Canada’s poor investment environment is causing insurers to grow their business by encouraging brokers to steal business from other brokers, a commercial broker says, in response to a report by Marsh Canada about the general state of the Canadian insurance market.
Encouraging the creation of new, innovative products would be a healthier way to grow an insurance business during challenging investment conditions, said Robert Harrison of Martin Merry Reid.
“Overall, the market has been soft for too long,” Harrison told Insurance Business, when asked to comment on how Canada’s stagnant investment environment is affecting brokers. “A poor investment climate puts pressure on brokers to satisfy the needs of insurers looking for new business. They want their brokers to ‘pilfer,’ if I might use that term, business from other brokers. And so brokers are left defending their own turf.”
Insurers' investment income contributes to an insurer's overall profitability, and can mask poor underwriting results during soft markets. But when investment income is down, based on low interest rates, then an insurer must improve its underwriting results by generating new business.
Harrison said that in periods of slow growth, the new business is often generated by brokers stealing business from other brokers. Innovation is the key to ending this vicious cycle, Harrison said. “When times are tough, the innovators survive.”
A study of the Canadian P&C market by Marsh Canada says ongoing poor investment conditions are expected to lead to rate and deductible increases for brokers’ clients in 2013.
“The Canadian insurance market made only a very modest profit in 2011, and a reduction in investment income from 2010 to 2011 could be cause for concern,” the report states. “The trend is likely to continue due to the current low interest rate environment, which could cause insurers to seek modest rate increases in the latter half of 2013.”
Figures from the Office of the Superintendent of Financial Institutions (OSFI) show that Canadian federally regulated institutions reported an underwriting profit of just over $835 million in 2011. Their net investment income in 2011 was almost $2.5 billion on $33.7 billion net premiums written.
At the end of the third-quarter of 2012 (the most recent stats available), the industry wrote net premiums of $28.1 billion and reported net investment income of just over $2.4 billion, according to recent statistics compiled by MSA Research Inc.
