Recent Canadian catastrophes in Canada have drawn brokers' attention to a potential split in the domestic market between the fortunes of Canadian and U.S.-based insurers.
The split could play out in ways that benefit both Canadian and U.S. insurance companies – and Canadian clients – depending on the context, brokers say.
David Mew, placement leader of Marsh Canada, said a future catastrophe during this year’s hurricane season could potentially create a split in the financial fortunes of Canadian and U.S.-based insurance companies operating in Canada.
“You have to bear in mind that…we have a number of insurers in Canada that are quite insulated from what goes on the United States because they don’t write big U.S. books,” said Mew, citing Aviva Canada, RSA Canada, The Co-Operators and Intact Insurance as examples.
Even if there is “some fairly nasty hurricane activity in the United States” this year, Mew said, these primarily Canadian markets wouldn’t really be exposed to the same hurricane losses you might find in a U.S.-based company’s book of business. Hurricane losses in the United States might leave U.S. companies with Canadian operations, such as AIGs or ACE, exposed.
“That gives us the potential for a little bit of a split market next year,” said Mew.
“If you have what’s happened in Canada, and then you have a very severe second half of the year in the United States, it will be interesting to see what will happen.”
Brokers have discussed several theoretical differences in approach they perceive between Canadian and U.S.-based companies in light of recent Canadian tragedies.
For example, where personal property rates are concerned, the Calgary floods could potentially allow U.S. companies to gain the upper hand on Canadian companies over the long haul, says one broker who did not want to be named.
As reported previously in Insurance Business, Alberta brokers have reported that Canadian insurance companies have been “finding coverage” for flood in sewer backup policies.
There is some debate among brokers about whether overland flooding, which isn’t covered in basic home insurance policies, can in fact trigger insurable sewer backup losses inside a home.
In the United States, overland flood coverage is available in home insurance policies. Theoretically at least, Canadian brokers say this suggests a different approach by U.S. insurance companies about covering flood losses in Canada.
For example, U.S.-based companies may be less inclined than their Canadian counterparts to “find coverage” for Calgary flooding in residents’ sewer backup policies.
“American companies, they have flooding all of the time,” one Calgary broker told Insurance Business. “They never come to the rescue – ever. I just don’t see how their reinsurers can justify how a little wee town in Alberta can get that coverage [for flood].”
However, if U.S.-based companies take a harder line now on flood coverage in Calgary (and there is no proof that they do), that may play out to their benefit in the long run, one source said. While Canadian insurers may end up raising their personal property rates in the future to cover flood losses, U.S.-based companies will be able to hold the line on rates and offer a more competitively priced home insurance.
In the Lac-Megantic, Quebec railway tragedy, a U.S. insurance company may ultimately turn out to be Canadian insurers’ best friends. A runaway train carrying crude oil exploded in the small town of 6,000 people on July 6, levelling the downtown core and killing 37 people. A further 13 are reported missing.
“The Canadian and local Quebec insurance market at least initially is going to pay all of the fire claims,” said Mew. “Whether they can ever subrogate back against the railway train operator, who knows? That’s a U.S. company, so it probably buys its insurance in the United States. We’ll just have to see how that plays out.”
