Financial R&R: The Importance of Carrier Relationships in a Changing Marketplace

Intro (00:01):
Welcome to Financial R&R, a show dedicated to financial insurance and risk management solutions and trends shaping the market today. Here are your hosts, Ron Borys and Ryan Farnsworth.

Ron Borys (00:14):
Hello everyone, I'm Ron Borys. I'm here with Ryan Farnsworth, and this is the Financial R&R. We're here today with two members of our Financial Institutions leadership team, Craig Goesel and Jennifer Sylvester, and the topic that we've chosen today to talk about is carrier selection in a changing marketplace. As we know, we're getting into the really busy season of renewals in May and June as we think about our responsibilities as brokers and the advice that we give our clients. Realizing that there's 30, 35 markets at a minimum, who knows tomorrow there may be more to choose from, and almost every single one is fairly interested in quoting business, whether it's primary or excess. Just understanding the qualities and characteristics that people should be thinking about, because again, we tend to be an industry very focused on price, certainly very focused and lasered in on coverage, but there are some other factors that people should be considering when deciding upon carriers. So, Ryan and I thought it would be a great opportunity to get some of our folks together and spend a few minutes sharing our perspective with some of the things that we've seen and some of the advice we'd love to give, right Ryan?

Ryan Farnsworth (01:17):
That's right Ron, and especially as there's so much talk around the changing marketplace and all the different dynamics that are within the financial institutions sector, forget insurance, but just within the financial institution sector, it's going to have a lot of impact on what insurers are looking to insure, how they're looking to underwrite certain risks, and having a significant amount of insurers to choose from can be overwhelming from our client's perspective. And so, what we want to focus on today is take it from the perspective of, if I'm a buyer of insurance for management and professional liability, cyber insurance type risks, what are the things that I'm thinking about? What should I be thinking about? What should I be socializing within my company with the directors and officers, with other risk management staff about how we approach selecting the right insurance carrier? So, Craig, I'll start with you. What are some things that you're talking about with your clients right now in this busy and active competitive marketplace in terms of how a client should be thinking about carrier selection?

Craig Goesel (02:20):
Thanks, Ryan. Without question, obviously price comes into it. You can't ignore the numbers, you can't ignore the pricing, and clients don't want to spend more than they need to. But it's easy to be seduced by the cheapest option on the table and forego long-term objectives and long-term relationships with carriers that have a commitment to the industry. So, to that end, when we're talking to our customers, we're obviously showing them all the options. And in fact, I'm sure we're showing them some very cheap options, but a lot of times when we're showing these various options, we're saying, okay, listen, you can save another $10,000, or 10% or 20%, by going with Market X. However, you've had a long-term relationship with Market A and there's money in the bank, you have continuity of coverage, we've already gone through the coverage nuances of this program. You have money in the bank so that if we ever need to lean on them for a favor or a gray line claim issue or a coverage issue, it's a lot easier for us to get favors done, usually, with markets that our clients have long-term relationships with.

Ron Borys (03:26):
That's great, Craig, and you used the term cheap, which is one of my favorite terms because as I like to say, cheap insurance gets really expensive when it doesn't do what you expect it to do. So, realizing that people focus on price, and we tend to be an industry that sells very heavily on price, which again, I understand especially in the environment we're in right now, certainly seeing companies during earning season announce plans to reduce expenses, whether it's through layoffs or other restructurings. But again when you think about what insurance is right; insurance is a promise to pay. Without getting cheesy, you think about when people make promises to each other, they take oaths, they take vows. We don't do that in the insurance industry, right? We issue contracts and, in many cases, as we know, those contracts can be very gray. We're constantly looking at the claim side, we're looking at underwriter responsiveness, we're looking at flexibility and willingness to negotiate. So, Jen, why don't you talk a little bit, what are some of the things that you think are most important to you as a broker to your clients? And as you're talking to your team, what are the things that you all are thinking about and looking at when it comes to insurer selection?

Jennifer Sylvester (04:35):
Sure. So, I think you definitely have to look beyond competitive pricing. You have to look to add value. We need to understand what the insurance carrier's appetite is for certain types of risks, their financial strength, claims handling, ability and behavior. And I think you really need to keep communication open with all insurers, not just be talking to them at the time of renewal or a claim situation. And you have to continue to evaluate the relationship and let go when you realize that relationship isn't working.

Ryan Farnsworth (05:11):
I think those are all great points, Jen, and it's a common nexus we cross between claims behavior, claims payments that are made by certain carriers, and then the placement considerations that go into it, such as price coverage and other policy structures as you outlined. And especially for a lot of our clients who don't experience a lot of claims activity going through a broker that's as experienced and as specialized in financial institutions and insurance for financial institutions as our team is, relying on the claims payment and the claims behavior of these insurers is going to be critical to advise our clients and help them find that more rewarding way to manage risk. Because if we're looking to transfer risk to an insurance policy or to a specific insurance carrier, and we don't have that knowledge of how that carrier is performing from a claims behavior perspective, yes, are they financially viable to pay claims?

Ryan Farnsworth (06:10):
Are they able to pay claims from a financial solvency standpoint? But what's their willingness to pay claims? And understanding what their common trends are: Are they apt to hire outside counsel quickly in going through the claims management process? Do they have coordination with their underwriting counterparts as they look to resolve and manage a claim? All these are signs and indications of how a client can make these decisions and align with what is the best partnership for them. Some clients are clearly going to be focused on price as number one, and maybe some of these other characteristics aren't as critical. But as you go through the marketing process, as you go through the renewal process, understanding each of these concepts and where insurers fall on the gamut of claims behavior, pricing, et cetera, it's all critical to talk through and analyze together with your broker.

Ron Borys (07:03):
Yep, great points. And as we know, underwriting liability risk is some of the most challenging underwriting that people can do, particularly in a segment of the industry, financial institutions, that seems to go through cycles. And certainly, what we're going through right now in the banking sector is what I would consider a cycle. Some of the challenges that the banks have come from identified areas of either governance or controls, but then some are just guilty by association. And if you think about where we were this time last year, some of these banks that you've been reading about in the news, they were some of the most sought-after banks by underwriters. There were people lining up at the door wanting to get on these programs, right? And as a result, pricing is very competitive and terms and conditions are rock solid, but then all of a sudden in the last two or three months, things get a little choppy.

Some people fall on hard times, and we've certainly seen some interesting responses and behavior. I would say for the most part really positive, right? And we had some of our large trading partners turn around to us and say, these clients have been with us through and through, they've been great payers, they've been profitable for us, and now is not the time for us to turn our back. But then there's certainly some people that reacted a little bit differently, maybe overanalyze certain positions, thought about certain things. Insurance is forward looking. We don't have the benefit when you think of all insurance, whether it's health insurance or life insurance or car insurance, it's forward thinking. You're underwriting to the probability of a potential outcome over a period of time. There is this mentality, unfortunately, that when somebody falls on hard times or even finds themselves potentially in a situation where a loss is paid, now all of a sudden the underwriter may be thinking about, well, now it's time for me to make my money back.

The reality of it is with the way this product is structured, you almost never make your money back. You have carriers that are taking millions of dollars, in some cases in risk and getting a less than 1% or 2% in exchange. They're banking on the fact that 90%, 95% or more of the time, those policies are going to expire without a single situation. And for the ones that do, the longevity and the profitability and the structure of the portfolio is going to allow them to support that industry class over a period of time. So, Craig, going back to you, how do you explain this to your clients? In our world, at Alliant, we have a lot of really smart, sophisticated executives at the decision-making levels, right? We try to explain to them our business; insurance is not always easiest thing to explain. How do you articulate that to those buyers?

Craig Goesel (09:36):
Yeah, thanks Ron. Clearly, we have very knowledgeable clients specifically in our group. Those that have their finger on the pulse of the financial markets and talking to them about the economics of the industry and economic factors that drive a soft market, help them make the right decision a lot of times. And those factors are that a lot of our trading partners aren't hitting budget, and so they need to drop their prices on programs that they thought were priced adequately in the past and or target industries and or accounts or programs that they would otherwise be uncomfortable with. And the problem with doing so is they might just have a short-term commitment, meaning this year, and not have a long-term commitment when we need them the most. You're talking about the banking industry, the markets that have been in the industry for the longest and those that are committed to the banking industry, hopefully have been those markets that have treated us and our clients the best because they know this is cyclical. They know these are cycles, but there are oftentimes carriers that sort of dabble in, in this example, banking or FinTech or something like that. And that's where they're going to get clobbered because the economics of insurance, if you're not all in as a market, it's going to bite you in the butt, right? At the end of the day, it's going to bite you in the butt. So, explaining that to clients that fully understand economics and financial situations and cycles, I think can help them make the right decision.

Jennifer Sylvester (11:02):
Yeah, I would add that also if we're talking about stacks, large programs of insurance, putting the carriers in the right positions, if you're running into a capacity issue, you don't want a historically difficult market being in the middle of your program. You want to put them up top where it's not going to create or disrupt the second half of the program.

Ron Borys (11:28):
That's a great point, Jen, because again, for a lot of our listeners, they may not understand that the way these programs are typically structured is you get a primary quote and then you start building up the tower and you basically need to get approval layer by layer as you work your way up. And typically, the underwriters above make decisions based on the behavior or the positions taken by the carrier beneath them. So, you may be on a great momentum here, and we've experienced this recently where you're on a great momentum in solving a problem for a client, and then you run into one challenging conversation, and it could blow up the whole tower. And in this situation, fortunately we were able to protect the tower and most of the carriers did the right thing and we wound up salvaging and getting the deal done for the client. I think that's a huge testament to the markets that have been on the program, the relationships we have, the relationship the client had, but extremely important for people to take that into consideration. Excess layers are not a commodity. I know a lot of people don't put as much thought into their excess program participants as they might into the primary, but claims handling, responsiveness, ability to be reasonable and practical and negotiate, these are all things that people should strongly be considering as they're building out their program.

Ryan Farnsworth (12:44):
And it happens too when you look at the actual policies that are in place, right? The policy that's bound when the policy period begins is that legal agreement between the carrier and between the insured. And it's our job as brokers to ensure that there's as much contract certainty as possible. And if you get any type of resistance from the carriers as you seek to negotiate those insurance policies, whether they be primary or excess, and you start to see some pushback from the carriers about creating contract certainty, that's red flag number one. We've talked about a lot of important things today, a lot of important topics. And Jen, I want to tee-up the last question for you; we talked about the short-term nature of some of these markets deciding what to do. But if you're a buyer of insurance and you have some short-term decisions to make on your insurance renewal, say between now and the end of the year, of all the items that we've talked about today, what are some of the most important, maybe the top two or three, that you would advise your clients to be mindful of this year?

Jennifer Sylvester (13:46):
Certainly, with what's going on with bankruptcies and the banking industry and what we saw there. I think claims paying in appetite for the unexpected is really important for when you're partnering with a carrier. I'm going to go back to communication, making sure your broker has regular communication with the markets, not just at a renewal or in a bad situation, but throughout the year. And whether that's making sure your broker has brokers assigned to manage those relationships and continuing to understand risk appetite at that insurer, and if those change over time and communicating that to the client.

Ron Borys (14:37):
That's great, and we're just about out of time here, but really want to thank Jen and Craig for joining Ryan and I today. For those of you listening, we've been doing a lot of this, we have a lot of perspective. We're obviously very limited in what we can share here but would love to talk further if anybody has any questions or wants to drill in a little bit deeper on some of the things that we've experienced. If you're interested in learning more about Alliant and our business, you can visit our website at www.alliant.com. But again, Ryan and I say this pretty frequently, really fortunate to have two professionals, Craig and Jen, as part of our Financial Institutions team advising our clients and out there on the front lines serving the needs of clients while also trading fairly and responsibly with the market. Just can't speak enough to the importance of your perspective, and we really appreciate you taking the time to join us.