Tough times for insurers are reflected in brokers’ frustration with everything from risk selection to regulatory issues
By John Deex
In the hardest of hard markets, with an unrelenting stream of catastrophe claims to deal with alongside covid-induced workplace disruptions, brokers’ frustration has – not surprisingly – soared.
The first Insurance News Broker Opinion Survey – completed by more than 200 intermediaries over the Christmas period – illustrates how the professionals who arrange cover for clients are being affected by the industry’s wide range of challenges.
In the interests of obtaining unfiltered reactions from those who might ordinarily rein themselves in from criticising their insurer partners, we decided to give brokers the option to comment anonymously.
While anonymity isn’t this publication’s preferred way of obtaining viewpoints, we decided it was the only way to overcome many brokers’ reluctance to provide an accurate picture of their issues and how the present environment is impacting on commercial customers.
Insurers struggling with some massive problems – rising reinsurance rates, looming capacity restrictions and record natural catastrophe claims to name just a few – have no choice but to impose tough conditions on the risks they’re prepared to cover.
The impacts have flowed on to brokers, and their answers are, for the most part, confronting. That’s hardly surprising.
Brokers say placing risks is no longer a case of presenting clients’ detailed risk profiles and negotiating to secure the best possible deals in terms of coverage and cost. They believe insurers have become risk-averse to the point that their underwriting criteria are now too low to meet market demand.
If a risk isn’t “vanilla”, then getting it underwritten has become a battle.
Concerns over risk selection practices are closely followed by insurer communication. “Getting hold of a human” is increasingly difficult, brokers say, and there’s a view that the working from home trend isn’t helping.
The wide-ranging survey reveals that claims service after catastrophes is an ongoing problem, insurers’ systems get a generally positive response, and regulatory change is seen by many as a distraction that gets in the way of helping clients.
The vast majority of broker respondents are paid by commission, and unsurprisingly they don’t think such commissions represent a conflict.
Several brokers with long experience say the state of the industry and market is the worst it has been in their careers.
While Insurance News has taken great care to accurately reflect the broker views we have received, it remains important to weigh their comments against the scale of the challenge faced by insurers. None of our survey respondents denied that the situation is complex and incredibly difficult.
The flood catastrophe of February/March 2022 is the most expensive insured loss ever recorded in this country, and it was supplemented by dozens of other events – some of which would have been considered significant on their own in any other year.
And just when insurers would ordinarily ramp up their claims response with thousands of extra staff, the country entered a period of extremely high employment, exacerbating the challenge.
Here is a summary of the broker survey results, broken down into key topics.
How do you rate insurer claims service in the wake of recent natural disasters?
Hundreds of thousands of flood claims in addition to business-as-usual pressures have taken a toll on insurers’ service levels, and brokers are feeling the pain on behalf of their clients.
When asked to rate insurer claims service in the wake of recent natural catastrophes, 40.38% say it is poor, 41.31% average, 8.45% good, 8.45% very good and just 1.41% say it is excellent.
This improved slightly when brokers rate insurers’ claims service more generally, with 27.23% rating it as poor, 46.01% average, 15.96% good, 10.33% very good and 0.47% excellent.
“Many claims and big workloads, but not enough repairers or materials,” one broker says.
“Unfortunately insurers have added to their burden by questioning everything and using inexperienced, unsupported staff to do it.”
Some brokers say they understand the pressure their insurer colleagues are under, with comments including “insurers can only do so much” and “it is understandable during a catastrophic event”.
But others are running out of patience.
“Some delays are to be expected and are forgivable but we currently have multiple claims where insurers simply will not respond or assist at all, even after many months of chasing them up,” said one.
“Even for claims unrelated to the disasters this has caused many issues whereby people make a decision on first glance and it is then extremely difficult to have it altered.”
Another said: “I get it, they haven’t got enough staff. But hey, that’s an issue they must come to grips with.”
On claims service generally, some brokers made positive comments, but most didn’t.
“We have seen a rapid decline in insurer claims service. They are no longer people-focused but in reactive mode and seeking to avoid key conversations.”
“Some insurers do very well, but unfortunately the average claims experience is well below the expected standard.”
How do you rate insurer communication?
The number of catastrophe claims has had a knock-on effect on brokers’ ability to easily communicate with insurers’ staff, with brokers reporting difficulties in getting to speak to people and wait times on the phone reaching an hour or more.
Some 30.53% rate insurer communication as poor, 45.07% average, 15.96% good, 7.98% very good and 0.47% excellent.
Talking to a person at an insurer is apparently very difficult (31.46%) or difficult (31.92%), with just 10% saying it’s very easy or easy.
“It’s so difficult at times to speak to an underwriter,” one broker writes. “Also I’m noticing a trend of insurers removing phone details from email signatures and other documents. That’s quite concerning.”
Many brokers make it clear that some insurers are better than others. But the vast majority of comments are critical:
“When they do communicate, it is fine. However, you have to call and email insurers approximately five times in order to get a response.”
“Communication with brokers during claims has been atrocious.”
“Not receiving responses from underwriters or claims for several days or even weeks is common.”
Some fear that the post-covid trend for staff to work from home has made a bad situation worse.
“Too many staff at insurers have developed bad habits of not answering calls during covid work-from-home conditions,” one said.
Another said: “Insurers working from home are 30% efficient.”
How do you rate insurer appetite for complex risks?
Appetite for complex risk
The harshest criticism of all is saved for insurers’ appetite for complex risks, with 68.08% of our broker respondents rating it as poor, 25.82% average, 4.23% good and 1.88% very good.
Brokers complain of a lack of experienced underwriters, with very few confident enough to make a call on more complex risks, and what some see as a hard market that brings insurers’ revenue increases just by standing still.
“Is there not an option for pathetic?” asks one broker. “They have developed a ‘keep what I have and get a 10% increase on renewals’ approach – hardly inspiring underwriting.”
Again, it can depend on the insurer, and underwriting agencies are singled out by some respondents as a good alternative to the mainstream.
But brokers say most insurers are focusing on “vanilla” risks and declining
anything that doesn’t fit into pre-ordained parameters.
“Certain insurers are always willing to look at risks and try their best. However, most insurers request you put the quote down via the portals and if they don’t fit, they don’t want it.”
The mix of business placed with insurers and specialist underwriting agencies varies greatly between brokers.
Most still place the majority of their business with local insurers, but the balance is changing.
“We are still at 70/30 [in favour of traditional insurers], but complex risks probably flip the other way,” said one.
“Anything complex is difficult unless you have access to the decision-maker at the underwriter. That is why there is an increase in the use of underwriting agencies.”
Brokers were asked to nominate the hardest risks to place, and the list is long and varied.
Some highlight broad categories such as property, farm, and liability, whereas others detail niche outlets or geographies that are causing major headaches.
Classes flagged include playgrounds, camp and caravan sites, timber pubs, tattoo artists, recycling facilities and buildings with expanded polystyrene panels.
The mining, construction and forestry industries also get a mention, along with medical liability and sexual molestation cover.
Property cover for bushfire or flood risk-areas continues to be challenging following Australia’s recent catastrophe record, and many brokers say any risk above the 26th parallel – an east-to-west line that marks the boundary between South Australia and the Northern Territory – is problematic.
Which recent regulatory changes are causing the most concern
Regulatory change and broker commissions
As far as regulatory changes go, design and distribution obligations, including target market determinations, are causing the most concern (30.99%), followed by the new Insurance Brokers Code of Practice (29.11%).
The vast majority of respondents to the Insurance News survey are remunerated through a combination of fees and commissions (93.90%), with only 7.98% of respondents believing commissions create a conflict of interest.
Even fewer – 3.76% – believe general insurance commissions should be banned.
Some brokers recognise the need for reforms, but many more see them as an unnecessary distraction that leads to more paperwork that clients don’t read.
“We need to ensure we operate with better than best practice at all times. As long as changes provide this opportunity and are communicated clearly for all to understand then there shouldn’t be any issues for concern.”
“Due to a few bad eggs, all this legislation gets thrown at us. Just overkill.”
“With all the new regulations it is a wonder anyone has time to write enough business to pay for wages.”
“[Target market determinations] are basically complete garbage. The majority of the time they just state the obvious.”
“Broker code is causing drama with clients. I get phone calls daily saying [clients] don’t have time to read all the documents we are sending. We are dealing with businesses that put trust in me to do the job for them.”
On commissions, brokers say they always put the client first and a commission paid by an insurer does not change that.
Some suggest a cap, possibly at 20%, but the vast majority of the survey respondents believe commissions don’t create conflict and should not be banned, although a minority – mainly younger brokers – prefer the fee-for-service model.
Many support full transparency, but some argue that it confuses clients.
“No good broker is influenced by commissions; good brokers care more about solving the client’s problem than any amount of money.”
“It is hard enough competing with every direct insurer on internet/banks now. If commissions were scrapped and brokers had to put a fee on every policy we would have a revolt with clients, as we have enough trouble now charging a very small broker fee.”
“I don’t see the underwriters reducing premiums to the extent commission is paid. A large number of clients would struggle with a fee for service when direct markets are available for no advice, exposing clients’ coverage.”
“Anyone in business earns an income, and commission is just the way brokers earn their income. When you buy a pair of shoes you don’t ask the retailer to disclose their profit.”
“Commission declarations seem to confuse clients – unsure what the benefit is of declaring them.”
“I am Generation Y. We want transparency. We want to charge for our professional advice. We want to be seen as our clients see their accountant and lawyer.”
“Fee for service is the future.”
Insurer systems received a relatively positive rating, with only 14.55% of respondents saying they are poor, 47.42 average, 22.54% good, 15.02% very good and 0.47% excellent.
Some are considered “intuitive and easy to use”, whereas others are “outdated” and “re-keying is an enormous task”.
The plethora of systems is itself considered a problem by some.
“You need a degree in IT to work 20 different systems,” one broker writes. “Bring back the old days.”
When asked what is missing from systems, the most common answer was “people”.
“Systems are great, but they do not underwrite.”
“Simple electronic business works well. If you have to speak to what they call an ‘underwriter’, good luck!”
We asked brokers to give their “personal view on the current environment” – a broad question that elicited a broad range of responses.
Some experienced brokers who have spent their entire careers in the industry have pointed out that the challenges faced at present by insurers – and them – are the greatest they’ve seen. A very hard market comes with flow-on effects, the most obvious of which is frustration.
“The worst I have seen in my 46 years of GI experience. Underwriters only want to communicate by email with brokers, they are often non-negotiable with terms and are at times impossible to contact by phone.”
“The hardest market I have experienced in 45 years.”
“Worst in 54 years in the industry.”
“I have worked in the industry for 30+ years and I haven’t seen the market as hard or as depressed as it is right now. At 55 I never spent a lot of time thinking about retirement, but I am now.”
Others strike a more balanced tone, noting the current catastrophe situation and staffing challenges.
“Some of the issues are understandable, such as insurers being reluctant to lose money on flood claims. Capacity is also genuinely scarce, demand outstrips supply and prices increase. These are commercial realities that people need to understand and stop whinging about.”
“Just really need cat events to slow down.”
“My view is that we are in the middle of a hardening market combined with some of the most selective risk appetites ever experienced. Major insurers all want the same risks leaving the hard-to-place risks without any market and significant premiums required to place the cover.”
“I believe that the market probably would have begun to improve this year if we did not suffer the weather events that we have. One year of low cat losses and a new market entrant could trigger rates to begin to fall.”
“Whilst it is challenging, I still see a bright future in broking.”
The Insurance News Broker Opinion Survey attracted 213 broker respondents. 30.05% are based in NSW, 24.41% in Victoria, 22.54% in Queensland, 8.92% in Western Australia, 6.1% in Tasmania and 5.16% in South Australia.
Some 67.61% of our respondents are licensed brokers and 32.39% are authorised representatives. The largest section of respondents work in a brokerage with 10 or fewer staff (45.54%), with 17.84% working in companies with 100 or more employees.