Aon’s take on the state of the Canadian P&C insurance market

The first quarter of 2020 saw a continuation and acceleration of the Canadian risk and insurance market shift that took hold in 2019, with pricing increases, withdrawn capacity in several key lines of business, tightened terms, and an increasingly rigorous underwriting process.

In several lines, carriers have indicated they will be reducing or tightening capacity, according to Aon’s 2020 Canadian Insurance Market Report, released last week. For example, most commercial property insurers said they will be looking for rate increases and, in most cases, reducing capacity. Increased retentions will also be targeted, especially for clients that have a frequency or severity issue or undesirable risk quality.

The insurance market in general has changed significantly over the last two years, Aon observes, with insurers taking a far more disciplined approach to underwriting beyond merely looking at price adequacy. Across the board, carriers are reducing their limits where appropriate, exiting certain industry segments, and reducing coverage.

“It is vital that clients, brokers and insurers alike properly evaluate risk exposures to confirm that coverage and limits remain sufficient,” Russell Quilley, chief brokering officer with Aon, said in a press release.

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Near the end of the first quarter, the COVID-19 pandemic took hold, affecting every sector of the Canadian economy, and insurers continue to adapt to a hardening market.

“COVID-19 and its economic and risk impacts have contributed to the market transition,” Aon said in the report. “Pricing and retention increases, alongside capacity reductions, are widespread. While the economic slowdown due to COVID-19 has mitigated risk in some areas, there are pockets of increased exposure.”

Aon pointed to emerging casualty risks from temporary changes in operations where liability protection isn’t always provided. Property risks have shifted to unoccupied or repurposed buildings and a high concentration of parked vehicles and equipment.

In addition to commercial property insurers looking for rate increases and reducing capacity, some segments — such as residential realty, hospitality, food, recycling, and seafood processing — are experiencing a much more aggressive capacity pullback from insurers. Top risks include no coverage/unfilled property lines, reduced coverage for clients with U.S. exposure, cyber, social engineering, theft, water damage, business interruption from ingress/egress, supply chain lines, tariffs, fire and economic slowdown. “Insurers are reducing subscription lines, non-renewing, or completely exiting these tougher classes.”

Other affected industry sectors include:

• Directors and officers: The market is hardening monthly, and publicly-listed companies are experiencing the highest rate increases
• Professional liability: Insurers in this area are pulling back capacity and looking for rate increases for professions that are perceived higher risk, such as architects, structural engineers, and geo-technical engineers
• Property: Capacity is tightening in the energy sector, with rates pushing higher. Capacity is shrinking due to poor industry results, more conservative underwriting, and a withdrawal from the oilsands sector. Continued large loss activity in downstream property is driving the largest rate push overall.

Despite the ongoing challenges, the Canadian insurance industry continues to be an attractive location for capital deployment due to profitability and stability, Aon said. The Canadian insurance industry operates profitably with a 98.3% cumulative net combined ratio, compared to 98.6% in the United States and 99.7% in the United Kingdom.

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