Industry execs see no immediate end to the hard market
November 26, 2019 by Greg Meckbach
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Don’t expect the pressure on prices to ease any time soon, brokers learned Monday at the Top Broker Summit in Toronto.
“Unfortunately for customers I think it’s got a long run,” Carol Jardine, president of Canadian property and casualty Operations at Wawanesa Mutual Insurance Company, said Monday of the hard market.
Many large insurers this year have reported combined operating ratios in the neighborhood of 105% for the first six months of 2019, Jardine observed at CEO Panel of the summit, produced by Canadian Underwriter. “If you are losing $1.05 for every $1 you write, you are not going to be sustainable for every long,” she said.
Jardine cautioned that industry-wide results for this year’s third quarter are not great either. “When you ask me, when is this market going to turn, well I would have told you that the results of insurance companies would have been turning better by now, but when we look at the half year, they are not good.”
Panelists were asked when the hard market will end and how this hard market is different from previous hard markets.
“I don’t think we have turned the tide back on the earnings,” Jardine answered, “and until we have a significant number of insurance companies with combined operating ratios for the whole year below 100, I don’t think anybody is going to turn the taps on. This is more about getting the pricing where it needs to be.”
When you combine things like wildfire risk, flood risk and rising auto claims costs, insurance companies need premium to cover their losses, said Jardine. “We need something to change and we are not quite sure what it is. But until there has been some significant movement in the performance of the book, unfortunately this hard market is going to be there for Canadians and for brokers.”
The Canadian P&C industry had expenses of $27.3 billion on premiums of $26.4 billion for the first nine months of 2019, the Office of the Superintendent of Financial Institutions (OSFI) reports. Those statistics are for Canadian insurers.
With investment income at $1.9 billion, Canadian P&C insurers still collectively had net income of $807 million, according to OSFI.
“Our industry typically doesn’t make any money on its core business, they make it on investment income,” panelist Rowan Saunders, CEO of Economical Insurance, said in response to a question about how long the hard market will last. With interest rates at historic lows – with no signs of moving up – insurers cannot rely on investment income to subsidize their underwriting income, he added.
One factor in rising prices is poor auto results, due in part to the cost to repair sensors in late-model vehicles, said Saunders. In all provinces, auto claims continue to rise faster than premiums, he added.
“When we meet with regulators, I have to sensitize them to the need for auto reform,” Jardine said. “We’ve got Canadians making $40,000, $50,000 a year. If they are looking at a $2,000 or $3,000 insurance bill [per year for home and auto], think about what that is going to do to their monthly budget. If it’s $200 or $300 a month in after-tax income, higher than their hydro bill, equal to some of their food purchases, what worries me for Canadians is how is it affecting their household budget? How can we put some product reform and other things in place to make insurance affordable for Canadians?
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Interesting article. Ms Jardine makes some relevant comments about affordability in the final paragraph.
The problem I have with all this is that for 15 years despite loss trends becoming progressively worse as explained, insurers continued to rabidly compete against each other.
Sadly this is a condition in our industry and one of the reasons we undergo hard and soft market cycles.
The day that insurers make it a corporate policy to never drop to unsustainable levels, is the day that perhaps some stability will be seen and appreciated by the general public and brokers.
Our industry bears the brunt of the blame for its own current crisis. The insurance buyer in my opinion has played only a minor role.
We don’t really need to bring reform into it, just good fiscal management and good underwriting management.
It’s really quite simple isn’t it, stop repeating the same behaviour over and over again.
Of course then there is human nature, so be ready for another hard market in 2031.
Having Economical, Wawanesa and Intact on panel , you might have called this the Ontario Auto Insurance panel. CANADA is 3% of the global market. The hard market will end when the US ( about 40%) says it will end , and that will be by end of 2020. These companies are great canadian companies but meaningless in the big picture.
Despite advances and anticipated savings (realized?) from insuretech, plus uploading much of insurers historical processes eg data entry, to brokers, it amazes me that expense ratios are still so high. Have these historical expenses just been replaced with the significant expenses of operating several consumer direct models. Aside from huge advertising and marketing expenses, just consider the additional salaries, benefits (vs commission only), advanced telephony, computer systems, all to capture market at the same, or worse, loss ratio? If insurers could knock 5-10 points off their expenses this situation would improve considerably.