Miller: Buyers should ensure brokers are ready for challenging market

Next year is likely to be more challenging for buyers and they should make sure that their brokers are up to the task ahead, according to Ken MacDonald, head of specialty at Miller Insurance Services. “With catastrophe losses yet to be tallied and with treaty reinsurance renewals on the horizon, it is too early to predict the outcome of changes in the market. However, there is enough evidence to suggest that the environment will be more challenging for buyers in 2018. This is an important shift. Brokers, and the expectations and buying strategies of their clients, have been shaped by more than a decade of market softening,” he said. Mr MacDonald stressed that for almost all speciality lines, “the soft market has screeched to a halt, but we are not yet in a hard market”. Nevertheless, he pointed out that when clients come to renew, they will find a very different insurance market to that of 2016 and early 2017. “Insurers are likely to take a more aggressive approach to loss-affected or catastrophe-exposed risks, as well as risks that lack adequate risk controls. They are also likely to see insurers increase their focus on retentions, limits and cover as they seek to reduce exposures. With this in mind, buyers should prepare themselves for a different kind of engagement with the insurance market. For example, they should be prepared to provide insurers with quality risk data if they are to negotiate against blanket adjustments in rate,” said Mr MacDonald. He added: “Going forward, both buyers and brokers will need to be far more proactive and strategic as they fight to contain potential rate increases. They will also need to be flexible and creative, as they sell their particular story to the market.” To manage any changes in market conditions, buyers should start renewals early and evaluate their programme structures, retentions and policy wording. Mr MacDonald also said buyers can work with their broker to create competition, in particular by considering a broader range of providers. And he noted that captives can also play a role, funding higher retentions and making smarter use of reinsurance. As for their use of brokers, he said that in a more volatile market, buyers may wish to review their broking strategy and ask if their broker has the expertise and skills required to get a good deal in a tough market. “Clients should also think about using a broker that knows how to collect challenging claims in a hard market, where goodwill can be in short supply. Process never beats knowledge and experience,” he said. “While using one broker for all lines of business may seem efficient and work in a soft market, clients should now consider unbundling. Using a specialist broker for key lines of business to access more experienced broking capability can pay dividends.” And he concluded: “Broking in an erratic or hardening market is a very different prospect than operating in a soft market. It requires certain skills and experience to present a client’s risks and to negotiate with underwriters. Yet many brokers have seen their most experienced people – those experienced in complex and difficult risks – ebb away in the soft market. In today’s changing market, buyers should challenge their brokers. Ask them to explain how they can bring their skills, analytics and relationships to bear, and how to present your risks to an emboldened insurance market.”

Miller: Buyers should ensure brokers are ready for challenging market

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