Tips for advising commercial clients during economic downturns

Inflation and the looming threat of an economic downturn would seem like a one-two punch that would make commercial clients think about ways to skimp on insurance.

But it isn’t necessarily so. “Insurance is not a discretionary spend for most companies,” said Ilan Serman, regional president of Ontario at Gallagher.

What clients are doing, though, is increasingly asking for higher deductibles and lower liability limits. In some cases, they are looking to make discretionary coverage cuts, according to industry sources.

Brokers recognize this doesn’t always result in cost savings, especially if a client experiences a loss. And a recession would require brokers and risk managers alike to stay ahead of the curve to find creative ways to cover risk.

“There are different ways to finance risk, and I think risk managers are checking everything out,” said Tina Gardiner, manager of risk management services at the Regional Municipality of York. “A lot of my peers [are] looking at captives, we’re looking at protective associations, we’re looking at reciprocals and pooling.”

The same discipline applies to brokers, who will have to step up by looking at their clients’ entire financial pictures, rather than just their insurance needs.

“Other ways to protect the cost of the insurance [include] making sure that we have a strong understanding of what maintenance and investments the client is doing within the assets,” said Russell Quilley, head of commercial risk at Aon.

Brokers are diving deep to find the right coverage for their clients. That could include looking at other markets.

“It’s important for a broker to have access to the entire marketplace,” Quilley explained. “It’s important to make sure that you’re looking for [carrier] capital for clients that will pay and is strong, but at the same time, [the broker is] creating a bigger competitive environment.”

While that includes looking for the right domestic capacity, the London market is fully licensed in Canada. If need be, brokers can also turn to international capital.

“You open up additional capital layers,” said Quilley. “So that when you’re buying, you now have availability of, say, twice the capital. That creates competition. There are also ways to work with a client to create captives or remove risk completely from the marketplace and retain it on their own balance sheet.”

Offering adjustable premiums is another way to save money, although Serman said this is most applicable for liability policies.

For example, the premium of an adjustable policy will be recalculated at the end of the premium period based on the client’s actual revenue. If revenue increases, premiums will be adjusted upwards. If revenues are lower than expected, premiums may be decreased.

One key lesson to take away from the current commercial market is that clients want transparency and need risk advice. And brokers need to document the potential impact of any coverage cuts.

“My general rule of thumb has always been not to let my management be surprised [by insurance pricing],” said Gardiner, who is also a director on the Risk and Insurance Management Society’s (RIMS) board.

“The tools risk managers have to rely on right now are out-of-the-box thinking; being very, very upfront with business leaders; keeping an eye on the insurance industry…[and] staying in touch with associations and industry groups to try to keep ahead of that curve.”

This story is excerpted from on appearing in the April 2023 edition of Canadian Underwriter. Feature image by iStock.com/DjelicS