Global property insurance markets have seen rates firming after a period of sustained soft market conditions, and the chickens are coming home to roost in the Canadian property insurance market. Insurers are seeing falling investment returns, global large-loss events, increased frequency and severity of claims, and a tough regulatory environment. The result has been less competition among carriers, reduced capacity and lower limits, more stringent underwriting criteria, and higher insurance premiums.
Read more: Thriving in a hard market
That’s not to say it’s all bad news – the market is correcting, says one expert.
“In Canada on the primary side, we’re starting to see some positive price momentum across most lines, which is great news. It’s just what we are seeing globally is percolating into Canada as well,” said Mohit Pande, Swiss Re’s US & Canada head of underwriting for property. “The thing is it’s coming after some years of rate decline, so I think it’s quite important that it continues that way. The discipline around pricing, capacity deployment, and terms and conditions has to stay for a bit so that it can catch up with the loss trends and also fill that gap in profitability.”
Natural catastrophes in the United States are partially to blame for the tough conditions in that marketplace, but Canada has its own set of catastrophes to worry about. The recent Halloween storm in Eastern Canada, which caused $250 million in insured damage, is just one example from 2019. Other catastrophes from the year included Hurricane Dorian’s wrath on New Brunswick, a Manitoba snowstorm that left thousands without power, a hailstorm in Edmonton that resulted in $90 million in insured damage, and another fiery wildfire season in Alberta.
“If you look at the catastrophes in Canada, there has been a lot of frequency so that we’ve called them kittens – not the CATs, but the kittens,” said Pande. “We have seen an increased frequency of those kittens for the last few years and that has resulted in the attritional losses going up. The rate improvement we are seeing is good because it’s going to help with taking care of some of the impact, or the attritional losses, that we have seen go up in the last few years.”
Technology can play a key role as far as risk mitigation of some of the smaller claims goes, added Pande, but it’s not the answer to the hardening conditions in the marketplace.
“Some of these are also resulting from the terms and conditions having softened over the last few years, where the deductibles have been pushed down,” he explained. “Technology absolutely, like water sensors, will play a key role in mitigating some of these losses, but some of it is coming from the way the coverages have been updated.”
As far as what brokers should expect moving forward in terms of underwriting rigor, more of the same will be coming down the pike in the near future.
“I think the expectation is for this price discipline to continue. There’s this clear recognition that there is a profitability gap, there is a loss trend,” said Pande. “For us to keep up to speed with the loss trends, there is price improvement which is needed so that the industry as a whole can deliver sustainable ROEs.”
