The Canadian property and casualty (P&C) insurance industry had a stellar year in 2021, with almost all carriers reporting positive full-year financial results.
It was the industry’s most profitable year since 2006 thanks to improved loss ratios across a broad swathe of industry verticals, including personal auto, commercial property, and liability (all down by 10 points or more), and personal property running at a better loss ratio than the long-term average.
Now, the questions is: Will this continue?
That’s the question that Andrew Steen, president of Berkley Canada, gets asked more than any other question, and he said it’s often coupled with the follow-up: ‘So, what does 2022 hold for customers?’
“The way I think about that is, if we look in the rear-view mirror, [2021 saw] spectacular results, the best results since 2006 on a combined ratio basis. When we look at the underlying drivers – the factors that had led to those exceptional results – it’s interesting,” said Steen, referring to the string of improved loss ratios across the industry.
How likely is it that loss ratios will continue to improve so dramatically in the near future? According to Steen, a lot of the success-driving factors are already fading away.
“Look at driving – if you’ve been driving around these last couple of weeks, what you notice is there’s a lot more cars on the road - and wow, is that annoying. It’s not only annoying, but what we know for sure is that it leads to more auto accidents,” Steen commented at the CIP Society’s GTA Virtual Symposium: Pivoting with Purpose. “[Claims] frequency is very likely to come back in the auto realm. Severity didn’t go anywhere during the pandemic, so we’re expecting upward drift on the auto line for sure.”
In other lines of business, loss costs are rising and Steen expects them to rise further due to economic inflation and rising interest rates.
“It just means that anything we’re going to rebuild in the future is going to be a lot more expensive,” he emphasized. “And then combine that with social inflation, which people think of as an American phenomenon, but I disagree completely. I think of social inflation as just more big losses, more expensive litigation, and while that’s been on delay [or pause] for COVID … we’re seeing evidence that it is going to come roaring back.”
On the insurer side, firms are also dealing with increased reinsurance costs and the rising interest rate environment, which will have a short-term impact on insurers’ investment portfolios.
Steen’s summary was: “I look out through the windscreen at all the things coming towards us as we’re driving forward, and we’re just saying: ‘The road ahead looks bumpier than the road behind.’ How does that manifest? What our brokers and our customers are asking is: ‘What does this mean for my price going forward?’”
The Berkley Canada president expects the rising rate environment to continue, but with a more moderate trajectory. He also predicted “more nuanced” rating by line and by customer moving forward.
Victoria L. Stanhope, president and CEO of Stanhope Simpson Insurance Ltd., a commercial insurance-focused brokerage based in Halifax, Nova Scotia, said customers are “definitely growing tired of rate increases and capacity crunches.”
She described the last couple of years – the COVID period – as particularly challenging for many businesses, especially those in the large, complex risk arena.
“Those sophisticated customers, and brokers of course, [have] seen the record profitability numbers out there of the [P&C insurance] industry, so I think that exacerbates, to a certain extent, some of the frustrations over the last couple of years,” said Stanhope.
Regarding whether the industry will be able to maintain its excellent profitability, Stanhope said she expects insurers to continue to perform well, but she’s also seeing competition starting to heat up again in the market. With more competition in the marketplace, that puts pressure on rates, which then has an impact on insurer profitability.
“I certainly think that insurers will continue to do very well into 2022 […] subject to underwriters continuing to have very responsible underwriting and avoiding any kind of undercutting tactics and things of that nature,” she commented.
“We all know that some insurers and underwriting teams have very aggressive growth goals for 2022. We’re hoping, especially on the broker side, that responsible underwriting does continue because if there is undercutting behaviour or things of that nature, then we could all be in a tough spot again very quickly, and nobody wants to see that. Everybody wants to see stability in the market.”
