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  • Writer's pictureChris Burand

Will P&C Insurance Remain Relevant?

Of course it will because states mandate that people carry $X amount of insurance of varying kinds. Additionally, a huge number of contracts mandate people and companies carry insurance. It is pretty darn easy to remain relevant when someone else is forcing others to buy your product. The only question remaining is from whom the consumer will buy insurance. The insurance industry is not a complicated, rocket science like environment.

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The Insurer's email blast on April 5, 2023, quoted the head of global lines for Willis Towers Watson who said, “I think [buyers] are pretty irritated. They look at the sub-95 combined ratios that insurers are delivering year-on-year, while at the same time they’re having their terms and conditions reduced, and rates increased in certain lines of business. That starts to become quite unpalatable to certain clients.”


I could not agree more, although most combined ratios are slightly higher than 95. That being said, the good carriers are still making plenty of money. Keep in mind that hard markets are not hard because carriers have negative profit margins. For years carriers have proven to have an amazing ability to lose billions of dollars without increasing rates. Hard markets are caused by problems with surplus. Always remember this point.


Back to Mr. Swift's point that given what carriers are doing, insurance is becoming unpalatable to consumers. I would go several steps further noting that in many markets property insurance is simply not available and if it is available, it is not affordable for most normal people. If insurance is not available or affordable, then the insurance market is not relevant.


McKinsey & Company published a report at the end of February noting that commercial insurance carriers are not keeping up with their clients' risk exposures. I would state even further that carriers are not coming close to keeping up with commercial exposures because as a matter of fact they do not offer the coverages commercial clients need. The carriers keep offering coverage for extremely low frequency events like fires when their clients need robust coverage for cyber. Very few commercial clients ever suffer a fire, but almost 100% of them will suffer a cyber event.


Here are some other points that prove the P&C industry is marginally important and becoming less important because it will not insure the world as it exists in 2023. What mattered in 1980 does not matter that much in 2023 on the commercial side.

  • SwissRe advises that only 30% of cat claims were covered in the last ten years.

  • Per Karen Clark, the estimate of coverage after Hurricane Ian was $63 billion but the losses were well over $100 billion.

  • Capgemini advises:

    • Less than 25% of businesses feel their insurance coverage is adequate.

    • Less than 15% of consumers think their coverage is adequate.

  • 60% of personal lines customers believe they are inadequately insured (HUB Study, Oct. 2022).

  • Only 17% of intangible assets are covered (Aon Study, April 2022).

  • The average potential loss for intangibles is $1.2 billion versus $839 million for Plant, Property, and Equipment (PPE).

  • Intangible values have increased 255% since 2009 vs. 97% for physical assets.

  • The average value of intangible assets was $1.2 billion vs. PPE of $1.1 billion.

  • Per ipcloseup.com, the percentage of a firm’s value attributable to intangible assets increased from 17% in 1970 to 90% in 2020.

Only insuring 17% coverage for at least 50% of the value, with a frequency rate of virtually 100% of clients, versus selling off-the-shelf policies that cover 10% of the value with a low frequency rate is damning evidence the industry is not that important. Momentum is carrying the industry. As more commercial buyers wake up to this reality, they will find other solutions. In fact, a study by Deloitte last fall found that 80% of commercial clients are now willing to look elsewhere to find options other than traditional carriers and agencies for their insurance and risk management solutions.


Stop and consider the reality of the current climate. One of the leading brokers in the world is calling out carriers for price gouging (my words not his). A substantial portion of homeowners cannot get homeowners insurance either because it is not available or it is unaffordable. The industry only wants to insure yesterday's exposures. The majority of commercial exposures have no coverage because carriers refuse to offer the required products, particularly for intangible assets.


Going further, most agents do not know how to correctly sell business income insurance, much less cyber. I give agents a test before I begin teaching my proprietary business income classes to determine if they know the difference between revenue and income. Most do not and if you do not know the difference, you cannot sell business income insurance correctly. No one needs ignorant agents.


As long as agents and carriers make enough money, not much will change. That is just a fact and at this point, most carriers and agencies are still making enough money.


If you are an agent reading this article and you want to outperform and actually provide value to your clients, true value not the fake kind advocated by many consultants, learn your coverages inside and out. Learn about alternative markets. Learn risk management because if carriers will not provide the coverages insureds really need, your clients' only solution is risk management. Are you there to only provide, at best, half of a solution? If so, should you be paid only 50% of the commission you are now collecting?


If you are a carrier executive reading this article, might it be time to develop the intangible property coverages commercial clients actually need? Might it be time to reward those agents who actually deliver quality coverages and advice versus peddlers that just create claims issues when insureds discover they do not have adequate coverage?


I have heard carrier executives state they cannot offer coverage for intangible assets because they do not know how to value them. Let me help you. I am a Certified Business Appraiser, one of the most difficult certifications to obtain, and I have been valuing intangible assets for 30 years. Intangible assets are valued daily for all kinds of purposes all over the world. Regular run-of-the-mill appraisers cannot value intangibles, but specialists should be able to do so accurately. The valuation communities train hundreds of people per year to do this so no one even needs to reinvent the wheel. Therefore, valuing intangible assets for insurance purposes is quite feasible.


It is time to act. Only selling mandatory insurance is a dead end. The winners will be extremely low-cost providers focused only on price.


Selling the coverage people truly need, whether using existing products well like business income and cyber or creating new products is the path to avoiding uselessness. It is your choice to become a star and valuable, or share the fate of the dodo birds.

 

NOTE: The information provided herein is intended for educational and informational purposes only and it represents only the views of the authors. It is not a recommendation that a particular course of action be followed. Burand Insurance Education, Burand & Associates, LLC and Chris Burand assume, and will have, no responsibility for liability or damage which may result from the use of any of this information.


None of the materials in this article should be construed as offering legal advice, and the specific advice of legal counsel is recommended before acting on any matter discussed in this article. Regulated individuals/entities should also ensure that they comply with all applicable laws, rules, and regulations.

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