Marketplace

REINSURANCE

Terrorism, cyber attacks among main emerging risks in reinsurance

Cyber attacks and terrorism are among the main emerging risks currently facing the reinsurance sector, notes a new report from Guy Carpenter & Company.

Emerging risks are divided into three categories: technological (those that are genuinely new, emerging from new technologies and processes); crystallizing (those that are not novel, but whose implications are evolving) and aggravating (those that are well-known, but whose impacts are becoming potentially more serious).

“Whatever the category of emerging risk, the main challenge lies in modelling and quantifying the potential impacts,” says Morley Speed, managing director of GC Securities. “Only in this way can insurers leverage their key capability, which is the creation of value by risk management,” Speed adds.

Quiet Q3 for cat bond issuance: PCS

Although no property and casualty catastrophe bond issuance activity occurred in 2014 Q3, a new report from Property Claim Services (PCS) suggests 2014 could still be “record-setting.”

2014 Q3 was decidedly different than 2013 Q3, when sponsors raised $1.5 billion, well above the 10-year average of $680 million.

That said, “the fourth quarter tends to be busy, with sponsors using catastrophe bonds as part of a broader risk and capital management plan ahead of the January 1 renewals,” PCS notes. “A repeat of fourth-quarter 2013 issuance levels would put full-year 2014 issuance far ahead of last year’s.”

In the first nine months of 2014, insurers and reinsurers have issued about $5.7 billion in cat bonds, up roughly 6% over 2013. Issuance for cat bonds with some North American exposure also increased from $4.3 billion in the first nine months of 2013 to $4.8 billion in the same period in 2014.

As well, “for the first nine months of 2013, the average catastrophe bond size was $216 million. For the same period this year, it’s $317 million,” the report notes. 

Need for innovation to be key: Lloyd’s Beale

Using the over supply of capital entering the insurance market to cover new and emerging risks, including in developed markets, will be key to staying competitive in today’s challenging pricing environment.

Relationships remain crucial for the Lloyd’s market, but its coverholders, brokers and underwriters must continue to innovate as low interest rates and more capital put pressure on pricing, Inga Beale, chief executive officer of Lloyd’s, said at a recent event in Toronto. “I don’t want Lloyd’s to get drawn into a race to the bottom on pricing,” Beale said.

There are opportunities for growth even in core products in developed areas, including in well-covered countries like Canada. Uptake of earthquake coverage in Canada is still relatively low, Beale said.

Sean Murphy, president of Lloyd’s in Canada, added that cyber insurance is an area with potential for growth, but businesses need help to understand their risks. 

Insurers cautioned to be prepared for quake in Eastern Canada

Speakers at a recent event cautioned that while talk around earthquake risk in Canada has centred on British Columbia, insurers would be well-advised to also consider their ability to respond to a tremor in Quebec or eastern Ontario.

“I don’t think we spend enough time in Canada looking at the impact of an eastern Canada quake,” Carol Jardine, an independent insurance consultant, said at an earthquake response seminar in Toronto, held by Catastrophe Response Unit.

“Montreal and Ottawa are both at significant risk of ground shaking,” said Kristy Tiampo, a professor at the University of Western Ontario, who also works with the Institute for Catastrophic Loss Reduction. Both cities have had quakes measuring about 6 on the Richter scale.

Said Tiampo, “What happens if we start to look at earthquakes that occur a little bit more frequently? They might be a little bit smaller, but they still have a significant likelihood of occurrence.”

REGULATION

Ontario’s rate reduction may negatively impact profitability: OSFI

The Ontario-mandated directive for the property and casualty sector to reduce auto insurance rates by an average of 15% could have a negative impact on profitability, the Office of the Superintendent of Financial Institutions notes in its annual report.

The target reductions “may negatively impact Ontario personal auto insurance underwriting profitability if the additional claims-related measures introduced in the 2013 Ontario budget are delayed in implementation.”

Net income of $2.4 billion for the industry fell 37.5% over the previous year’s net income of $3.9 billion, while return on equity dropped to 7.4%, from 11.4% a year earlier, the report notes.

Increased auto accident benefits in PEI

Benefits for auto accident victims in Prince Edward Island have increased for accidents occurring October 1 onward, regardless of when the policy was purchased.

New provisions include changes to the minor personal injury definition, and an increase on the cap on court awards for such injuries, rising from $2,500 to $7,500.

There are also increases for medical and rehabilitation expenses, funeral expenses, death benefits, loss of income, and the principal unpaid housekeeper. The loss of income age limitations also have been removed.

Feedback sought on safe driver discount insurance program: SGI

SGI is seeking public feedback on its Safe Driver Recognition program, which allows those with a good driving record to be in the “safety zone” on the insurer’s safety rating scale and earn a discount on basic vehicle insurance.

Customers are being asked, among other things, to consider increasing the financial penalty per demerit point (currently $25/point); increasing the threshold for an at-fault crash to garner demerit points (now damage costs of $305 or more); and assigning demerit points to regular speeding tickets.

RISK

Mining-related spills show potential for back swan events

Clean-up costs alone of major spills in certain areas – such as British Columbia or Alberta – could be in the tens of millions of dollars, demanding that mining companies have in place appropriate coverages, suggests a recent report from Marsh.

Since October 2013, there have been four high-profile environmental incidents in North American’s mining sector. “These events highlight the fact that catastrophic ‘black swan’ events can occur regardless of the quality and thoroughness of on-site engineering and environmental management controls.”

Marsh contends these incidents “can impair a company’s ability to meet its financial obligations if not managed and planned for.”

Phones often used behind the wheel in traffic, at red lights

A survey by Leger for Allstate Canada shows that traffic delays and being stopped at red lights are common times polled Canadian drivers use their cellphones. In all, 40% of respondents reported checking their phones when stopped in traffic because of delays, and 34% said they check their phones and 18% texted when stopped at a red light. Just a third of surveyed drivers said a fine or ticket would be enough to have them stop using their phones while driving. However, 57% noted they would be in favour of having technology installed in their cars to prevent them from using their phone while their car was running.

CANADIAN MARKET

Commercial lines prices in 2014 Q2 rise

Commercial insurance prices increased 3% across all lines in 2014 Q2, notes a recent survey from Towers Watson. Based on data from seven Canadian insurers and groups, representing about 20% of the Canadian commercial insurance market, it shows price changes for all lines were in the low-single digits. The largest price increase was reporte
d for the general/products liability lines, followed by commercial auto and property lines.

SGI Canada enters B.C. p&c market

SGI Canada has received a licence that allows the insurer to compete in British Columbia’s property and casualty insurance market, and expects to begin doing so in the summer of 2015.”B.C. is a province with strong growth potential and, with SGI Canada’s experience writing insurance for the mining and oil and gas industries, moving further west is a good fit,” says Andrew Cartmell, SGI’s president and chief executive officer. “This move also allows us to further spread our risk, meaning losses due to events like catastrophic storms in one region are offset by profits in other regions. This benefits customers in all regions by assisting with rate stability.”

CLAIMS

Cat losses US$14 billion for first nine months

North American catastrophe activity has resulted in slightly more than US$14 billion in insured losses for the first nine months of 2014, Property Claim Services (PCS) reported in mid-October. PCS has designated 26 catastrophe events for the first three quarters of the year in the United States. Insured losses of US$13.6 billion are 13% higher year-over-year. In Canada, “insured losses from four catastrophe events reached only $700 million, down almost 80% from last year’s record,” the company notes of the quietest Cat year since at least 2009.

TECHNOLOGY

Aerial drones can help insurers meet customer expectations quickly

Boston-based Strategy Meets Action is predicting increased momentum in the use by insurers of unmanned aerial vehicles, or drones.

Nearly 51% of insurers plan on investing in drones/aerial imagery over the next three years, writes Denise Garth, partner and chief digital officer at SMA. Garth notes “use of drones and aerial imagery can assess a property, particularly a roof, during the underwriting process, providing relevant information to assess the risk.” In addition, “it provides a picture of the property prior to any loss, helping to avoid fraudulent claims.” The report is based on a study of nine technology areas, with participation from 88 insurance companies and 20 firms outside the industry.