts or a “standard” risk with some unique exposures. And it is up to wholesale providers to educate brokers about the range of specialty solutions available in the marketplace. In past industry cycles, some business may have moved or not been written because of a simple lack of awareness on the part of brokers. Notably, TWIG has initiated a series of regional educational seminars geared to brokers. These RIBO-accredited seminars cover a range of educational topics like liquor liability in Canada, product liability in the U.S. and using the Internet for insurance.

ELECTRONIC PROCESSING

Brokers are also looking for quicker turnaround and improved technology from Canada’s wholesale insurance market. While plenty has been written about technology and the need for standard insurance companies and brokers to submit and process data electronically, very little has been noted about the wholesale market. Why should it not be just as easy to process online applications from a specialty provider as a standard carrier?

TWIG has taken steps in this direction with the launch of an online application gateway for brokers. It provides a quote response time within 15 minutes and turnaround for new business, endorsements and renewals in days, not weeks. We have found that brokers are hungry for the insurance industry to catch up to the pace of modern technology. The TWIG online application process applies to all habitational business but is currently being tested for commercial lines and other specialty products.

Canada’s wholesale market has a solid and enviable record of using reputable, licensed carriers, providing crucial capacity in under-served areas and offering a range of timely insurance solutions to meet broker and client needs. If one provider does not offer a specific product in a key line of business, brokers can be sure another will fill the void.

Competition. Technology. Product Awareness. These kinds of challenges face all wholesalers in a changing market cycle. We are in a period of transition and it will be up to each specialty provider to adapt to the new conditions and present brokers with the best products and the most efficient means of doing business. Flexibility, creativity and rapid execution will allow us to bridge the insurance gap between inevitable hard and soft market cycles.