New data released by the Insurance Bureau of Canada (IBC) revealed that the competitiveness of Canada’s commercial insurance market has significantly improved in recent years. This development follows a period of limited options and high premiums during the industry’s hard market between 2020 and 2023, the report noted.
The IBC’s findings, based on research from MSA Research, show that the Herfindahl-Hirschman Index (HHI), a measure of market concentration, has dropped from 642 in 2018 to 629 in 2023. A lower HHI suggests a more competitive market. The report also revealed that the number of commercial insurance providers in Canada has increased by 10% since 2018.
IBC said this uptick in competition is seen as particularly beneficial for businesses, which are now enjoying access to a more diverse range of insurance products and services. A competitive insurance market offers consumers greater choice, more affordable pricing, and improved quality.
A “hard market” period typically leads to limited coverage options and higher costs, a challenge that businesses had to navigate during the past few years. With the current trend of increased competition, businesses can now find better coverage. In addition, this could fuel economic growth and foster entrepreneurial innovation, IBC noted.
IBC highlighted the importance of a healthy and competitive commercial insurance market for the broader Canadian economy. Insurers play a crucial role in absorbing the risks associated with business operations, allowing companies to operate without the fear of significant financial loss due to unforeseen events.
Regulation of the Canadian insurance industry plays an essential role in maintaining market stability. The federal Office of the Superintendent of Financial Institutions oversees the financial health of insurers, ensuring they remain solvent and capable of supporting businesses. Meanwhile, the availability of capital in the insurance market is critical to Canada’s economic well-being, as it enables businesses to access the protection they need to grow and succeed.
Despite positive market trends, IBC believes that further improvements are necessary to support businesses in Canada. Earlier this year, the organization released a report, Fuelling Business Prosperity – Government’s Role in Fostering a Sustainable Commercial Insurance Market, which advocates for policy reforms to enhance the operating environment. Among the concerns raised include the impact of taxes on commercial insurance premiums.
In some provinces, insurance premium taxes and retail sales taxes can make up as much as 20% of the total cost, a factor that could discourage businesses from securing adequate insurance coverage. IBC suggests eliminating or reducing taxes on commercial insurance policies, which would encourage businesses to invest in more comprehensive risk management plans.
In addition, the report recommends further measures to reduce risks in the market, including supporting flood mitigation efforts, revising building codes to increase resilience, and strengthening cyber security policies through a coordinated approach between government, the tech sector, and business groups.
As the market continues to evolve, there is optimism that the improved landscape will unlock new opportunities for Canada’s approximately 1.3 million businesses.
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