Market outlook

As we enter another year of the hard market, featuring higher rates and withdrawn coverage, brokers dealing with frustrated consumers want to know: when is this wretched market cycle going to end?

Longer than you think.

Most predict the current market conditions will last well into 2020, and I’ve heard guesses of up to 18 months to two years. Intact recently mentioned in a conference call that if industry ROE gets back up to 10%, the hard market conditions will be gone. The last time the industry saw that level of ROE was four years ago, and it has plummeted down to just over 4% last year, according to figures from Insurance Bureau of Canada (see our ‘By the Numbers’ section on Page 38).

Personally, I would not be surprised if it was well into 2022, or even early 2023, before Canadians see any genuine drop-offs in their premiums.

Why?

Because right now, the industry is making headway only on the rate regulation side of the business. Problem Number 1 for the industry right now is that rate regulation in Canada is too slow: insurance companies can’t raise rates fast enough to offset their escalating claims costs. Yes, Ontario and Alberta are open to auto reform that would allow insurers to close the gap between setting the price of their product and the ultimate price of a claims payout. But this is only tackling the revenue side of the insurer’s ledger. What about costs?

As near as I can tell, no one in government is moving quickly or effectively to address the many root causes of insurers’ rising claims costs. Too many Canadians are crashing their cars because they are driving distracted. Cars that are supposed to prevent collisions are too expensive to fix. And in an era of increasingly frequent natural catastrophes, too many people are building their homes and businesses in harm’s way.

Until any meaningful reforms help to curb these societal dynamics, which are at the true root of insurers’ claims costs, we can expect hard market conditions to linger. All of which is to say, buckle up everyone: journeying through this hard market cycle may be a longer trip than you imagine.