Brokering In 2004: An Angry, Mixed Up World

The onslaught of insurance price increases may be moderating, but for many customers this is not enough to cool their anger and resistance at paying more, brokers contend.

Brokers also describe the marketplace as one of increasing complexity, with small decreases obtainable for a few good risks, difficulties obtaining any coverage for some customers, and a shrinking number of carriers.

They also said they have to work harder at servicing accounts and factoring in new areas of risk, like terrorism, which were non-existent in past years. A few said they see more demand for carriers with the best financial strength ratings.

And while many said that insurers are sticking to good underwriting policies, one said he had viewed some activity resembling the cannibalistic business practices that spurred the previous soft market.

Damian Testa, president of Kaye Insurance in New York, part of the HUB Group, said his operation hears from customers that “they just cant take any more [increase]. There is big pushback.”

In Chicago, Tim Graham, a senior vice president with HUBs Mack & Parker, said customers who accepted that Sept. 11, 2001, terrorism losses had spurred some necessary increases are currently “less receptive to the problems of the insurance industry.”

When brokers bring them an offer of coverage involving another hike, “there is an absolute expectation that their business is shopped around,” he said.

Charlie Skinner, national director for relationship management with Aon Risk Services, who handles property-casualty coverage from the Baltimore office, said for most clients, the readily available strategies to deal with a hard market have already been put into effect.

With the “low hanging fruit” remedies exhausted, “clients are saying, Now, what am I going to do? Raise my retention even higher? What can you do for me?” Mr. Skinner related.

He said his company is advocating a greater stress on risk control and management, as well as efforts to close claims faster and cheaper.

Jeffrey Jones, senior vice president and chief marketing officer for U.S.I. in Briarcliff Manor, N.Y., said his company is finding it must be more proactive than ever. To maintain customer relationships, brokers no longer just work to gain market access and shop business, but are constantly busy advising and working on their accounts.

He said he thinks his company has a leg up because its focuson middle and upper middle market and specialty classes in all linesinvolves an integrated approach that competitors lack. Besides property-casualty, his firm offers employee and executive benefits, as well as qualified and nonqualified retirement plans.

Work with clients, Mr. Jones said, involves both an actuarial review and an intense focus on improving clients risk characteristics. Asked if any customers balked at pressure to improve their risk situations, Mr. Jones said: “Today? No. Four years ago, yes. It was easier then for an insured to shop around.”

Clients have also taken on more risk. Mr. Jones said he had seen “many self-insured retentions go from $250,000 to $500,000,” and some accounts are getting coverage that moves them from a guaranteed cost structure to one that is more loss sensitive.

Marsha Hahn, a senior vice president with Itasca, Ill.-based A.J. Gallagher, said when it comes to shopping for coverage, a key factor in the current market is “theres been so much combining of markets.”

“The marketplace is shrinking with consolidations and mergers,” she said.

Mike Chapman, a producer with C.J. McCarthy, HUBs New England branch, noted the recent St. Paul-Travelers merger announcement and said the consolidation of markets has made it hard to give alternatives to middle-market clients.

He mentioned that as prices have risen, so have client expectations that brokers will deliver more consultative services for ways to manage risks and coverage alternative options, such as self-insurance or use of a captive.

Mr. Testa at Kaye said that when they consider who to insure with, some customers are now “definitely looking at the quality of the carrier.”

He said this has been brought on by the spate of rating downgrades for insurers as well as the demands that are being made on his customers by their banks and concerns with which they contract. “They want to know you have a carrier thats going to be around five years from now,” he said.

Mr. Skinner at Aon said that with the recent demise of a number of insurers, there is more time spent looking at carriers from a financial-strength perspective and, in a change from past practice, a number of customers are now willing to pay a bit more for a higher-rated carrier.

From Mr. Chapmans vantage point at C.J. McCarthy, it is nice to see such interest, but he pointed out that before Kemper and Royal ran into trouble, they had respectable ratings. Further, if customers limit themselves only to firms that provide the highest comfort level, “youre down to four carriers,” he said.

In addition to consolidation, for brokers the past three years has developed a host of new issues. “Terrorism never came up before and mold [damage coverage] was always included,” he said.

There are more environmental concerns about oil leakage and worries about directors and officers coverage in the wake of Enron and other corporate scandals. “The world is more complicated,” he said, also citing risks of cyber-liability and cyber-theft and heightened malpractice risk.

Ms. Hahn at Gallagher noted the impact of terrorism on the previously-stressed workers compensation insurance marketplace. For employers in states rated higher for terrorism risk, the premium can be substantial, “which wasnt the case last year,” she remarked.

On the other hand, Mr. Chapman at C.J. McCarthy noted that among the reductions he has seen was a property program in a city impacted by terrorism fears. The coverage cost for the client this year came down by 50 percent, he said.

Customers who get the big reductions, he said, have a bitter-sweet reaction. There is happiness accompanied by a feeling of “boy, we got screwed before.”

Almost all of the brokers who were interviewed said they had seen reductions for a few customers with very good loss records.

While Ms. Hahn reported obtaining 5 percent to 15 percent decreases on “clean business,” she said that no carrier had come to her first proposing a reduction. “But if you can show its warranted, they are open to discussion and there is definitely room for movement,” she said.

Ms. Hahn said underwriting on the property side is still very thorough on large risk management accounts, while Mr. Jones at U.S.I. said that “what we are seeing in 2004 is a return to underwriting. What that means is insureds are being reviewed based on profitability for the carrier.”

“Its not a situation where people are writing business not knowing what is going on. They are doing the loss control inspection, analysis and loss history,” said HUBs Mr. Graham.

But whatever restraint insurers are showing now, Mike Chapman at C.J. McCarthy believes the time is not far off when insurers return to the dog-eat-dog practices of yore. Recently, he said, he had seen a piece of business snatched up by a B-rated company “that came in 25 percent below the rest of the market.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 23, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Brokering In 2004: An Angry, Mixed Up World

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