McLachlan’s Musings

Some recent musings….

  • WWW.BROKERLIFT.COM.   Have you heard of Brokerlift.com? This is a company that is developing a “white label” quote, bind, pay, policy issue platform that goes right on your website. Think about this for a moment. You have a renewal premium of $1,000, which is hard to handle profitably. Instead of pestering your client to fill out a six-page application, asking them eighty questions, seventy-five of which the answer is the same as last year, you can simply direct them to your website to answer a few questions and they can get their quotes instantly. They then press a button to bind, and get their policy. Easier for the client, and for you. Most brokers’ websites have a “need-a-quote” button that asks the prospect to fill out their name and address and someone will get back to them. That’s not what they want. They want a quote NOW, as they’re a small business whose client is asking for an insurance certificate. Now you’ll have that ability. Do yourself a favour and go to BROKERLIFT’s website (click here) and check it out. Don’t lose your business to Bullfrog or Sonnet or other thinly disguised direct writers. Fight back. (In the interests of full disclosure, Trinity will have some products on Brokerlift shortly, including E&O, GL, D&O and IT E&O.)

 

  • WHOLESALERS vs MGAs  As I travel across Canada I’m surprised how many brokers tell me they access quotes through two wholesalers. They send their submission to a wholesaler in Canada, who then sends it to a wholesaler in London, who gives them a Lloyd’s quote. Now, if it’s for a risk that no one else will write that’s one thing, but that’s rarely the case. Think about all the people in that chain who are taking their piece. You as the retailer; the wholesaler in Canada, and the wholesaler in the UK are all charging commissions and/or policy fees. A net premium to the insurer of $500 can become $1,000 once all the costs are added in. Why not simplify and spare your client the expense? If you want a quote from Lloyd’s or other A rated insurers just call us! We are an MGA, not a wholesaler. We don’t have to send the submission anywhere. One stop shopping. Same product, better deal for your client. And usually we don’t charge a policy fee. Better claims handling as well. On the ground here, not through two intermediaries and across the ocean. Just a thought.

 

  • PRICES KEEP FALLING! Observations on the market. Interest rates are at all time lows and 30 year bonds in some countries are down to 2%. Some shorter term fixed income is at negative interest rates. You’ll make more money putting your savings under the mattress. Investors in insurance companies historically looked for a 10% better return than the guaranteed fixed income return. So if the guaranteed fixed income return is 0%, insurers will have to generate all their income from underwriting. So a 90% combined ratio gives you a 10% return (insurers always talk about leverage but the truth is most good insurers write about the same premium as their equity or surplus). Charging off and getting more market share doesn’t help you unless its at lower than 90% combined. And that’s hard to do because we all know how insurers get new business. The only other way to make money at a zero interest rate is to sell something and take the capital gain, or to “release reserves”.  Releasing reserves means the insurer is saying it over reserved in the past and doesn’t need the money after all. Property casualty insurers have been releasing reserves for ten continuous years. But you can’t do that forever. Conning, one of the leading analysts of the P/C industry, estimates excess reserves are pretty well used up. (1-2% redundancies left)

Many large Insurers have released their six months’ results and their profits are way down from last year.So what does that all mean? It means theoretically rates should be going up. Insurers have been helped by a decade of benign results in cat exposures (notwithstanding what’s happened in Alberta in the past few years). But will they? I’d like to think that when everyone starts to say the insurance cycle is over and rates will never go up again, that’s when it happens. But instead it really means investors will settle for lower returns (what choice do they have?) and in fact will support insurers to take greater risks with a promise of higher returns. So more of the same. Except eventually real losses will mount and capacity will shrink. I’ll be retired by then but maybe my grandchildren will tell me about it.

Enjoy the rest of the summer, and for the best outcome, get a quote from Trinity, not our competition (see photo below)

Yours truly,

Michael McLachlan