Why property clients still face a hard market

The headwinds facing commercial property premiums won’t abate anytime soon for the majority of clients, Gallagher’s Canada 2023 Mid-Year Market Conditions Report suggests.  

The cost of reinsurance in Canada is still trending upward, triggered by a series of catastrophe losses — including upward of $50 billion in losses due to Hurricane Ian in 2022 — as well as a “lack of substantial new capital” entering the market, the report reads.  

Global reinsurance capacity declined to $638 billion in 2022, a full 12% decrease, according to Gallagher Re.

Based on July 1, 2023, renewals, the industry can expect “somewhat of a firm [reinsurance] market” for the remainder of 2023.  

These factors signal further property rate increases and reduced capacity for property clients with large Cat exposures are on the way — particularly those in earthquake zones. Some of those clients saw 30% increases during the first quarter of 2023.  

“Property books with assets in British Columbia and/or significant earthquake exposure are experiencing rates in excess of these averages, often with lower Cat limits and higher deductibles/retentions,” the report reads. “Capacity on offer via MGAs and other delegated authorities has also significantly been curtailed.” 

Although some clients may see relatively flat increases, the challenging market — partially driven by inflation, valuation, and rising loss costs — won’t slow for most. 

A full 77% saw their property premiums increase, while 18% saw decreases. About 5% saw flat premium changes, Gallagher found in 2023 Q2.  

As secondary perils continue to dominate insured losses, insurers are beginning to charge higher premiums.  

Deductibles are increasing, particularly for water damage and earthquake risk, as losses continue to swell. Canada may follow suit with the U.S. insurers’ introduction of named windstorm deductibles, Gallagher predicts. 

“Looking ahead, clients continue to anticipate challenging property renewal. Buyers may choose to retain more of the risk, opting for higher deductibles or self-insurance, or seeking coinsurance for certain layers.” 

Casualty 

On the casualty side, clients can expect steadier market trends. Price increases are beginning to ease slightly after insurers made pricing corrections, even in lines that experienced capacity constraints (E&O and D&O).  

Insurers made single-digit (5%-7%) premium increases, primarily in auto, general liability, umbrella and excess coverage, in 2023 Q2. 

“The decision by many clients to take on substantial risk retentions is also subduing the rate of price increases, even where exposure remains the same.” 

A full 69% of clients saw increases in their general liability premiums, while 14% saw decreases, and another 17% saw flat premiums, Gallagher notes for 2023 Q2.  

But there’s more competition in the low- to mid-layers of excess liability placement. Lead umbrella business is also limited, and auto premiums have yet to stabilize. Inflation and third-party litigation is continuing to raise the cost of claims and drive prices upward.  

Sixty-six per cent of clients saw increases to their umbrella coverage in 2023 Q2, whereas 20% saw decreases and 14% saw flat changes.  

“For those in tougher classes of business and distressed industry sectors…it pays to consider selective self-insurance strategies via captives or other risk retention structures,” Gallagher writes.  

Feature image by iStock.com/Nuthawut Somsuk