The current year is shaping up to be particularly brutal for natural catastrophes in Canada, driving concerns that easing conditions in the property insurance market will reverse as carriers cope with the impact.
A mix of extreme weather events – from wildfires and hail, to storms and flooding – dealt unprecedented damage across Canada, marking what is likely to be one of the worst quarters on record for insurers. According to the Insurance Bureau of Canada (IBC), four weather events in July and August 2024 caused over $7 billion in insured losses.
While this year’s losses have yet to fully impact insurance companies’ balance sheets, their long-term implications can’t be ignored. At least one insurance leader acknowledged the possibility that the rate reductions clients are seeing now might not last.
“This will be the worst year on record,” said Ilan Serman (pictured), chief markets officer at Gallagher Canada. “Once those numbers get baked into their results, we might start to see rates going the other way again in Canada.”
The market has shown time and time again how quickly conditions can turn. It wasn’t too long ago that Canada’s real estate insurance market was entrenched in a hard cycle marked by surging premiums and tightened conditions from carriers.
However, the past few months have brought signs of easing, particularly in Canada, even as global markets grapple with continued strain from natural catastrophes, especially in the United States.
The roots of the hard market stretch back at least three to five years, driven largely by natural catastrophe losses coming out of the US, according to Serman. “A billion dollars plus [in losses] was not unusual to see in those events in the US,” he said.
The ripple effects of these costly disasters weren’t contained within American borders. Insurers, feeling the pressure to maintain profitability, raised property rates across the globe.
But more recently, carriers have been taking a closer look at Canadian risks and adjusting their premium requirements accordingly. “Underwriters have started reassessing how much premium is really needed for Canadian risks,” said Serman.
This recalibration has led to faster premium moderation in Canada compared to the US, where natural catastrophes driven by climate change continue to wreak havoc.
Moreover, Canadian carriers have managed to perform relatively well despite global pressures. One key factor driving the recent premium moderation is profitability.
“Canadian carriers have had excellent combined ratios over the last three years,” Serman continued. “Probably the best stretch in 30 years. This means underwriters are making money, which attracts more capacity to the market. With increased capacity, prices tend to go down.”
For Serman, the most worrying aspect of this year’s catastrophic losses isn’t just the scale, but the variety of disasters. Canada is dealing with multiple threats simultaneously, and this multifaceted challenge poses significant issues for insurers.
“It’s not one event. It’s not even one type of event,” he observed. “If it were just one hazard, like water damage, there are ways to address it: physical changes to buildings, increasing deductibles, and so on. Underwriters could adjust their approach from both a risk prevention and policy perspective.
“But when you’re dealing with multiple hazards, each one requires a different response, which makes it much more challenging to manage.”
From a risk management perspective, the varied nature of these events makes it harder to develop comprehensive solutions.
Addressing water damage might involve increasing deductibles or implementing physical changes to properties, for example, but these adjustments don’t apply to hail or fire damage. “There’s not one solution to the problem,” Serman acknowledged.
Despite the challenges, however, he doesn’t anticipate an abrupt turnaround in the market.
“It’s hard to say for sure,” he said of a potential timeline for hardening rates. “From a Canadian perspective, this will undoubtedly be the worst loss year on record, but Canada is still a small player in the global insurance markets. What’s happening here alone likely won’t drive the global market, as much of the reinsurance goes through the UK and European markets like Lloyd’s of London.
“It’s tough to predict whether Canada’s situation will significantly impact larger reinsurance contracts. While Canada’s numbers are bad, we may not see premium increases because the global insurance markets are so integrated. Any rate changes, if they come, likely won’t happen until 2025.”
What are your thoughts on the impact of recent natural catastrophes on Canada’s property insurance market? Please sound off in the comments.
