Despite vast digital innovation and major investment into technology, insurance giant Aviva simply could not “control the weather” in its most troublesome market of the year - Canada.
On Thursday, the firm declared its financial results for the first half of 2018, with Aviva Canada sticking out for the wrong reasons. The Canadian arm posted a combined operating ratio (COR) of 104.6% - well off Aviva’s target range of 94-96%.
Aviva Group chief executive officer Mark Wilson blamed the poor COR on high claims in the turbulent Canadian auto insurance market and “a succession of storms” which led to significant losses of £13 million (about CA$22.1 million).
But it’s not all doom and gloom for Aviva in the Canadian market. The insurer has responded to market challenges by increasing premium rates, tightening its underwriting risk appetite and adjusting its distribution and claims handling strategies. Aviva Canada’s underlying results are showing progress and the insurer hopes to return to the targeted COR range by 2020.
“Aviva Canada has had a tough 12 months, but I’m confident it’s a good underlying business with a strong action plan. One thing we can’t control yet is the weather … but we’re working on it,” Wilson mused. “One thing to note on the weather is that we’re now at our reinsurance limit, so when that starts kicking in, I guess it inoculates us to some extent in the second half of the year.”
The auto insurance market in Canada has been challenging for some time. It’s experiencing a market phenomenon that will sound all too familiar to the UK insurance industry – one of excess whiplash claims, bodily injury claims and distracted driving resulting in high losses.
When a market changes, insurers need to reflect that in their pricing, Wilson explained. But in Canada, unlike most markets, it takes a while to work rate changes through the system and get pricing approved by an invigilator before implementation.
“We have a full action plan in Canada. Some of it involves our underwriting risks, some of it involves our pricing, some of it involves how we manage things like fraud and so on. If you strip out the noise, we’re actually seeing our underlying results improve,” Wilson told Insurance Business.
Aviva Group, as a whole, is experiencing strong organic profit growth in both its direct and intermediated channels. The UK business gained an extra 200,000 personal home customers, and 190,000 personal auto customers as a result of investments into digital, direct service.
“We like both the direct and the broker channel,” Wilson commented. “What we’ve found is that the broker channel is as much the user of the new technology as the direct channel. We’ve picked up market share across the board because the brokers love tech.”
As for inorganic growth, the insurer has been fairly quiet on the M&A stage of late. Wilson is looking for a deal that’s “accretive and strategic” and won’t delve into the organization’s “large pile of cash” unless an M&A opportunity meets all criteria.
“We have quite a large pile of cash [but] I wouldn’t say it’s burning a hole in our pocket. If we can’t meet the criteria, we’ll do something else with [the money],” Wilson said. “Maybe we’ll give it to our shareholders or maybe we’ll take down debt. The point is, the money is going to roll over to next year because even if we did a deal now or between now and the end of the year, if wouldn’t close this year, so we will still have that cash to deploy.”
