Between a rock & a hard market

2019 National Broker Survey

Brokers have been in a tough spot over the past couple of years.

Insurance carriers’ claims costs in personal property lines (both in home and auto) have been on the rise, as have been their commercial property losses. Insurers have reacted by increasing premiums and withdrawing capacity from unprofitable lines of business. The upshot is that it’s been more difficult for brokers these days to find low insurance premiums for their clients – if they can find coverage for them at all.

And while clients are bending brokers’ ears about the higher premiums, carriers are cancelling contracts with brokers who can’t deliver more profitable business.

A hardening market cycle is not new to brokers. Although carriers and large brokerage houses such as Willis Towers Watson would argue that this is not “truly” a hard market — primarily because capacity for many lines is still available — that probably sounds like a hair-splitting exercise to brokers who have to explain the increased premiums and reduced coverage options to their clients. Brokers are caught between the proverbial rock and a hard market, as it were. And that shows in some of the results of Canadian Underwriter’s 2019 National Broker Survey.

In August, Canadian Underwriter received completed online surveys from 214 brokers across the country. Our comprehensive survey asked a number of questions, some of them open-ended, about how brokers approached and conducted their business. In particular, we were looking for some insights into the best brokerage practices and investments. We promised anonymity to respondents in exchange for honest answers and so, when we cite open-ended responses, we have eliminated any identifying information.

Overall, brokers in the 2019 National Broker Survey indicated many of the same feelings and attitudes about the channel, the challenges, and the strategies as they did last year. But subtle shifts in some of their answers can be explained by the strain of doing business in a more challenging market cycle.

For example, this year brokers rank-ordered eight challenges we presented in the survey. Brokers ranked the Top 3 threats to the channel as follows:

1. Growth of the direct-to-consumer sales model 2. Misperception of the value of insurance brokers 3. Insurance industry consolidation.

This is the same rank order as it was last year. That said, brokers showed less concern about these challenges this year than they did the year before. For example, 76% of brokers in last year’s survey identified the directs as their Number 1 concern last year, whereas only 63% did so this year. The numbers also fell for misperception of broker value (55% this year versus 58% last year) and consolidation (46% this year, versus 52% last year). In fact, for all of the supplied challenges but one, “proliferation of risks and insurance coverages,” brokers expressed less concern this year than they did last year. What to make of this? One possibility is that they were more concerned about challenges that did not appear on our list — the challenge of operating in hardening market conditions.

Earlier this year, Canadian Underwriter presented a more comprehensive list of 23 challenges to brokers and asked them to identify their Top 3 from the list. The Number 1 challenge for brokers in this straw poll was “retention of clients in hardening market conditions.” Number 4 was “finding profitable business in hardening market conditions.” On this more comprehensive list, the challenge of directs ranked a distant fifth.

And so how are brokers selling in the hardening market? Have they radically changed their sales tactics and strategies to gain new clients in this challenging market cycle?

Well, not really.

This year, just like last year, “asking customers for referrals” and “asking other professionals for referrals (e.g. accountants, lawyers)” ranked first and second, respectively, as ways to attract new business prospects. “Maintaining an active social media presence” ranked third on the list, as it did last year.

But the numbers were stronger in each category this year than they were last year, suggesting that brokers are doubling down on these strategies during difficult times.

Seventy-three per cent of survey respondents ranked customer referrals as a ‘highly beneficial’ practice (i.e. a grade of 4 or 5), up from 67% last year. And referrals from other professional networks jumped up from 41% last year to 52% this year.

“Referrals, that is the best way to do business,” one broker commented in the survey. “It produces the most stable book of business. I don’t look for business any other way. It has been interesting to see that Millennials have been the biggest source of my referrals.”

Perhaps this isn’t so surprising, given the number of Millennials who socialize using social media, as well as the larger number of brokers who appear to be making inroads in social media as a way to generate new business leads. Forty-five per cent of brokers in this year’s survey said “maintaining an active social media presence” was the key to finding new business prospects, up from only 32% last year.

Regardless of where the referrals come from, they are clearly a major source of new business for brokers these days. Said one broker in the survey: “Client referrals are 93% of my growth.”

Referrals from other business professionals were deemed to be the second-most-fruitful way for brokers to grow their business. A number of brokers commented that they were finding new business through connections with realtors, mortgage professionals, life insurance brokers, and investment advisors.

So now that you’ve found a prospect, what’s your strategy for turning them into a client?

Brokers’ responses this year were somewhat off-the-grid compared to last year, as suggested in the open-ended answers to this question. The brokers’ written answers stressed “the personal touch,” with brokers going the extra mile in a hardening market to be flexible and available for their clients.

“Clients like to feel like you are available when they need to contact you,” said one broker. “If you aren’t available during the prospect stage, they will assume this trend would continue if they were a customer.” So many prospects, so little time. How can brokers possibly respond to all of their clients – both existing and prospective – during regular 9-5 office hours? For many brokers in the survey, the concept of a five-day, 40-hour work week is a quaint relic — and that’s a good thing.

“Being available 24/7 has always worked well,” said one broker in the survey. “The younger generation wants answers now.”

“For after-hours inquiries,” advised another, “pick up the phone.”

The responses did show some push-back on this. About 39% of respondents in the survey identified themselves as broker owners or principals. Not all of them were sold on the concept of keeping their brokerages on high alert for all hours of the day, night or week. “The most beneficial approach has been to acknowledge the prospect’s time and try to cater to their schedule within our office business hours,” said one. Another showed similar hesitation in making brokers available to potential clients 24/7, while at the same time acknowledging the need for flexibility and a middle ground. The most beneficial approach to converting prospects, the broker concluded, is “not necessarily needing to converse outside office hours,” but letting clients know “they have our cell phones when needed.”

Definitely the traditional model of meeting clients in a brick-and-mortar brokerage office is undergoing a transformation. Several brokers in the survey said their best success came when meeting at their clients’ homes or offices. Salespeople are always on the move, but in a time when finding new business is crucial, brokers are going the extra mile to become mobile.

One broker emphasized personal contact with the prospect. “Go to their offices or home and follow up with a telephone call the day after. Stay in touch.”

Rapidly responding to queries is most-often cited in the survey as the most beneficial way to convert prospects into clients. Ninety-one per cent of brokers in the survey cited the urgency of an immediate response to queries by prospects. “Customers want to be heard and treated as the most important client when they are dealing with a broker,” said one broker. “Always get back to them quickly. And if you don’t have an answer, reach out to them to let you know where you are in your process.”

One by-product of a hardening market in personal lines home and auto is a renewed focus on selling commercial coverage to small business. Last year, 64% of brokers identified the small business market as an area of opportunity.

There has been a spike over the past year in the number of brokers selling small business commercial coverage, according to the survey numbers.

In our 2018 National Broker Survey, for example, an average of 50.7% of brokers’ annual commercial premium volume was in some way related to small business (defined as 1-49 employees). Breaking that down further, about one-third of the brokers in last year’s survey said that less than 20% of their commercial premium volume came from small business. Only 28% of respondents in 2018 reported that more than 81% of their commercial premium came from small business. What a difference a year makes. Brokers have significantly upped their game in the small business commercial space.

Sixty-two per cent of brokers this year reported that some portion of their annual commercial premium came from small business. The numbers at the margins tell the story. Contrary to last year, under one-quarter of brokers reported that less than 20% of their commercial premium came from small business. And on the other end of the scale, four out of five brokers said small business represented more than 81% of their commercial premiums.

So what accounts for the big turnaround in the small business space?

Carriers appear to be offering more and/or better small business coverage and products. That came through loud and clear when we asked brokers this year to rate their satisfaction with the current state of small business insurance offerings. Last year, fully 86% of brokers in our survey were either “very dissatisfied” (37%) or “somewhat dissatisfied” (49%) with existing small business products and coverage. That turned on its head in this year’s survey. Sixty-eight percent of brokers this year were either “very satisfied” (20%) or “somewhat satisfied” (48%) with the small business offerings.

But while brokers were generally more satisfied with the small business product offerings, they still see room for improvement in delivering those products to their small business customers. In particular, the success of selling in small business commercial lines has exposed the ongoing weakness in how brokers and carriers share data today. Put simply, technology needs to improve to help brokers provide additional value to their small business clients.

“Speed up quote times, or have better self-quoting platforms,” one broker responded, when asked what carriers could do to improve the sales experience for small business customers.

Another broker bluntly expressed frustration with existing platforms, recommending “digital quoting platforms that actually work.” The same broker urged insurance companies to “have technical help available in real-time, not via email. Tech problems [receive] a three-days-later response. These programs are to speed up service and accuracy, and the majority of them have bugs or issues. The carriers themselves don’t watch it closely enough to make sure [they] are running right. It takes days to get the issue/bug worked out. That is a hard conversation to explain to the client when they pay high premiums. They expect the programs to work [in a] timely [fashion] and accurately.”

Brokers also expressed frustration about being forced to use companies’ online, proprietary portals to obtain quotes for small business customers. [See Caleb Maksymchuk’s remarks in the sidebar on Page 31.] This results in a re-keying of information, brokers say — once into the broker’s BMS (broker management system), and then again into the company’s portal. Seventeen percent of brokers this year said that they spent the “largest percentage” of their time on “double entry” of client information for small business accounts.

Pricing has been an issue for brokers in the small business area as well.

Commercial property claims have escalated for many carriers, based in part on weather-related catastrophes and some shrinking capacity, as insurers re-tool their strategies.

In small business lines, one broker encouraged carriers to “gain a handle on, and keep a handle on pricing! These erratic price swings from year to year are embarrassing and gives the impression that the industry doesn’t know what it’s doing. Any underwriter who adds at the end [of a discussion with a broker] that, ‘If there is competition, we can likely do something more,’ is written off by me immediately.”

Without question, the hardening market cycle is a huge challenge for brokers. And so why do brokers in our survey love their jobs so much? Fifty-five percent of brokers this year rated their job satisfaction as either a 9 or 10 (with 10 being “Extremely Satisfied”). And 71% of brokers said they expect the financial performance of their brokerages to be either somewhat better (60%) or much better (11%) next year than this year. It turns out that a hardening market is a bit of a double-edged sword. On the one hand, it makes it more difficult to find and keep clients. On the other hand, it can produce a positive residual effect on some brokerages’ bottom lines, depending on how well the business is managed.

“[The] increase in personal lines rates [is] driving gross written premium and commission,” as one broker put it. Said another: “With the marketplace being so hard, we have done well at pricing new business and keeping existing clients through increasing premiums. We expect a 10% growth over the year.” Still another reported benefiting from the movement of clients created by higher rates. “Over the last two years, we’ve picked up a considerable amount of quality business from dissatisfied clients.”

How this will play out next year remains to be seen. There are some signs that regulatory reforms are in the works, and that escalating prices will not be here to stay. If regulatory reforms were to be implemented today, some insurers predict consumers may start seeing premium relief would likely flow one to two years later. In the meantime, brokers looking to take advantage of the situation are doing much the same as they always have – only more so – to retain their desirable status as a “trusted advisor” to their clients.