RSA Canada has announced it is closing its Canadian Northern Shield (CNS) brand.
CNS was given an Insurer Financial Strength rating of AA- by Fitch Ratings in July 2022, yet parent company RSA Canada has chosen the retire the brand. Notably, many CNS policyholders are from British Columbia, where catastrophic claims from perils like earthquake, wildfire, and flood have been on the rise.
While CNS’ closure means one less insurance option for consumers, what other impacts might the brand’s disappearance have? Insurance Business Canada spoke with Cassie Ayers, personal insurance trainer with Megson FitzPatrick, to learn more about the rippling effects of this insurance closure, particularly on the broker side of things.
IB: What challenges are brokers facing in light of CNS’s closure?
CA: Brokers must find new insurers to cover all the risks they had with CNS. The most challenging piece for us was convincing insurers to accept all this business in our high-risk earthquake zone. Insurance companies have limited reinsurance capacity for earthquake exposure on Vancouver Island. Brokers in high-risk wildfire and flood zones face similar issues.
One of the other challenges is the increased workload to remarket all the CNS policies. Megson FitzPatrick is fortunate to have enough team members to maintain our high service standards for new business and our current client renewals that are seeing premium increases and reduced coverage with other insurance companies, but each file takes time.
IB: What does this mean for CNS clients?
CA: We are doing everything we can for our clients to make sure they are able to obtain similar coverage to what they had with CNS at comparable rates. However, there are situations where clients are not able to obtain the same coverage or deductibles that they had with CNS. And they may have higher premiums with their new policy. Insurance companies do not offer identical packages, so it can be difficult to replicate exactly what they carried on their CNS policy with their new provider.
For the past few years, CNS was providing some of the most competitive market rates in our area, which, when combined with increased building costs, has caused some substantial premium increases for our clients when we move them to other insurers.
Megson FitzPatrick has made arrangements for all of our CNS clients with new insurers en masse, but different brokers are taking different approaches and facing unique challenges.
Former CNS clients may not receive their policies as far before the renewal date as usual, and may be surprised by the premiums, coverages, and deductibles they see when they do.
IB: What impact will this have on home insurance in British Columbia?
CA: British Columbia continues to face reinsurance capacity issues when it comes to potential catastrophic claims, from earthquakes here on Vancouver Island and the Lower Mainland, to wildfires in the Interior, and flooding exposure everywhere in between. Tighter capacity, increased premiums, and diminished appetite among reinsurers, along with changes to regulatory guidelines, have increased the difficulty for domestic insurance companies to manage their earthquake and flood exposures.
The closure of CNS increases the capacity issues for the remaining markets. This could impact clients in many ways, from significantly increased premiums to higher deductibles and lower coverage limits. For some clients it may be difficult to get coverage for earthquake or flood at all.
IB: Will clients in high-risk areas still be able to purchase Earthquake coverage? What about flood coverage?
CA:Over the last 6 months, we have seen insurers restrict earthquake coverage drastically: from lowering the limits they are able to offer, to increasing deductibles, and in some areas excluding earthquake coverage altogether. At this point, most of our clients are still able to obtain some type of earthquake coverage, but it is coming with a cost that is often half of their total policy premium, and a higher deductible than they are used to.
The overall cost for a predicted 9.0 magnitude Earthquake in BC could be close to $75 billion.
This potential for high losses may lead to some insurers refusing to provide earthquake coverage for certain homes based on the year built, quality/type of construction, proximity to known faults and ground conditions.
Flood coverage is comparable, as the number of high-risk areas seems to be increasing and the extent of damage from floods is becoming more catastrophic. The atmospheric rivers that occurred last year have exposed areas that previously were not considered high risk. Insurance companies are responding by reducing the coverage limits they offer or removing the option to purchase flood. We expect this trend may continue as we face more catastrophic weather issues.
We cannot predict if earthquake or flood coverage will continue to be offered, but if it is, there may be further restrictions, higher deductibles and higher premiums associated with carrying coverage in high-risk areas.
IB: How have other insurers responded to the CNS closure?
CA: The amount of CNS business that is being re-distributed complicates how all insurance providers in Western Canada are providing coverage options.
We have seen a range of responses from insurers already. One company will not take any clients who were most recently insured with CNS. Some insurers view this as an opportunity to grow with different brokers. Other insurers are willing to take on CNS policies with the understanding that the broker will place a volume of additional commercial business with them, as well as business in other regions. Others yet have stopped offering certain coverages on new policies, due to the volume of former CNS policies that they have agreed to write over the coming year.
