Brokers’ challenges in the softening commercial market

Brokers are experiencing several challenges in the current softening commercial insurance market, including when and how to market their clients to carriers, who are shifting their risk appetites quickly.

For brokers, it’s highlighting the importance of trust. Brokers need to trust carriers will continue underwriting in a commercial segment over the long term, which is in the client’s best interest.

Brokers have expressed surprise at the speed of the softening in several commercial lines, including professional liability, D&O, construction, real estate, realty, and hospitality.

“I’ve been through a few soft markets,” Brad Murdoch, managing partner of Ferrari & Associates, commented Wednesday during Canadian Underwriter’s webinar, ‘Mastering the Market Cycle.’ 

“All I can say is, this one came on really quick. It’s not like the writing was on the wall and it was going to start Jan. 1.”

Applied Systems’ latest Commercial Market Index shows rate increases in most major commercial lines have dropped by half since 2023 Q2. The speed at which rates have fallen is posing challenges for brokers. For example, when and how do brokers try to take advantage of the soft market cycle?   

“I think [a] difficulty for brokers that I would just highlight is that it makes it challenging to predict,” said Brett McGregor, president of Guild Insurance Group and president of Insurance Brokers Association of Canada. “You really don’t know which accounts you should be getting in the market this year.

“It’s tough to get everything in the market at one time. And so how do you predict which accounts are going to be the ones that that we need to get in front of underwriters this year?”

Also in the news: Any guesses as to when this soft commercial market cycle will end?

One advantage for brokers in the current softening commercial market is that when they contact new leads or clients, it’s possible a carrier might agree to cover a risk that it might have declined last year, said Murdoch.

But he cautioned brokers to be careful not to place clients with markets that may withdraw from the very same business segment once profit margins start to shrink again.

“The clients and the markets need you as a broker now more than ever, because with some markets jumping into segments right now, they’ll be out in 12 months,” said Murdoch. “You want to try to steer [clients] from those ‘flash pan’ markets. Stick with what you know and what you’re familiar with.”

There are still limits regarding what insurers will write in a soft market, he added. Carriers are likely to decline submissions in certain areas of business no matter what the market cycle may happen to be.

“Hard declines are still probably going to be hard,” said Murdoch. “Declines for older buildings, old wiring, old plumbing, anything that’s still manufactured in the Asian market that is first up here in the North American [market], I don’t think that’s ever going to change.”

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Jatinder Bassi, president of Echelon Insurance, said he’s seeing opportunities “pop up” for brokers looking for coverage in commercial auto, public infrastructure, and even hospitality, which has been in a hard market cycle since COVID.

“We saw that happen during the pandemic,” Bassi said. “A lot of the general [carriers] pulled out of a lot of these market [segments] and now they’re starting to re-enter some of those markets. But at the same time, these risks are very specialized.”

Soft commercial markets provide more capacity and options for clients, but Bassi implied insurers specializing in hard-to-place areas will likely be better long-term bets for brokers looking for specific solutions, even in a soft market.

“We’re still seeing opportunity exists because the general carriers are not looking to write that business anyways. They’re looking to write the risks that fit their risk appetite, and they can underwrite it by checking all the boxes. From our point of view, we’re looking at risks that our partners are having challenges placing.”

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.