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Fiona and Snow Birds

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Paul Martin and Colin Rooke discuss the implications of natural disasters like Hurricane Fiona on the insurance industry.

Listen to the full episode here, or read the full transcript below.

Paul Martin:

Welcome to Risky Business, Commercial Insurance with Butler Byers. I’m Paul Martin, the host of this show and the business commentator on CKOM, and joining me as always our resident expert, the risk reduction specialist with Butler Byers, Colin Rooke. And Colin, welcome back. It’s great to chat with you again. And one thing about this program is we can follow current events pretty closely. So the thing that’s kind of been capturing attention from an insurance perspective anyway for the last little while is severe weather, more particularly Hurricane Fiona in Canada, and I guess Ian in the US as well. But hurricanes are top of mind and I’m wondering whether, does that have any implications for people in Saskatchewan where we don’t have any hurricanes, but do we need to be thinking about it anyway?

Colin Rooke:

Yeah, I mean, unfortunately we do. The data is out for Hurricane Fiona from the Insurance Institute or Insurance Bureau of Canada technically. And the insured estimates as of now are about 660 million in insured damage. Now that’s actually a relatively small figure compared to the actual damage, just due to the high number of homes that would be in flood plain areas where they actually couldn’t receive any hurricane or flooding insurance. So there’s a lot more damage out there and a lot of it’s going to fall the government. But yeah, 660 million in insured damage puts Hurricane Fiona as the costliest extreme weather event ever recorded in Atlantic Canada. But even more so Hurricane Fiona is now the 10th costliest extreme weather event ever. And again, that estimates only going to rise. And the biggest issue, I guess, for the insurance market and then ultimately the policy holder is just the frequency and severity of these weather events and how we just keep breaking records. Each year seems to be incrementally worse than the year before. And that’s not good, certainly for a property policy.

Paul Martin:

I mentioned Hurricane Ian when we were starting this and we’ll probably talk more about that a little later in the program because we do have another topic to look at and that’s about travel in the winter time. But as I look at this, I get the sense that there’s just been kind of year, after year, after year, isn’t it, that we’re getting these massive events the wildfires and floods in BC or Fort Mac or now hurricanes. The insurance industry’s been taking it on the chin for some time. And this is just one more. I’m wondering how the industry is holding up financially, like what do the treasuries look like and what does that mean for the rest of us?

Colin Rooke:

Yeah. So it’s a really good point. And again, with Hurricane Fiona being in the top 10 for natural disasters, for insurance payouts, and again, we’re early days, the real issue is the insured amount, these catastrophic losses, they keep growing in nature. As a good example, in the last three years, each year, catastrophic losses has exceeded two billion in insurance losses annually. And that number unfortunately keeps growing. It used to be a rarity, like you talk about the wildfires of Fort Mac, I believe that was 2016 four billion. And if you look throughout history, we’ve had some extreme events that of course have crept up, but they were separated by 10 years, 15 years, seven years. But now you look at recent events and again, total insured losses and it’s a bad trend. And again, when you’re looking at a property policy and all the Canadian domicile insurance markets, I mean, they’re all going to have a hand in Eastern Canada and the Maritimes. And so everyone’s affected. And so unfortunately, unless this trend turns around, I don’t see any real relief on property policies.

Paul Martin:

Sometime back when we were first talking about these things, say two or three years ago, I think you threw out some numbers back then that said insurance companies look to pay out 60 some cents for every dollar premium that comes in. Have they been able to keep up the premium increases to be able to cope with these big catastrophic events that you’re detailing? Or should we be expecting that the insurance companies are going to have to rebuild their financial balance sheets, their treasuries, and that rates have no option but to go up in a general context?

Colin Rooke:

Yeah, exactly. So although 2022 has proven to be a better year than 2020 and 21, we’re still a ways away from profitability. And certainly when you look at certain sectors like well, residential home insurance, and that is the challenge for the industry, that if they can’t return to profitability, if they can’t return to that sort of 60, 70% combined loss ratio and back into the profit, they really have no choice but to increase rates. Now if you’re saying, Well, yeah but I’m an Saskatchewan, I’m no where near a body of water. I didn’t suffer any effects from Fiona whatsoever. Why am I being penalized? I mean that would hold true if you were with some of the smaller insurers, some of the mutuals, that sort of thing. But I mean if you look at these large national insurance companies, the impacts from, again, the maritime, they’re certainly going to affect your policy here in Saskatchewan as they work to recoup insurance claims payout.

Paul Martin:

As we’re talking about this, we kind of created the impression, I think that this is mostly for homeowners and the residential side. I’m guessing that if you’re a property owner in the commercial side, if you’re a business you own a property, you’re probably going to feel the same effects here. Correct.

Colin Rooke:

You are. It’s strange. So when you look at Hurricane Fiona, and again, I won’t comment on, this is a broad statement, I don’t want to comment on every insurer in Canada sort of thing, but overland flooding, the impacts of bodies of water, it’s an easier coverage to get on a commercial policy. So when you look at the damage from Fiona, we are in a large part, sorry, when we’re talking about uninsured damage with Fiona, it’s going to be primarily homeowners that just really weren’t able to get this type of coverage. However, again, it’s all part and parcel. Right. At the end of the day, they’re going to say, Well, certain segments of our portfolio are more profitable than others. However, if overall a big insurance company is losing, they’re just going to have to make that up.

Paul Martin:

So generally speaking, a hurricane anywhere is not good news even if you’re in Saskatchewan. And I think about as we’re recording this, we had Fiona, we had Ian, there was a new one that just hit the west coast of Mexico and last year was considered to be a quiet hurricane season. Looks like we’re going to have a fairly active one this year. In all likelihood, we’re just beginning to talk about this story, right?

 

Colin Rooke:

Yeah, absolutely. And I don’t really have a solution. It’s going to take a lot of involvement from government and cooperation with the insurance industry, but until we can figure out sort of accurate pricing and work together on sort of where homes are permitted to be built and new construction and climate change, again, I don’t see this problem going away anytime soon.

Paul Martin:

So Colin, if I’m reading between the lines, is this kind of the first flag that goes up that says, here, put you on notice that we might be heading back into that hard market again?

Colin Rooke:

Yeah. Again, large insured losses, what they do is they’re a great reason, they’re a great rationale. I’d say, Paul, unfortunately the property insurance is going to go up another 30% this year. Reason being insured losses out in the maritimes, I’m sure you can imagine. And so it’s a good segue into the conversation as to a rationale for the increase. And so again, I’m not suggesting in any way that they’re not true, but it makes the rate increased conversation easier. And I think that insurance companies will use this as a means to, again, have rates creep up further.

Paul Martin:

Yeah. And people will attribute it to inflation. But in fact, it’s probably more about claims experience. All right. We got to take a little break, Colin. So if you don’t mind standing by. You’re listening to Risky Business, Commercial Insurance with Butler Byers. I’m Paul Martin. Back after this. Welcome back to Risky Business, Commercial Insurance with Butler Byers. Paul Martin here joined by Colin Rooke, the commercial risk reduction specialist with Butler Byers. Colin, before the break we talked about what the impact of hurricanes will be on premiums going forward, but I want to change subjects completely. It’s that time of year when there’s a little bit of snow in the province now and people are starting to think about snow and put the word bird together and those who can go South and the migration is about to begin. But and I’m just wondering if you’re a snowbird going South, clearly it’s been a while since we’ve done it. Just a reminder on what are all the insurance things you need to be thinking about while you’re away?

Colin Rooke:

Yeah, it’s funny because we think about, well, wouldn’t snowbirds sort of have their routine, a fixed routine and be aware of all the steps they need to take when they get ready for the big trip? But then you think back to COVID and it might have been quite some time since the last trip down South or trip anywhere for that matter. And so I think it’s important to just talk about some of the things that yeah, you need to think about. For example, when you are planning an extended trip, it’s very important that you talk to your insurance broker and explain, I’m going away for quite some time. It could be 90 days. What do I need to do? So that’s at a high level. Now, very specifically though, you’re going to want to think about, okay, there’s the traditional travel policy for short trips and then there’s more comprehensive policies for these extended stays.

And the policy is quite different. So it’s very important to talk to your broker about things like medical coverage including hospitalization and treatment, emergency return to Canada, reparation of a remain, things like that. Things that you may not have thought about in a long time. And again, certainly if you’re over 55, make sure you’re getting all the information you need around your health and what types of policies you need to purchase or what coverages you want to add in based on your extended trip. And again, just again, a reminder that very different from just a short term travel medical type policy.

Paul Martin:

Now, we always talk about commercial stuff here, but I’m assuming that Butler Byers is a qualified supplier of advice and policies for anyone who’s looking to travel for an extended period of time down South. But my guess is there’s likely some things that we assume, we just assume it’s good. If I take my car down to North Dakota for the weekend or something, my plate insurance covers me, blah, blah, blah. Is it the same thing if I’m going for all winter?

Colin Rooke:

Yeah, really good point and speaking of hurricane. So if you take a trip to the United States as a one-off, using the United States as an example, you do a oneoff trip. You are for the most part okay, and I say for the most part because I don’t want to comment on every auto carrier in Canada, but in a broad sense, you are okay to take your vehicle for a short trip to the United States as an example. Where you run into trouble though is again on an extended stay.

So if you say, Paul, I’m going to get out of here, I’m going to head to Florida for the winter and I’ll see you in April. And you bring your vehicle and you don’t mention it to your broker who in turn tells your auto provider that you’ll have a vehicle down there. When you phone your broker and report the claim and say, my SUV is completely underwater, what do I do? The insurance carrier’s going to say, well, we had no idea you were down there and we had no idea the vehicle we had insured is down there and we do not intend to pay for damages for a vehicle that was out of province for more than 60 days in this case. So again, very, very important to notify your broker on the vehicle. And there’s also a lot of strategies that you need to think about around your home condo belongings as well.

Paul Martin:

Yeah, I was going to go there. I mean, so if I go away for let’s say three months, I know in policies, in my experience, 21 days is something that kind of works on the medical side, the emergency medical side. Is there commonality? Is like 21 days when I should be calling my brokers, 60 days? I mean, what advice do you give to people about when do you want to be notified? I’m sure you don’t want to know about every weekend excursion across the line just to go for shopping, but your office would be inundated. But at some point, what advice do you give people about when you should call and when you shouldn’t call your broker?

Colin Rooke:

I think the biggest thing is the advice. If we’re talking about home insurance as an example, if you don’t know what you’re supposed to do, if you don’t know the ins and outs of your policy, I think it’s, well is very important that you reach out to someone and you ask those questions. Again for, well, in some cases short stays, but even extended stays, if you don’t have a plan to have someone check on your home regularly, you may find yourself in a situation where you’ve had a loss that would normally have been insured, but for whatever the reason you didn’t have someone look at your property, looked for broken windows, vandalism, burst pipes, that sort of thing to ensure it was winterized properly, you may be in a situation where you’re facing a decline.

And so for the seasoned snowbird traveler, I’m going to say most would a system in place to look after their belonging. However, if you haven’t thought about it in quite some time, or maybe you’re a new snowbird, maybe you retired during COVID and this is your sort of first extended trip and you’re not sure what to do about your home, reach out to someone and ask them, what do I have to do and what happens if I don’t do it and how much and how often? Just to make sure that when you come back from your extended stay, your home is intact, or at least in the event of a loss, you’re not looking at a denial.

Paul Martin:

I think you’re saying communication is a powerful tool in all of this and that deal with your broker more than once a year when your policy comes up for renewal. Actually they should be somebody that you talk to two or three times a year depending on your circumstance.

Colin Rooke:

Absolutely. And things change all the time. So again, with this, I call it the travel break from COVID, it’s really important to ask, has anything changed? I haven’t gone to Florida in some time. Is there anything new that I need to know about? And just get the proper information before you go. And that way again, you can enjoy your trip and rest assured that your belongings are protected.

Paul Martin:

Well, and I’m guessing from an insurance company’s perspective, and we’re just about out of time, so I’ll ask you for a quick response on this, but the demographics are the demographics and the baby boom generation is getting old and it’s a big bulge in our population. I’m assuming that this conversation around snowbirds is getting far more frequent because there’s just a bigger volume of people that are in a position to take advantage of getting away in the winter time.

Colin Rooke:

It is. And from my perspective, it just means a lot of vacant houses that may or may not be looked after. And so find someone, or if you’ve got friends work together, someone’s going to have a grandson that you can pay to every other day just check the whole group. Again, put a plan in place. If you have any questions on what to do, what travel medical insurance do I need, what do I do about my vehicle and certainly how to protect my home, reach out to someone at Butler Byers or your broker and get the proper advice you need. And just recognize that things have changed, things do change, and you may have fallen out of your routine.

Paul Martin:

Colin, as always very insightful information. Thank you very much, and we’ll talk to you again next time. You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers. I’m Paul Martin, this is Risky Business. Thanks for joining us.

Building Values

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Paul Martin and Colin Rooke discuss the connection between insurance and value.

Listen to the full episode here, or read the full transcript below.

Paul Martin:

Welcome to Risky Business Commercial Insurance with Butler Buyers. This is Paul Martin, the host of this show, I’m also the business commentator in CKOM, and joining me, my regular expert on this topic, Colin Rooke, the commercial risk reduction specialist with Butler Buyers. Colin, since we last talked, lots of big headlines, but the one on the commercial front that at least has been getting a lot of attention, and it’s almost like it just feels like this giant wave that will never break, interest rates and inflation, and all of the costs that are going up around, everything from supply chain interruptions, which elevated prices to the cost of money to you name it. I’m guessing that insurance is no different than any other sector of the economy that inflation has a bite here or has some implications. And often, we find in business that there’s a symptom and there’s an ailment. And so sometimes those two things are different.

We look at the symptoms all the time, but there’s ailments too, and what’s happening here? Are there things, aspects of this inflation story that your insurance customers are missing out on or not really on top of that we need to perhaps elevate today in today’s show, and bring their attention to it?

Colin Rooke:

Yeah, absolutely. We talked about the, in a previous show, inflation and how that’s going to impact the pricing around commercial insurance. We talked about the marketing or the market, sorry, is softening, or at least we’re seeing some normalization when it comes to rate. However, you still have clients saying, “Well, I don’t understand, why are my premiums still going up?” And we say, “Well, there’s the rate and then there’s the values. And so if we’re changing the value on the policy, but the rate assigning that value remains the same, you’re still going to pay more.” So we walk through that, but really I think it’s important to dive a little deeper and say, “Okay, well how do I know my values are right? What should I do? What’s going on in the industry and how that’s going to impact me?” And the biggest factor is insurance to value, and specifically when we’re talking about owned property and, then to a lesser degree, equipment and stock.

But it’s a term that’s brought up all the time in our industry among brokers and underwriters, and it’s a constant point of discussion. And it really means, insurance to value means that you are required to carry enough insurance to rebuild, call it, a building, with new like materials in today’s age, meaning you’ve got an old building, you’ve now got to bring that up to code, there’s different types of materials. And so certainly when you have, call it, out of control inflation and you’ve got input costs on the rise across many sectors, all sectors, really, it’s very important to make sure you’ve taken a look at the value of your building and you understand that we have the right number of value assigned, or in the event of a claim, you could be looking at a significant shortfall.

Paul Martin:

It’s an interesting thing because you talk about a double whammy, that business owners need to be on top of, which is rate increases, but also value increases. So it’s not one or the other, it can be both. And there’s no question we’ve seen the cost of construction go up, whether that’s for materials or now we’re increasingly seeing it in labor because of the labor shortages that are out there and prices are going up on that side too. How often should an insurance customer or a policyholder be getting ahold of you to say, “How often do I need to update these values?” Is it annual, Is it twice a year or is once every three years good enough? I mean, can you guide me on that a little bit?

Colin Rooke:

Yeah, so it’s really important that every year you’re having some discussion on values and what’s taking place in the marketplace. In fact, roughly 70% of commercial properties in Canada today are underinsured by 40% or more, to give you an idea of the magnitude of this problem. And so it’s important that you’re having that discussion, but then it’s also important, it’s not just good enough to say, “Well, we should have this talk, Colin. What number should I go in at?” It’s really important to bring in the experts too and have proper building appraisals done if you haven’t. And we would say on, call it, during regular times every three to five years, but now that we’re in this position of rampant and inflation and increased construction costs, I would recommend, frankly, you might want to do it every year or so, or make sure you’re working with a property evaluator or an appraiser that will give you ongoing updates.

So you may not need to do the whole valuation, but at least you’re getting market updates year over year, that based on what we saw, you should add 8%, you should subtract 7%. Something from a professional that says this is the number that we should be using. And you go from there.

Paul Martin:

I’m guessing that this leads to a failure to be this proactive, to have this independent third-party analysis done probably leads to all kinds of arguments between those who hold insurance policies and the insurance companies in the event of a claim. Am I right on that? Or I’m just guessing at that, but I’m assuming that this has the potential for all kinds of arguments.

Colin Rooke:

It is. And what we see all the time, you’ll speak to a client or a prospect or you’re doing the renewal and they say, “Oh yeah, we’ve done that. I’ve spoken to my commercial realtor.” And then they looked at neighbouring properties and the value they’re suggesting is $1 million. The problem with that, and it happens all the time, is that’s considered market value. That has nothing to do with replacement value, insurance to value. So what you could sell your building for in the open market is based on elements like lot size, building condition, location desirability, that sort of thing. The cost to rebuild that piece of property, regardless of market conditions, is irrelevant. And frankly, often there’s a very large spread. We also run into the same similar, I guess, rationale, let’s say, “Well, I pay property tax and my new property tax amount is based on the assessed value. And so that’s what I want to use, again, for the reconstruction cost.” But again, that has nothing to do with building codes, new like materials, debris removal, architects, engineering, all that would be required to rebuild that structure.

It’s just based on, frankly, an outdated models that municipalities use just to assess what they should be charging you in property tax. So again, if you’re relying on either of those numbers, you’re probably, again, going to run into a situation where there’s a claim and there’s a significant gap in coverage.

Paul Martin:

I hear you saying that, hey, we’re in an inflationary environment right now, and prices are going up quite a lot over a wide range, and not everything, the price of lettuce does not go up at the same pace as a price of a house. So I mean, you really do need to be conscious of this, and it’s just plain good business management to be on top of it and update your own balance sheet, and just take a look at what properties do I own and what’s a current valuation on them. It’s really just good prudent management, isn’t it?

Colin Rooke:

Yeah, it is. And one more shortfall too that you’ll run into is insurance companies will add inflation, as we discuss, in most cases, at renewal to make sure that there’s some attempt to keep up with, again, rising costs. But those are set and often they’re set Canada wide, and so they’re not designed to ensure your building is properly insured, it’s just designed to do something. So usually, renewal inflationary increases are 3 to 5%, and that’s okay for the most part, but when you run into situations like we’re in today, and we have, again, the insurance company saying, “We’ll just add 3% every single year to the building equipment stock,” you’re going to realize that there could be a sizeable shortfall using that method.

Paul Martin:

Well, on a fascinating conversation, we’ve got to take a little break and I do want to pick this up when we get back because you raised some very interesting points here. You’re listening to Colin Rooke, the commercial risk reduction specialist with Butler Buyers. This is Risky Business back after this.

Welcome back to Risky Business Commercial Insurance with Butler Buyers. This is Paul Martin, and joining me, Colin Rooke, the commercial risk reduction specialist with Butler Buyers. Before the break, Colin, you raised a very interesting, excuse me, an important point, I think, which is not all markets are alike. Insurance companies tend to set prices for a national experience. But let’s face it, the price of buildings in Toronto is different than they are here. And prices here have been quite stable, prices in Toronto are starting to fall. So as a business owner and a property owner, you really do need to stay on top of your own individual circumstances. You simply can’t rely on the insurance company to come up with a blanket national figure, you’ll miss the mark.

Colin Rooke:

Yeah, and you made a good point too, that when you work with a property appraiser, it’s not all bad news. It’s not just every single year, it’s up, up, up. So you could have market conditions increase where the value of your building has increased should you sell it, however, construction cost can and do often decrease where the update they’re providing would be you are significantly overinsured. And so it’s really important to wrap your head around, I want to make sure I’m buying what I need, nothing more, nothing less. And this isn’t just a gimmick to say, “Well, we want you to just keep adding to the value and paying more and more and more with no end in sight.” It very much and often does decrease. For example, if you looked at the cost of lumber from about 18 months ago to today, now, the cost of lumber still is over from three years ago, but it is half that from 18 months ago.

So in the event, again, you had regular building appraisals completed with updates, your building could see a decrease just based on the pricing of lumber alone. And so again, it is good business practice and it’s part of our risk assessment process where we talk about these things. Are you keeping proper appraisals? And then here’s the reason why, and here’s how it’s going to impact your business long term. And then from there, we categorize that into physical risk and we work on a plan to address those.

Paul Martin:

That’s an interesting point because one of the things that’s going around in the back of my head here is if Colin’s giving me advice that, while it makes sense and all my other suppliers are telling me similar things, “Inflation has changed the landscape,” and I got so many duties and responsibilities to keep up to I’m not sure I can, and still run my business at the same time. So I’m wondering, you alluded to this I think, but I’d like you to clarify, your risk reduction system, your step-by-step plan actually provides some support for me as a policyholder to A, get reminders, but B, just to stay on top of this thing.

Colin Rooke:

Yeah, absolutely. Our risk reduction system is designed to cover business risk, which is anything that impacts day-to-day operations. We address strategic risk, so anything that would impact long-term viability, and we also talk about physical risk, anything that would cause a physical loss to the business. And proper building valuations is part of that physical loss, so it’s part of every risk reduction workshop we will walk our clients through to say, “Are you up to speed? Are you doing this? Are you uniquely aware of the value of your buildings? How often are you looking at it? And then here’s the potential physical risk to you should you choose to do nothing.” And that’s all part of our process of identifying risk, organizing risk in a different categories, quantifying risk. So that’s us saying, again, here’s the cost of doing nothing and then prioritizing risk where we say, “Okay, from going through this process, we feel as a group, not just us telling our clients, but we’ve agreed together there could be a significant shortfall on the value of your property. And so item one is going to address that quickly.”

Paul Martin:

Yeah, as I’m listening to you, I’m thinking this just makes so much sense because market conditions change and we need to be not on top of them only for, if I could call it outward looking stuff, business we’re trying to generate, but also to protect the assets that we already have inside our organization are already listed on our balance sheet. And I guess I’m going to come back to this what can Colin do or what can Butler Buyers do to help. And what are you encouraging your clients to do or prospects to say, “Dial us up, we’ll have a chat on this”? I’m guessing you just say, “We’d welcome the opportunity to have that conversation.”

Colin Rooke:

Yeah, absolutely. It’s all part of our risk reduction workshop. If anyone has any questions on the process or specifically just wants to talk building valuations, they can reach out and we’ll walk them through and we’ll give our opinion on their current level of preparation and the potential value of their properties.

Paul Martin:

If, like everything else in this economy today which is being stretched, we simply don’t have enough human resources to go across the waterfront, you’re hearing about job vacancies, that kind of stuff, am I right in assuming that probably those who are charged with property appraisals are feeling the same kind of pressure? And so I actually need to get organized about this and make an appointment, I can’t just phone them and say, “Can you come over in 20 minutes?” I’m guessing that their dance card’s pretty full too. Is that your experience?

Colin Rooke:

Yeah, I mean, that’s a good point. Like anything, it’s one of those ‘Get to it now’. Because if you’re listening to this show and saying, “You know what? I think I’m underinsured. And in fact I really haven’t thought about this and I got to get to it.” Like anything, you’re right, there’s going to be probably a longer runway. I mean, there’s some fantastic firms out there and they will, I think, prioritize based on urgency. But you’re right, anything, you should give it plenty of time.

Paul Martin:

Just wise advice here, just be on top of the files. And I guess if nothing else, this program today just reminds people of another thing they need to look at when they’re any business owner or chief financial officer or someone that’s responsible for the insurance purchases at their business, that, yeah, here’s one more thing to put on your list. And this program identifies a lot of those, but this is a new one and it’s a direct result of changing market conditions, and what we call inflation.

Colin Rooke:

And if I can add one more thing, in the event of a loss, you’re required to rebuild the building, call it, with like material. So for those out there with an old historic or heritage building, you might think, “Well, the market would pay me a million dollars, but the reconstruction cost might be 15 due to the materials it was made from.” For example, imported limestone rock. So if you fall into that category, you own an old building or a building with unique features and you haven’t done this, you need to get on it.

Paul Martin:

Colin, as always, very insightful and timely advice and just great reminders for those of us who are in business. You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Buyers. This is Risky Business, I’m Paul Martin. Thanks for joining us, and we’ll talk to you next time.

Pricing Update and New Cyber Threat

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Paul Martin and Colin Rooke look at what is inflation doing to the insurance market.

Listen to the full episode here, or read the full transcript below.

Paul Martin:

Welcome to Risky Business, Commercial Insurance with Butler Byers. This is Paul Martin, the business commentator on CKOM and joining me today, Colin Rooke, the commercial risk reduction specialist with Butler Byers. And Colin, we’ve been covering the waterfront lately. I mean, there was a time when we were doing these shows, it would always be about the same thing, because there was these flurries of activity that had many angles on it that we’d have to … it would take us weeks to get through it all. But I thought, well, let’s step back and take a look at just those big picture business issues we’re hearing these days. I guess those are related to labor shortages, inflation, that’s the big one, inflation, pricing, market conditions, all of that.

Can we take a minute to take a look at what is inflation doing to the insurance market? And I guess probably about a year ago, we spent a lot of time talking about something called the hard market. We haven’t talked about that for a while, which my newsman’s senses are tingling on that. If you don’t talk about something for a year, it’s probably gone away. So, has it gone away? I mean, what is the hard market versus soft market? What it’s doing with inflation? And let’s just do an update on how’s the insurance industry faring? And as a consequence, me as a buyer of insurance, what am I facing when I go to talk about policy renewal?

Colin Rooke:

Yeah, that’s a very good topic. And for anyone that has been involved with the purchase and placement of insurance, whether it’s for a commercial policy or in this case, even a personalized home insurance policy, you’ve seen prices increase. And you’ve probably been told that we’re in a hard market, COVID has certainly impacted that, but really not as much as claims have. I mean, COVID really was just bad timing. And so, we’ve spent a lot of time talking about, okay, why are my costs going up even for good, risk managed businesses? Why every year am I just seeing increases regardless? We’ve talked about, even though prices are going up, do you want to be the one that gets the 80% increase, or just the 15% increase? And we’ve explained the impact on the overall premium.

What’s changed now is, for some time there are signs that the marketing, or that the market sorry, is shifting or is becoming stable. We are not in a soft market yet where you’ll see insurance companies with a lot of capacity, a lot of cash, gobbling up business. When they do that, you see rates race to the bottom, which most people appreciate. But what we’re seeing now is as is renewals, or slight decreases, or very slight increases, we’re not seeing as much, and again, there’s certain lines that would fall outside of this statement, but just from a broad perspective, we are seeing rates stabilize.

Now, that doesn’t mean though that your insurance renewal is going to be at zero increase. Where inflation plays a role, again impacts the overall pricing. So, there’s the rate you pay and then there’s the number that goes into that formula.

Now, if you’re building valuation, the cost of your stock is increasing with inflation, we have a larger number going into that rate formula, which hasn’t changed and therefore you’re still seeing increases, but it’s very important to separate what the insurance market is doing versus … and really out of the control, I guess, of the consumer, and then the customer side or the role they would play in the overall increase. Meaning, if you had a million dollars worth of stock and due to inflation, to replace that would be $1.2 million, you do have the option of just reducing your inventory levels. That would stabilize your premium, but it’s really important, and certainly if you’re dealing with a broker that’s focusing on education first, that you understand there’s two sides of a premium increase.

Paul Martin:

So, it’s the typical make sure you’re looking at both sides of the coin and don’t get confused about left hand versus right hand. There’s two components here. One of them’s playing in your favor, one not so much.

Colin Rooke:

Yeah, absolutely. We have had a lot of questions around the, okay, well, what’s going to happen to my policy if inflation decreases? If the current rising interest rates causes people to borrow less, will the cost come down? Absolutely. If your inventory, that used to be a million dollars is now due to inflation, $1.2, and now that same … you can buy that same amount of goods for one or less, we would adjust the policy and you would save that additional premium.

And so again, it’s just really important that someone explains. And if anyone has any questions on how that works, that you understand that it’s not all insurance companies getting rate. There are all sorts of factors outside of their control that are causing the premium to increase. And again, I touched on home insurance. I mean, that’s certainly the case. You look at construction costs now and in this province, SGI is a very large player in home insurance. Well, again, there’s SGI saying, “We need to get more rate on your home,” and then there’s just, your home would cost another 30% more to rebuild, therefore you need to pay more. And so very, very important distinction. Now unfortunately, it’s still all turns into more cash out of pocket. I’m just more or less bringing light to who to blame for it.

Paul Martin:

And it’s always good to understand when you dissect your premium costs, what’s impacting and what can you consciously make a decision about and what really is beyond your control. And that’s the price of cabbage in the marketplace today. I think your point here, that there is a difference between rate and inflation, and that’s the point you’re trying to make, that there are these two elements that go into the calculation, but as you were talking, I couldn’t help but think that if the value of my inventory goes from $1.2 to $1 million because of lack of inflationary pressure, what’s happening to my insurance premium’s irrelevant. My inventory just went down by 200 grand, that’s the story, isn’t it? I don’t want to get caught with inventory that’s overpriced.

Colin Rooke:

Yeah, absolutely. So, I would say now, it’s more important than ever, to make sure you’re having regular conversations with your broker and that you truly understand how the costs associated with your policy are derived. You do want to make sure too, that if the value of your inventory has decreased, that you aren’t continuing to pay for again, a premium on inventory or dollars, that just aren’t there. So, it’s important that you’re monitoring. If you’re in the construction industry and everyone’s talked lumber, and maybe you’re a lumber yard. Well, as the price increases or decreases, it’s important to let your insurance provider know, so you’re paying an accurate amount, whether positive or negative.

Paul Martin:

Well, we’re going to take a break here in a second, but I just want to, before we change topics, I want to capture of the headline here too, in that you’re saying we are moving off of the hard market and we’re in that shift towards the soft market right now. Did I get that right?

Colin Rooke:

Yeah, absolutely. So, I had a situation where I told a client that, “Hey, great news, your rate’s decreased.” He said, “So my premium is less.” “No, it’s way up.” “Why?” “Because of the value of your inventory.” But pricing relief is here and assuming that inflation is reduced, there would be relief and I see good things coming.

Paul Martin:

All right. Well, good news at last. You’re listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers. We’re going to take a little break. We’ll be back after this.

Welcome back to Risky Business, Commercial Insurance with Butler Byers. Paul Martin here, your host and joining me, Colin Rooke, the commercial risk reduction specialist with Butler Byers. Before the break, we were talking about changing market conditions. And so, what insurance buyers and your clients, commercial customers, will be … what issues they have to digest as they go forward. But now I want to shift back to a more common subject for us, unfortunately, which is threats.

And cyber security, cyber threats have been … they’ve just been rising in terms of frequency, costs, size, headlines. We’re getting lots of stories, big companies getting caught up in this stuff. But I gather that, just like everything else in the world, the criminals get better at what they do too. And there’s a new threat out there and it is getting far more sophisticated and going to be much harder on you and I to protect ourselves against these things. You want to talk about that one?

Colin rooke:

Yeah, absolutely. And you’re right. If you’re in the cyber crime business, I mean just like anything, you’re working to continuously improve. And so, what worked six months ago may not work now. So, you’re always brainstorming to find better ways. And in some cases, and this is one of those threats, in a way you’re reinventing the wheel. So, when you talk traditionally to the lay person around the idea of malicious code, or to use an old term Trojan horse, the idea of clicking a link comes up.

So, a lot of people associate cyber crime with, “Oh yeah, I got a wonky email. They wanted me to click a link. I didn’t do it and I knew it was a virus and hopefully no one else did.” Or they’ll have stories of a friend that, “Old Tom wasn’t thinking, he clicked it.” So, that’s your paradigm.

And then, there’s this whole idea on a much smaller scale, where you get these fraudulent phone calls, or maybe the text message saying you’re entitled to some money or your computer is infected, please give us your credit card number and we’ll fix it. Well, it’s easy to say, “Well, how do you know what computer? I’ve got five of them, which one are you talking about?” And they don’t know. And so, that’s the old traditional.

What’s happening now is it’s called bizarre call. And I’m not 100% sure why they call it bizarre call, but I mean, it is a bizarre call, but they said, “Okay, well, how do we revive an old trick that works very well?” The reason why clicking a link works very well is that you are actually choosing to download something into your system. You’re okaying it and therefore it’s in place, but the delivery method needed to change.

So, what’s happening now is this bizarre call, is you’ll get a call from a call center that will be mimicking a trusted provider. So, it will be a very well-known company, that most business owners will have some relationship with. So, just for this example, and I don’t want to say that this is one being used all the time or the only one, but let’s just use it’s Microsoft and it’s the business center. So chances are, there’s a lot of business owners out there, small business, medium business, large, that have some relationship with Microsoft. So, they phone and they say, “This is from our business center. We’ve noticed an issue. Please go to da, da, da, da microsoft.com.” They do. And they have you fill in your business information, which you do. And they want to show that there was either a malicious receipt, there is some sort of issue and you log into this system, there it is.

You click an Excel spreadsheet to download, to show the error. And something pops up that says, “Will you enable macros?” And they’ll say, “Oh, I got pop up. Should I click, yes?” “Oh yeah, you should. Sorry, it’s a security protocol. It won’t download otherwise. But go ahead.” When you do that, now you’ve successfully downloaded the virus and the whole scenario was fraudulent. The call center with fraudulent, the website was fraudulent, but they took great pains to replicate everything, so you’d have no idea you’re not dealing with Microsoft call center. You’re not on the Microsoft website, which will be virtually identical. And they’ve walked you through how to sort out the error in a helpful manner, which ultimately has now caused the virus.

Paul Martin:

Boy, I’ll tell you when they start to act like your friend, you feel disarmed in all of that, don’t you? If you’re not even at a high level of skillsets in terms of your technical knowledge, you can be conned by this pretty easily, if it all looks … They’ve replicated everything to make it look fancy, they don’t sound sinister. They’re actually helpful, and they really have sophisticated the process haven’t they?

Colin Rooke:

They have too. And a lot of organizations, and we certainly are helping our clients do this, is have email protocol where look, you are not to ever click or open any ZIP file unless you’re told to. And if you’re ever asked to enable macros in an email form, don’t do it. And that’s a very common thing. But again, the cyber criminals are aware of that and going into a website, it usually falls well outside of those policies and so, it’s not even something you’re thinking about. And unfortunately, when it’s derived by the individual inside the organization, your firewall is not going to pick up on it or stop it. This is not an IT issue. It is a 100% human error issue and they know that, which is why it’s working so well.

Another trick they use is they’ll call to say, “We just noticed a subscription that was renewed automatically.” And it will be … it may not be a very legitimate company, or be a company that for example, you would never want to use. And you’d have 14 days to cancel this automatic renewal, or you’re going to be billed further. Well again, not wanting to waste money on subscriptions that were not needed, or just wondering what’s going on, you go to their site, you log into your account that you aren’t sure you have. And of course, you download the receipt, you enable macros and the damage is done.

Paul Martin:

This is getting much more sophisticated, isn’t it? I mean, it’s now time that this isn’t off the corner of your desk. This is time when, if I’m a business owner listening to this, I probably need to put some kind of tutorial or lunch and learn together for my staff on this, don’t I? This is getting more sophisticated and certainly, the threat level is going up.

Colin Rooke:

Yeah, and that’s the real point of this, is that if you’re not talking about it, you absolutely have to be. The frequency and the severity is increasing each and every year. I looked into the bizarre call. And for example, one of the, I’ll say larger cyber providers in North America, which is a Lloyd’s of London syndicate, has now posted that bizarre call is 10% of all claims in the last three months. I mean, that’s a big deal and it’s growing rapidly. And so, the real point is if you’re unsure, really anything to do with cyber, it’s important that you’re working with someone that’s educating you on what to look for, what it is and how to prepare yourself.

Paul Martin:

Colin, thank you for educating us on this and to put this flag up. I think it’s important that we all know about it and no doubt you and I are going to be talking about this further in the future. You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers. This is Risky Business, I’m Paul Martin. Thanks for joining us and we’ll talk to you next time.

Travel Insurance Increases & Service Interruptions

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Paul Martin and Colin Rooke navigate through the impact of service interruptions on travel insurance.

Listen to the full episode here, or read the full transcript below.

Paul Martin:

Welcome to Risky Business, Commercial Insurance with Butler Byers. This is Paul Martin, the business commentator on CKOM. And with me as always Colin Rooke, the commercial risk reduction specialist at Butler Byers, and this, the general expert on everything insurance on the commercial side, anywhere on planet earth. And that’s what we’re going to talk about today. Colin, we often talk about a specific sort of item like cyber or that kind of stuff, but a lot of times just plain old day to day news is the stuff that you watch what’s going on, you watch a newscast, you listen to a newscast, you read newspapers or whatever, and there’s all these stories that, well, they’re the ones that are around for a long time. Well, they also have an impact on insurance too, and I’m just thinking, okay, COVID, end of COVID.

Well, we talked about that forever, but now we’re talking about the fallout of it. And the one is finally, I mean, finally, we’re able to start traveling again and then all we hear about is interruptions at airports and delays and all that sort of stuff. And I’m guessing that this return to travel and the pursuit of getting back to a pre COVID normal has insurance implications too. And there is such a thing as a travel insurance policy. Has that surfaced up in have those things come together? Is the news of what we’re seeing in the airline industry in particular, starting to have an impact in insurance too?

Colin Rooke:

Yeah, unfortunately it has. I mean, we spent a lot of time talking about the hard market, primarily in commercial, but certainly impacts in personal lines as well, over the last three to four years on this show. And although we didn’t specifically cover it, I would’ve said one of the few industries that kind of lines of coverage would be exempt from this would be the travel lines. And quite simply when no one is traveling, then fewer people are purchasing travel insurance. Claims are very, very low and therefore loss ratios are low and no reason to say it’s an unprofitable line and no increase required. So yeah, we’ve really sort of left travel insurance alone. The challenge now, and you touched on it is anyone that’s done any revenge travel or just resumed normal travel will have some kind of airport horror story.

I mean, we’ve all heard about what’s going on with Air Canada and specifically in Toronto. And Air Canada cutting 15% of the scheduled flights over the summer just to catch up and resume service levels. And it’s not just specific to Air Canada. And in fact, it’s a North America wide problem and probably a global problem. But all of that now has impacts on your travel insurance policy, if you have one and as a result, you either are seeing, or will be seeing sharp increases in premiums for travel insurance due to the resulting claims from all the service delays that are originating at the airport.

Paul Martin:

Just for clarity, this is the travel insurance, like the flight interruption, lost baggage stuff, not medical or health, emergency health insurance when you’re out of country. Correct.

Colin Rooke:

Yeah, absolutely. And so basically, you may, let’s say you have a flight with Air Canada and they move the flight or you missed a flight due to service levels, but and Air Canada says, we’ll make you whole, and we’ll put you in a hotel room. Well, you may have missed connecting flights where those airlines aren’t going to refund anything because their flight left on time. So now we have those putting in claims. Or you’ve prepaid on VRBO for your vacation rental and now you’ve missed the first three days. And the whole vacation’s non-refundable. So we’ve got claims for that. Lost baggage, damage baggage, missing baggage. And so the result of the kind of mess in the airline industry is increased claims.

Now you did mention even the travel medical component. Well, even there you could say, well, if you’re not, in theory, and I’m not a medical expert, but in theory, if you were out of country and not feeling well to the point where you may need to see a physician and they do identify an issue, if able to you are supposed to try and get home. I mean, the physician will say, you’re cleared to travel, but you need to check into a hospital right away, but you’d be okay for X amount of time or. And so even in theory there, if you can’t get home, even those claims would increase because you’ve made attempt to get home. It’s not possible with the mess at the airports. And so it’s for the first time I mean, I tried to find data for unprofitable years for travel lines and not really finding much. So it looks like anyway, for the first time in a long time travel, the whole travel line of coverage has very high loss ratios and people are going to see those premiums increase.

Paul Martin:

Well, it’s fascinating just when you think things are getting better, there’s always a wrinkle, isn’t there. And my guess is your customers, or those who are calling Butler Byers and asking about this are likely if they’re seasoned travellers, they will know what the going rate was. And now they’ll see these new rates going up. They’re probably just as surprised as anyone.

Colin Rooke:

Yeah, you’re right. For those seasoned travellers, like they’ll know exactly what it costs last time per day. And so it’s very easy to identify that this is up 35%, this is up 65%. The good news here though, is that travel insurance is almost always underwritten by other very large insurers. And so overall it makes up a very, very small percentage of premium. So the nice thing here is that even if the line of coverage isn’t profitable, I’m not going to be later on talking about this on the show saying, well, now DNO pricing is up because of losses in travel. It really is a small segment, but regardless they’re not in the habit of losing money on these lines of coverage.

Another thing we might also see, and it hasn’t happened yet, but like anything, depending on the losses, you’re going to start seeing restrictions, more restrictions, higher deductibles, reduce coverage, anything that they can do to recoup, right? So if you have let’s say a $500 limit for a lost bag, the revision might be a $200 limit. They’re going to do something to limit their exposure. If they can’t get away with I’ll call it enough rate.

 

Paul Martin:

I guess the real story here or the information we’re trying to pass on to our listeners is that if you’re planning some travel, be aware that this is a change and a byproduct of all of the sort of difficulty the airline industry’s having and getting back on its feet, and that then spins out to conferences, to hotels, to pick a topic, anyone in the hospitality sectors feeling it, and this is just buyer be aware.

 

Colin Rooke:

Yeah. And this is going to be sort of the opposite of what I’ve just sort of suggested on talking about the industry itself. But if you are looking to travel, and it doesn’t appear like this situation is improving, despite rate going up, I mean, it’s going up because people need the coverage and they’re putting in claims. So I would say it’s still a good idea to purchase the coverage. Just don’t be surprised if it’s, again, it is more than it than traditionally has been. And frankly, for those that do buy the coverage, it is pretty darn inexpensive. So again, we’re not talking about pricing so high, it’s not worth going, but just, I just wanted to provide an explanation. If you’re now seeing that it’s more, it is a result of yeah, what’s going on in the airline industry.

Paul Martin:

Yeah. So if you’re finding its more pricey, this is the explanation.

Colin Rooke:

Exactly.

Paul Martin:

All right. Well, listen, we got to take a little break Colin. And when we come back, we’re going to talk about another item in the news and something that has affected business really across Canada. So we’ll ask you to just hang with us for a couple of minutes. You’re listening to Risky Business, Commercial Insurance with Butler Byers back after this.

Welcome back to Risky Business, Commercial Insurance with Butler Byers. Paul Martin here, your host, and joining me, Colin Rooke, commercial risk reduction specialist with Butler Byers. Colin, we’re kind of looking at major events in the news in today’s program and just sort of what are the implications and what are the insurance questions that flow out of it? We talked about all of the challenges the travel industry has faced in the first half of the show, but now I want to talk about, well, something that, yeah, we all felt it, maybe not so much in Western Canada, but we did feel it a little bit. And that was the Rogers outage where their service, Rogers service went down. And since they’re predominantly an Ontario firm, that’s really where the crunch was, but all the national banks, all those kinds of guys, all our debit cards weren’t working for a couple of days out here. Are there insurance implications to that too? I mean, have you had to field questions related to that?

Colin Rooke:

Yeah. It’s another one of those sort of neat, it’s been a unusual couple years for niche business interruption issues. And so I thought it’d be important to talk about on this show, but so yeah, interact was down some people for 36 hours, some people longer. And then phone lines being down up to five days or certainly broken coverage. So if you’re a business owner and you’ve purchased a commercial insurance policy, you probably have business interruption as a line item on that policy. And so it’s really easy to say, well, the phone lines were down. I couldn’t accept payment. I certainly lost business as a result. I want to put in a claim. And now we’re sort of back to the pandemic times where one of the issues with this type of policy is they’re triggered by physical loss, some sort of insured peril. And so, I mean, at a high level a service interruption due to an update, doesn’t really have a physical component to it.

Now, some people, very insurance savvy people might be listening and say, well, no, I have coverage. I’ve looked at the wording, I’ve got an endorsement on there that in the event of a utility failure, I do have coverage for damage to property, loss in income and extra expense. However, the fact that it was sort of a maintenance whoops, again, even if you have this line item, it’s really not, it’s not utility failure. There’s still no damage. There’s still nothing physical to report. It sounds like they, well, again, they were doing some routine maintenance that went poorly. The whole system went down, they had trouble restoring it. And so that’s one of the issues where, or reasons I’ll call it, why you may think you’re entitled to something, but then chances are, I don’t want to comment on every policy in existence, but chances are you’re not going to get the news you’re looking for.

Paul Martin:

Yeah. We’re really starting to find nuances aren’t we, these days in what is an interruption. And the pandemic kind of put us all on alert on that and starts to making you ask some real hard questions about this. And I guess it’s kind of implicit in this is that yeah, I went down so I couldn’t do business, but my competitor went down too. So I mean, was I really prevented from doing business any more than anybody else was? So is that an issue, is that sort of a consideration in this?

Colin Rooke:

Yeah. And that’s sort of the second problem with an outage like this, that you could say, yeah, I had customers come in that couldn’t pay and walked out and, or I couldn’t be reached by phone. So my business was interrupted. My income was affected as a result. However, your customer that walked, let’s say you have a coffee shop and your right next door to your primary competitor. I walk in, I try and buy coffee, payments down. I leave, I go next door. If the payment, in theory, if I was able to pay there, you could say, well, see, due to my service interruption, I am out X amount of revenue, but you couldn’t have gone to your competitors and paid either. So it’s not really income loss. It’s sort of income deferred. It would be very difficult to make the argument that you lost a customer that will never come back. They most likely had to wait. And again, phone calls as well, right?

If anyone on the Rogers network is unable to make calls and then frankly, also unable to pay, it’s very difficult to make the argument that, and frankly prove the amount you would’ve been out. Now I’m not saying there’s no one that would have a scenario, but at a high level, if there was sort of some utility service failure due to damage, it still would be very difficult to prove that you’re out if everyone in your area, all your competitors, I mean, this outage was a big deal. It wasn’t centralized to a small area. And so, again, even if there was an insured peril that would suggest there’s coverage, you still may get a denial based on your inability to prove any actual loss.

Paul Martin:

I guess the moral of the story is carry a little cash all the time because cash was still functional in that period. So if you needed your coffee, if you had a $5 bill in your pocket, you could get one.

Colin Rooke:

It’s funny, because I tell everyone that, just as a sort of a side risk management, we’ll go through our assessment and if I can fit it in there, I talk about why it’s so important to carry cash. And since this outage, in fact, we were away at a soccer tournament. I was telling everyone why I carry cash and why everyone else should be for this very reason. So yeah you are absolutely right. Carry cash. Cash is king. And certainly in situations like this.

Paul Martin:

Funny thing, there was a fact that came out that during pandemic, the demand for cash went up 60% at the banks, like people were stockpiling cash. Pretty interesting. All right. Colin, one last thing before we go. The other topic that’s catching a lot of attention is talent shortages and workforce and competing for employees and no different for you.

Colin Rooke:

Yeah. I just wanted to add that we are looking to expand our team specifically in the commercial department. So if anyone that listens to this show, you’ve got some experience in commercial, whether commercial account manager, you’re interested in production, on the production side, if you just want to chat, I’m all ears. But we could really use more people in commercial insurance in an account manager role. So if you’re working in the industry and you’ve always wanted to get into commercial, and certainly if you’re in commercial now and you like what we’re talking about, you like the idea of working on risk first, our different method of tackling the insurance program, the insurance problem with the industry, please reach out. Like I said, we’re in growth mode. We want to grow our team aggressively. We’ve got multiple positions we’d like to fill on both commercial account management and also if you like what we’re doing here on the sales end, reach out to me and we can chat further about what that looks like.

Paul Martin:

All right. Thanks Colin. You’ve been listening to Colin Rooke, the commercial risk reduction specialist with Butler Byers and now new recruiter with Butler Byers Insurance. This is Risky Business. I’m Paul Martin. Thanks for joining us. And we’ll talk to you next time.

Impacts of Inflation

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Paul Martin and Colin Rooke discuss how insurance is impacted by the rise in inflation.

Listen to the full episode here, or read the full transcript below.

Paul Martin:

Welcome to Risky Business, commercial insurance with Butler Buyers. This is Paul Martin, your host, and the business commentator on CKOM. Joining me today, Colin Rooke, the commercial risk reduction specialist with Butler Buyers. Colin, we have had a few themes that have come through this program over the course of time, but just watching what’s going on in the economy and the world today, I get a sense we’re going to have a new theme. And so, I’m going to toss it out there. You tell me whether or not I’m right or wrong. Is inflation a thing when it comes to insurance?

Colin Rooke:

Yeah, it really is. Just like everything in Canada today the costs of goods are increasing at a rapid rate. And with that one of the industries that really has had a significant impact and frankly throughout COVID and continues to rise is the cost of construction. I mean, we can certainly talk about supply chain delays and just increase input costs. But if we’re just talking about a typical property claim where there’s damage to a building and this would be applicable to home insurance as well we are seeing the construction costs increase at an alarming rate. And the increase to building values is not keeping up with that. And so when it’s claim time and you say, “Okay, well, the cost to rebuild to my building is $3 million. I only have a limit of two.” We now have a significant problem.

And so we do have customers that are racing and this will be industry-wide, not unique to us, but you will have those that are very concerned about or in tune with construction costs reaching out saying, “I’m worried about my coverage. What do I need to do?” And as prices go up but that wouldn’t be the norm. And so if you’re listening to this show and thinking about it it’s time to review your limits and make sure that in the event of a loss, you’re not looking at a significant shortfall where you’re expected to self-insure that gap frankly.

Paul Martin:

Well, you raise a really good point because it’s one of those things we went through COVID, which was a slow-down period. And I’m guessing we probably did everything we could to conserve cash and who knows, maybe some people even cut back on their coverage and now we come out the other end and it’s like you’re on a steep slope upward and people are busy just trying to keep up. And they don’t ever think about, “Hey, I got to crack the insurance file and see what I’ve got in there.”

Colin Rooke:

Yeah. And in fact, that makes this situation quite a bit worse. So on the one hand you might have said during COVID that I’m in a hard market. This is year three or four and my business has slowed. I’m not going to accept any inflationary increases. I’m trying to save costs wherever I can. I have less people working. I’m less insured. I’m less concerned about claims. So I want to make the following changes. And in some cases saying just due to cost reasons, I need to remove these coverages altogether. Well, now you fast forward and things are, for the most part, returning back to normal and customers are forgetting that businesses are forgetting that they may have removed coverages to save cash or decreased limits.

And then now we’re adding high levels of inflation to those limits. And if you’re not on top of that, if you’re not making sure you’re current with today’s pricing, that gap, I referenced using the building example now has widened. And to further quantify that, just giving you some background industry example, the rate of errors and omissions claims against brokers has skyrocketed. Now I’m not trying to say at all that the brokers are negligent, but anyone can claim that technically the broker made a mistake and those are on the rise. And it’s coming from people that reduced coverages and may not have remembered or agreed to increase those. And then now have subsequently had a claim despite saying, “I don’t want this.” And then they’re trying to put in a claim for those, and now we have a problem. So it is a big deal and it’s something that needs to be monitored.

Paul Martin:

Colin, this inflationary market I mean, it’s relatively new. And we’ve been experiencing significant inflation say for a year, but we went for a long, long time where this was not a part of a conversation. Now if you’re old enough and you’re in the tail end of the boomers or something, you probably remember that period of time 30 years ago when inflation was an everyday thing, and you just got used to it. We’re in a mode now where we have to train some people, don’t we? I mean the new generation of leader has not experienced this. And I’m wondering if you’re getting some of the old guard coming up and saying, “Oh yeah, I’ve been to this movie. Understand it.” And the new one saying, “What the heck’s going on here?”

Colin Rooke:

Yeah. You are exactly right. You do get the old guard that says, “You know I’ve been through this and you just got to tighten up and weather the storm.” And you’re right. If you’re looking at a younger business owner, it’s really been very low-interest rates, low levels of, normal levels of inflation call it, status quo renewals. The hard market from our chair would be the biggest obstacle they’ve probably seen. And so you have to spend a lot of time educating around what’s happening now and the overall impact. And the problem too, I mean, we’ve talked about where we see the market going. And we did do a show early January to suggest that I don’t see a soft market coming but potentially sort of a plateau in the pricing. We might… I even said we’re starting to see some as-is renewals.

And so I have to change my tune a little bit. Because so yes, in 2021, it was a very profitable year to show that the increase in pricing was working and certainly the first part of 2022. However now with these inflationary pressures and the concern over global recession and the war we’re back to “Okay. Yeah. I might be able to do better on some investment returns, some loaning of the cash, but there’s still so much uncertainty around claims that now we are already, again, starting to see the insurance and certainly the reinsurance market tighten up as a precautionary measure to make sure there’s enough money to pay claims.

Paul Martin:

Yeah, it is sometimes what’s old is new again, but the inflationary experiences that we went through in say the ’70s and ’80s and that period, there was this bit of a correlation between interest rates and inflation rates. They were actually pretty close and you’re seeing central banks bring us back to that kind of position today. And we’re seeing interest rate increases that for anyone under the age of 50 I’m guessing it’s unprecedented and it’s got to rock them a little bit. Then I’m guessing they’re coming to you and say, “Provide me reassurance. Explain to me that this isn’t the end of the world here, that this is manageable. We can deal with this.” And when they ask you that, I mean, how are you responding?

Colin Rooke:

It’s a good question. And really, on the one hand, it’s wait and see how this plays out and then on the other it’s and I say this all the time there still is something that can be done about this. You have to be the best risk. It’s well, twofold now. One, when it comes to claim time I mean if there’s a concern there that our limits are out of whack. Two, horrific delays in reconstruction timelines, and then three, putting pressure back to your underwriter or insurer to say, “Well again when you don’t feel like giving credits this company should be the one that receives those.” I mean they’re still there. They’re just hard to get. And again, it’s so important to show that we’re putting in the work here and that we deserve those.

Paul Martin:

All right, Colin, we’ve got to take a little break. We’re going to pick this up after a short commercial break. You’re listening to Risky Business commercial insurance with Butler Buyers. This is Paul Martin. Back after this.

Welcome back to Risky Business, commercial insurance with Butler Buyers. Paul Martin, your host, and joining me, Colin Rooke, insurance expert in the business reduction or the risk reduction specialist. Sorry, not the business reduction. I had that all wrong. Colin, sorry about that. You’re the risk reduction specialist at Butler Buyers. We’re talking about the impact of inflation. This is a new topic for us. And I just get a sense we’re going to be talking about this for a while aren’t we? I mean this is not just a passing gig. This is really changing the way you do the things. And I guess it’s simplest form it’s insurance is a financial product. Inflation is all about finances. So those two, they do live in the same house. And that’s why we’re talking about them at the same time.

Colin Rooke:

That’s true and furthermore when we talk about available limits… So you have clients saying, “Well, I would like to buy 5 million, 10 million, 25 million liability.” Well, there has to be capacity in the market to be able to offer those terms. And the challenge we’re seeing now, with again rising inflation, is that when I thought the reinsurance markets were feeling better about reinvesting their cash back into the insurance market, now we have uncertainty around the cost of claims. And frankly the potential to loan money at very high-interest rates. And so not only are we not seeing a lot of new capacity entering the market, so again an influx of cash that is available to pay claims, we are continuing to see a retraction of that capacity. Because they’re saying, well, “This money is better served elsewhere and I’m not going to risk it in the insurance market.” And what that boils down to is higher cost to be able to purchase the limited capacity that’s out there.

Paul Martin:

That’s an interesting point because I guess if I’m in a reinsurer, which is the second tier of insurance, the insurance companies buy insurance too. If I’m a reinsurer and I’ve got a million dollars to invest, I got to make a choice. Am I buying risky policies or do I just buy US treasuries because there’s no risk associated? And guess what the interest rate on treasuries has gone up three points in the last little while, why wouldn’t I be taking that? So this is what you’re saying is when you buy a policy you’re effectively competing with the treasuries of countries now because all of a sudden their paper’s way more interesting.

Colin Rooke:

Exactly. So when we were talking about this a year ago, there was no capacity because there was no money coming in due to loss ratios. And the hard market has corrected all that. Now they’re just saying, “I don’t think I can make money at this.” And so they’re limiting what they’re prepared to reinvest back into the insurance market.

Paul Martin:

And all of that does is just raise the price for the end buyer.

Colin Rooke:

Yeah. And really so the end result of where we are at now with the economic uncertainty is frankly a complete change of the global risk index. So we talk about the top risks of 2021 and over the last five or six years, we’ve really documented the swift rise of cyber insurance. So now this is not just… So that study’s already been done. But this is call it an amendment to that study, just more of a take your temperature now update to it. And where it was pandemic and cyber one and two, we now have cyber four and pandemic five on that list. And the number one concern amongst business in Canada is a global recession. And so it’s really just accumulation of everything that’s happening and again the concerns around coverages and the concerns around rapid inflation.

So second to that is supply chain. So I mean I don’t think that’s really a shocker to anyone. I mean, I don’t think there’s anyone that’s having trouble with, or who isn’t having trouble with their current supply chain and then third is national catastrophes. So weather pattern changes, which is certainly on insurers’ and reinsurers’ radar as well. So I don’t mean to sound doom and gloom about where the industry’s going, but really I do want to stress that something can be done. And go through our risk assessment process, get to know your underwriter, allow us to represent you appropriately. And say again, they’re still writing business. They’re still trying to grow. It’s just so important they have the whole story in that your company’s reflected in the right light to the right few markets. And you still can win but don’t be the company that does nothing. Don’t accept status quo.

Paul Martin:

I guess you’re saying, “Look for three or four years cyber was number one. It just got knocked off the pedestal. Things can change and change rapidly.” And I’m guessing for a lot of people that in the commercial world, they buy their insurance, and they forget about it. Like you’re saying here, “Stay in touch with us. I need to be on maybe a little higher up on the Rolodex and that things can change. We can deal with them, but we need to be on top of those changes.”

Colin Rooke:

Yeah, absolutely. I mean the way our risk assessments work I mean they change and certainly in the last two or three years, they are cyber crime heavy. But that’s because you look at well what’s keeping people up at night and where are the claims coming from? Where are the risk coming from? And so you’ve got to have that discussion or we wouldn’t be doing our job. And again, now it’s our tune is changing to proper review of limits and review of supply chain exposures. Frankly, something that I’ll call it an oldie but a goodie, disaster recovery planning has become a hot topic. Because again the old plan that maybe we worked on four or five years ago needs to be completely revamped because it’s probably not anywhere near accurate as far as getting back to business. And so that’s something that we’re talking about all the time.

Paul Martin:

Well, we just got to wind this up here because of time, but I think we’ll just close it off by saying this, you encourage business owners to reach out to you. You’d be more than willing to talk to new prospects and to your existing client base. Don’t forget about us, that these conditions are changing all the time and we need to stay on top of it. And that Colin is here to help you do that. Is that a fair assessment?

Colin Rooke:

Yeah, that is. And hopefully, and I won’t promise anything ’cause I haven’t asked them, but we can get someone from… I’ve got a great relationship with Suncorp Valuations. We could have a discussion with him about what he’s seeing in the market and really put some numbers to this topic.

Paul Martin:

All right. I look forward to doing that. You’re listening to Colin Rooke, the commercial risk reduction specialist with Butler Buyers. I’m Paul Martin. This is Risky Business. Thanks for joining us. Talk to you next time.