Canada’s commercial P&C insurance market may not soften “for the next few years,” said a report on the industry published by Deloitte.
“While there may be products where the market becomes more competitive on new business with good claims experience, the experts we interviewed observed that underwriters are continuing to scrutinize submission quality, risk characteristics, and ask for underwriting data with a level of rigor that was not present prior to the hard market,” says the Deloitte report, State of the Canadian Commercial Property & Casualty Insurance Market 2022.
“This tension between discipline and growth, therefore, is likely to stabilize the market for the next few years. In prior hard markets, above average performance only lasted two to three years before price competition intensified and rates softened. This time, the industry faces headwinds in the form of climate change, inflation, and emerging risks that may slow the onset of a softening market.”
Deloitte’s report noted economic activity in general — and commercial claims activity in particular — were suppressed during the pandemic, which certainly helped to control insurers’ claims costs.
But “claims volume is likely to rebound as the economy returns to pre-pandemic activity levels.”
As identified in the Deloitte report, financial headwinds facing the P&C industry include:
Natural catastrophe damage claims now cost P&C insurers about $2 billion annually. (NatCat damage reported by P&C insurers thus far in 2022 was approximately $1 billion at the halfway point this year.)
The rate of consumer inflation rose to a 40-year-high, reaching 8.1% year-over-year in June, following a 7.7% gain in May, according to Statistics Canada.
A talent shortage means hiring and retaining staff will likely be more expensive for the industry.
Although a digital economy in need of protection from cyber-attacks makes cyber insurance a more compelling product offering, the unprofitable line of business is still well above a 100% combined ratio, OSFI figures show, meaning the product may be prohibitively expensive for businesses.
“Because of these factors, insurers are likely to remain cautious despite their improved results,” Deloitte predicted. “Underwriting has become more rigorous over the last three years, and that discipline, and a conservatism in the face of market uncertainty, is unlikely to lessen any time soon.
“So even as the industry turns to growth, the focus on risk quality will likely keep rates stable for the next several years. Whether that will be enough to maintain insurers’ return on equity (ROE) is anybody’s guess.”
Feature photo courtesy of iStock.com/Maartje van Caspel