Experts have been sounding the alarm about the impacts of natural catastrophes and climate change on Canadians and the country’s insurance industry for some time now, with recent reports painting an even more dire picture. In 2020, the coronavirus pandemic added another layer of challenges to what was already a difficult environment.
During CatIQ’s February webinar, experts from Canada’s top re/insurers discussed the impacts of 2020 on the management of catastrophe claims, and how insurance companies, reinsurers, and brokers responded to change over the course of a challenging year.
“When we think about last year as one of the worst years for Canadian insurers from the catastrophe perspective, a lot of the CATs were focused in Alberta,” said Carol Jardine, president of Canadian P&C operations at Wawanesa Insurance. “We’re at about $1.2 billion that we underwrite in Alberta, so this hit our team extremely hard.”
In the middle of the pandemic, and working remotely, the Wawanesa team and its policyholders were dealing with significant catastrophes, like the flooding in Fort McMurray and a damaging hailstorm in Calgary, which resulted in more than a billion dollars’ worth of insured losses. Nonetheless, added Jardine, “What we’re really proud of is the preparation that our claims team went through, recognizing that a CAT was going to occur.”
However, despite being properly attired in PPE, the claims team still encountered nervous customers who were, rightly so, worried about the contagious virus spreading through their communities, while trying to get back to normalcy after some painful catastrophic weather events.
“We had to deal with our policyholders who were worried about how closely we could interact with them, who could come into their homes, and what was going to be the risk of the pandemic spread as they were in the middle of a catastrophe,” explained Jardine. “Our Net Promoter Scores from our customers who went through that with us this summer said that we were extremely sensitive and that we dealt with them well, but they were nervous – they were nervous about all of this activity around them from the pandemic, at the same time that they’re trying to get themselves back on track after a significant CAT.”
What this situation taught Wawanesa is that digital tools have never been more important. Jardine pointed to resources – like being able to have policyholders take pictures of homes and cars, and then using artificial intelligence to give them an estimate – as critical during this time. Besides the need for technology, the other piece that the insurance industry more broadly learned from 2020 is needing to be better equipped to deal with multiple major events at the same time.
“This was probably the toughest CAT season for claims adjusters and vendors, and policyholders who were involved in it, but what we have to remember [now] is that the Global Risk Institute tells us there’s three major risks going forward: pandemics, climate change, and credit,” noted Jardine. “If you think about the convergence of pandemic and climate change at the same time, and how difficult it can be for claims handlers to be in the middle of all this, we’ve got some work that we need to do.”
As the insurance industry prepares to deal with this trifecta of ‘known’ risks, leaders are trying to predict what the coming year will look like, as societies (hopefully) begin to recover from the pandemic, thanks to the distribution of vaccines. This kind of crystal ball gazing is not easy, given the constantly shifting dynamics of the pandemic’s spread, making it difficult for insurance companies to even consider a timeline for getting employees back into offices, according to one leader.
“Eight or nine months ago, there might have been some thought that at the beginning of ‘21, we would be coming back into the office and that’s definitely not going to happen right now,” said Peter Askew, president and CEO of Guy Carpenter in Canada. “There’s going to be substantially more flexibility in our workspace, and how we accommodate the needs of our staff and colleagues – and that flexibility has to continue. That’s a view at Guy Carpenter and right through MMC, and I think it’s fair to say in all the conversations we have with our clients and customers.”
As for how the insurance industry will be moving ahead into this ‘new normal,’ resiliency will be top of mind, as will a long-term view of risk, according to Askew. The insurance market has so far survived the pandemic quite well, emerging largely unscathed and demonstrating the ability of many players to adapt quickly in the face of the pandemic.
Askew pointed out that insurers, reinsurers, and brokers have done a good job of evaluating tail risk for most perils. “We can be somewhat surprised when massive or unique events occur, but we can certainly learn from them. Earthquake events have informed our models rather well. Wind is a parallel, which we tend to understand, although changing frequency and severity is a concern,” he said. “Climate change is a massive factor in all of this, and it’s influencing a number of perils.”
The pandemic, on the other hand, has shifted perceptions of tail risk. Most people didn’t foresee the sheer scale of the coronavirus nor the impact of the event, and it has become increasingly clear that this type of pandemic cannot be contained in time or space, which has expanded tail risk outwards and to the right, noted Askew.
COVID-19 has also meant that the insurance industry has needed to change its view on risk more generally. Not only did certain lines of business, like event cancellation, business interruption, and travel insurance, take hits during 2020, but asset portfolios were likewise impacted back in the spring of 2020 – and while markets have recovered since that time, question marks remain.
“BI remains to be seen given the underlying nature of wordings, and there’s a lot of work that still needs to be done. We see some test cases in the UK, and there’s a lot of noise in the US in terms of how some of those losses are going to percolate up, notwithstanding what the actual contract says,” said Askew. “If all [BI] policies had covered |the pandemic] to the extent that some people thought they might, it would have brought devastating losses to the industry … and this is going to percolate for some time, in terms of how it settles out.”
