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Global property insurance markets are seeing rates firm up after a period of sustained soft market conditions, thanks to natural catastrophes that have hit both Canada and the United States. The property segment in Canada specifically is experiencing challenges as a result, as it’s stuck between a rock and a hard place.
“Insurers have realized significant losses over the last two to three years, primarily due to the increasing amount of CAT activity,” said Tyler Averill, SVP of national sales for Canada at Arthur J. Gallagher. “Because of that increased CAT activity, the reinsurers have been impacted pretty significantly and as a result, many of the insurers have been impacted significantly as well. You couple that with a poor track record and low premium in the property space – and the loss ratios that insurers have experienced have been quite high over the past two to three years – and it’s been very unprofitable. What we’re seeing is, number one, the exiting of a lot of insurers in that space, who are saying that they can no longer be profitable, and the exiting of the insurers is decreasing the amount of property capacity in the marketplace. And second, the remaining capacity and the insurers that are staying in place want increased premium for that property, so you’re seeing decreased capacity and increased rate at the same time.”
The frequency of catastrophic losses is particularly troubling. Major events used to happen every five years, but now, Canadians are subjected to intense weather events almost on an annual basis.
“And catastrophic storms don’t have to be ones [like] a tornado that dramatically impacts [a community], or a hurricane or a mass flood. It can be as simple as a large wind storm, and the wind storm [results in] damage to a degree that causes that insurer significant losses and creates long-term impact on the performance of their portfolio,” said Averill.
In turn, brokers are also being impacted as most property clients are receiving significant increases from their carriers on renewal. To address this challenge, some are taking proactive measures to make sure that they’re getting ahead of the increases and communicating to clients the changing market conditions, as well as starting the marketing process earlier to have more time with carriers to come up with solutions, among other strategies.
“We’re working hard with the clients on loss control measures to help improve the risk and decrease the chance of losses,” said Averill. “Lastly, we’re having to, in some cases, reinvent the program structure in order to make a more cost-effective solution.”
Loss control measures involve installing cameras on-site and conducting regular site inspections to follow up on frequency-type losses. It also means educating certain clients around proper maintenance in order to prevent primarily water issues, which can lead to big losses.
Yet catastrophes aren’t the only risks facing property clients.
“If it’s a commercial portfolio, some of the additional emerging risks are cyber risks,” explained Averill. “Landlords hold significant amounts of clients’ personal data and with the increased cyber threats that are occurring, there are those issues. There’s an increased amount of cameras on-site, so there’s a lot more visible data that is available, and buildings in general are becoming a lot more automated than they ever had been in the past. Any cyber interruption or shutdown of a computer system could be further impacting them.”
Read more: Host of cyberattacks recorded in Ontario
In addition, the harsh reality of terrorism risks is also weighing on property clients.
“We’re seeing more mass shootings happening now, and mass shootings can impact property owners. It can also be unrelated to their particular building, but it can impact them from a business interruption perspective, where the malicious act happened off their location, but within a certain radius of their building and, as a result, the police authority will have closed down a whole vicinity and evacuated in order to maintain public safety,” Averill told Insurance Business.
When it comes to cyber risk, there’s more awareness around the issue now as many large businesses in the financial space especially have been hit by data breaches recently. That’s not the case with the risk of terrorism, which is one place brokers can help get their clients informed.
“On the malicious acts of terrorism front in Canada, it certainly still is a little bit of an, ‘I think it’s not going to happen to us’ mentality,” said Averill. “There are a lot of clients in the Toronto area and in higher areas of threat that do purchase the terrorism insurance, but there is also other insurance, like malicious acts insurance, that provides you with coverage in the event that the building is not damaged, but you do have that business interruption occurring. That type of insurance I think is much less purchased due to a lack of awareness of the product, and [insureds] also not necessarily thinking that it’s going to happen to them.”
