A number of trends are currently driving the insurance sector, a law firm suggests.
Business law firm Blake, Cassels & Graydon (Blakes) published an opinion piece in Mondaq that enumerated the insurance industry’s recent developments.
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One of the biggest trends in insurance now, according to the firm, is the push for more technological applications. Until recently, insurers had invested in technology primarily for distribution, policy administration, internal controls and security. However, new innovations such as telematics, data analytics, wearables and social media, are changing the way insurers are doing business.
Blake notes that emerging technologies are not just offering new opportunities and revenue for the insurance sector, but could also potentially help in the reduction of losses, enabling insurers to offer lower premiums. At the same time, however, new tech could also create risk by inviting new sources of competition, and the unprecedented change of pace could throw off insurers who cannot adapt with the times quickly enough.
With technology enhancing the ability to remotely validate behaviors as well as predict, prevent, and mitigate risk, the law firm believes that “insurers are beginning to shift focus from loss recovery to prevention/risk management and mitigation.”
The law firm ultimately suggests that “P&C insurers need to rethink how they can remain competitive and ensure their long-term sustainability,” in the face of ever-changing consumer behaviors and expectations, mounting competition, disruptive technologies, and increased regulations.
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Another trend identified was the considerable number of M&As in recent times.
“While many expected significant consolidation in the Canadian P&C insurance industry, instead we have seen a steady stream of more tactical, targeted deals,” the law firm explained. “Among the key forces likely to continue driving M&A activity in the P&C and broker space are continued fragmentation, an aging population, low growth and low interest rates.”
Blakes pointed out that the weak Canadian dollar, as well as political uncertainty in both the US and the UK, could attract foreign buyers to Canada.
The law firm also noted how insurtech start-ups are the hottest acquisitions as of late, since the tech these up-and-coming companies develop could “improve pricing, enhance the customer experience and improve back-office processes such as fraud prevention.”
Blakes observed that niche- or product-focused insurance offerings have surged in the past few years; another trend worth keeping an eye on.
“. . . niche market insurance can provide a lucrative revenue source for the insurance sector without the cost burden of marketing broad-spectrum products,” the firm pointed out.
Ride-sharing insurance was singled out as a particular point of interest, as provinces across Canada are still figuring out how to solve the insurance dilemma that faces transportation network companies like Uber.
Insurers are taking on more “novel risks” without issuing new wordings, Blakes found. The law firm elaborated that this has led to “more and larger-value legal challenges to coverage determinations.”
“A soft market, new types of insurance and the high value of insurance policies mean that the courts are increasingly likely to be called upon to address coverage questions,” the law firm suggested.
The Supreme Court of Canada had to step into two recent and separate cases that questioned whether the interpretation of an insurance contract should involve consideration of the surrounding circumstances. The Court ultimately ruled that circumstances are relevant to the interpretation of insurance contracts and that since insurance policies include a standard form clause, “the interpretation of that clause is a pure matter of law and therefore an appeal is easier.”
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