Extreme weather events can quickly change a good year to a bad one

Frequent extreme weather events are a new wild card that demand acknowledgment and preparation, Gregor Robinson, senior vice president of policy and chief economist for the Insurance Bureau of Canada (IBC), suggested Tuesday during Swiss Re’s 30th Canadian Industry Outlook Breakfast.

More frequent extreme weather events “can, overnight, turn a good year into a bad one,” Robinson said.

2014 was not as bad as recent years have been for extreme weather events – although there certainly were some costly events – and that was reflected in the financial results for Canada’s property and casualty industry. Last year, the p&c industry witnessed an improvement in return on investment (ROI) and in underwriting, which rose to a gain of $513 million from a loss of $208 million in 2013, Robinson reported.

“Better underwriting results and improved ROI led to higher return on equity,” he told assembled guests.

Robinson noted that there was also improvement in combined and loss ratios, mainly as a result of fewer large weather-related catastrophes. “Insured nat-cat losses in 2014 – at over $900 million – were moderate compared to 2013, but were still well above the averages we saw in the years prior to 2009,” he said.

“The fall in the overall loss ratio was mostly a reflection of improved property loss ratios in Alberta and Ontario following the flood losses in 2013,” he said.

The numbers would have been even better had it not been for auto. Private passenger auto loss ratios deteriorated across all of the private auto insurance markets, Robinson (pictured right) pointed out.

With regard to personal property loss ratios, improvements in Canada’s West and Central regions reflect the relative improvement in Cat losses, but in the Atlantic and Prairies regions, “loss ratios rose above the 10-year national average of 68%, largely a consequence of more frequent, although smaller, extreme weather events,” Robinson said.

Another wild card is “the tendency for auto to fall victim to partisan and stakeholder politics,” he said during the event. As of this past January, Ontarians pay more for car insurance than drivers elsewhere in Canada, including an average 26% more than in Alberta and 78% more than in the Atlantic, Robinson reported.

But there is cause for optimism with the commitment to reduce premiums an average of 15% between August 2013 and August 2015, Robinson said.

Canada is facing some big issues, including earthquake and flood. “Although we’re well-capitalized for earthquake, an event the size of what happened in Japan, New Zealand, Haiti and Chile would have devastating consequences for communities, the economy and our industry,” Robinson said. 

More coverage of the 30th Canadian Industry Outlook Breakfast: Lower oil prices may have positive effect on demand for p&c insurance products: IBC

On flood, he noted that the industry is starting to respond to the rising incidence and cost of severe weather, which highlighted the unavailability (until recently) of overland flood insurance for households in the country.

Saying the government is intensely interested in the industry response, that is one reason why “IBC is working with governments, industry and stakeholders, towards the development of a natural catastrophe strategy for Canada,” Robinson said.

IBC has commissioned flood maps for most of Canada, he reported, adding that this is one way “we can help governments and individuals learn how to reduce damage costs by making their homes and communities more resilient.”