April 6, 2020 by Jason Contant
Saying the Canadian P&C insurance industry can do more to offer relief to consumers during the COVID-19 pandemic, one 40-year industry veteran recommends that insurers offer guaranteed renewals and a premium freeze at 2019 levels.
Standard measures focus on a “case-by-case” approach, minimizing the financial impact on the insurer itself, Louis-Thomas Labbé, president and CEO of GPL assurance/Gallagher Québec, wrote in an open letter posted on the brokerage’s website. Labbé has been a damage insurance broker in Quebec since 1979. He is also president of Gallagher’s Quebec operations.
“It does not commit [insurers] to the extent of other financial players,” Labbé wrote in his Apr. 5 letter entitled COVID-19: What are P&C insurers currently doing to help? “Moreover, there is nothing unusual about some of these solutions, since they are standard measures that insurers normally offer.”
Having seen more than 15 months of premium increases and enhanced profitability (according to official reports from several Canadian insurers and Lloyd’s of London), it is “now urgent that the industry do its part in the collective effort and stop demanding premium increases for all policyholders, individuals and businesses,” Labbé said. To do this, the industry should offer guaranteed renewals at 2019 rates for the remainder of 2020. “P&C insurers have the capacity to sustain a premium freeze until the end of the year,” Labbé told Canadian Underwriter Monday.
“Rates are already high in a hard market and I am not suggesting to lower them,” he added. “Maintaining rates for the rest of 2020 should not have a major impact on premiums in the future. As a matter of fact, if the losses for 2020 are in line with 2019, the current year will be a good profitable year for the industry with ‘as-is rates.’
“This gesture would help brokers to continue to recommend to clients to be loyal in the years to come, with insurers who have shown respect during the crisis,” Labbé said. “For those insurers who would keep insisting for rate increases in 2020, then I would not be surprised to see a serious desire from clients to instruct their brokers to put their account to bid as soon as the cycle ends. Not the best way to build long-term relationships, which is what insurers say their goal is.”
Labbé did say that exceptions should be made for “cases involving the frequency and severity of abusive claims in the last five years.” Some insureds do not take any risk management measures to prevent losses even after being educated and coached by brokers or insurers, he noted. “For those clients, severe underwriting conditions may apply to penalize their bad behaviour. This is far from being common in the marketplace and thus insurers would be expected to apply rate increases on an exception basis.”
Labbé’s letter observes that governments across Canada have taken extraordinary measures to ensure society recovers from the crisis.
For example, the federal government recently announced that businesses of all sizes who can show their revenues have dropped by 30% because of the pandemic will be eligible for a subsidy of up to 75% of their wages.
However, apart from a few exceptions related to specialty insurance coverage (such as event cancellation and credit insurance, for example), as well as certain other policies with handwritten clauses, insurers have never intended to cover the risks associated with pandemics, as this would threaten the full viability of the industry, Labbé noted.
Some insurers are offering things like premium reductions due to a change in vehicle usage as measures to ease the financial burden on individuals or businesses. Again, adjusting the premium according to the use of a vehicle – therefore, the risk – is what policyholders expect from their insurers, Labbé said. “It’s like a restaurant owner saying, ‘I won’t charge you for the soup you didn’t order.’”
But premium increases resulting from insurers’ pricing adjustments initiated in the fall of 2018 are still rising, Labbé wrote. “Appearances matter, perhaps now more than ever. When the world is taking a break and under financial duress, companies that do not bend and appear to profit instead of helping may leave a permanent sour image in the global community. Everyone is going to lose something during this crisis; we must all accept that fact.”
After implementing a premium freeze, there will always be time for insurers to review their clients’ files and make necessary adjustments once the crisis has passed, Labbé wrote. “For now, let’s just agree that it is not the time to do so! Not only is this a matter of ethics, it is also and above all a matter of collective morality in these troubled times for everyone.”
Labbé said over his 40-year career in the insurance industry, he has seen many situations resulting in significant imbalances, both in terms of human lives and financial impacts. “Yet, the COVID-19 crisis is unprecedented given its global impact on human populations and the economic turmoil it has caused on financial markets.
“Unfortunately, the consequences are far from over. We will feel a shock wave for many years to come.”