Economic uncertainty underscores need for adequate policy limits

Economic uncertainty is contributing to social inflation, requiring insurance professionals to ensure their clients have adequate policy limits, says Markel Canada president Dave Crozier.

The geopolitical environment has pushed a lot of small and medium enterprise (SME) customers to rethink their risk strategies, and they’re shifting priorities from price to precision and predictability, Crozier tells CU in an interview.

“We see SME customers saying, ‘I want predictable pricing, I want tailored solutions and I want you to help me with proactive risk management to the extent that those organizations can engage in that, to safeguard margins, to mitigate risk,’” he says. “When we’ve been talking to brokers, they’re saying SMEs don’t necessarily want more insurance, they want this certainty in uncertain times.”

But with the softening commercial market, lower prices are offering the opportunity for increased limits.

“It’s offering the opportunity to explore some coverages where you didn’t before, because it frees up a few premium dollars,” Crozier says. “So, perhaps you didn’t think about cyber, perhaps you didn’t think about environmental or even private D&O…because that really helps [clients] stand up to that volatility.”

It’s a mixed bag as to whether clients are using savings to increase limits. Canadian Underwriter has heard anecdotally that some clients are using savings to increase limits, but many are simply renewing existing program structures, despite changing risk profiles.

From a liability standpoint, he notes economic uncertainty is driving an increase in litigation awards and activity, both from an individual and class action perspective. “Because people are saying in uncertain times, ‘Hey, I want somebody to make me whole.’

“It’s driving an overall increase in damage awards, because you see increased pressure on wages, you see increased pressure on expert fees and things like that,” Crozier says. “So, you’re reaching higher limits than you were before, and policy limits that were previously adequate might not be now.”

BI interest

Business interruption is another coverage of interest. Since it can cover key payroll, limit becomes very important, particularly if a business has grown.

“We are seeing more interest in business interruption as a coverage, because [businesses are] thinking again, ‘In times of uncertainty, if something happens, I’m going to have to rely on that more to keep my company going,’ and then review their limits just to make sure they don’t face an underinsured or an uninsured loss in the event something bad does happen.”

Looking ahead, Crozier expects commercial pricing to remain competitive. “We do think that creates a window to enhance coverage, or for carriers and brokers to win through service and innovation and trying some different things, rather than just focusing on price.”

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Carriers and brokers that show they’re in the market to stay will also benefit, he says.

“I think insurers and brokers who are going to win are going to focus on strategic growth rather than just growth for growth’s sake,” Crozier says. “Because as it becomes more of a challenge, you’ve got to demonstrate what are you good at, what value do you bring to customer that is not brought by everybody else, and how do you deepen those relationships.”

Jason Contant

Jason has been an award-winning journalist with Canadian Underwriter for more than a decade, including the past three years as associate editor and, before that, as digital editor for seven years.