Aviva Canada exec predicts how long supply chain pressures will last

A supply chain bubble that is putting pressure on the Canadian P&C insurance industry should burst within a year or two and it’s just a matter of riding it out, an Aviva Canada claims executive suggested during a virtual fireside chat.

“I’m not an economist,” said Bryant Vernon, Aviva Canada’s chief claims officer. “But from the conversations I’ve had with folks in the industry, that’s what most people are seeing — it’s going to be something of a year-or-so-bubble for the supply chain, particularly on the auto side, to work itself out.”

Supply chain disruptions on both the property and auto side have had “implications across the board,” Vernon said Thursday during a virtual fireside chat at The Future of Connected Claims Canada webinar, hosted by Reuters Events.

“Some of the [supply chain] issues have to do with, obviously, the pandemic, and just having a shortage of folks who can move the inventory and produce the inventory,” Vernon said. “Some of it also has to do with shipping issues…and getting things moved around the world. But I think it’s a bubble. And I think we’ll be able to just have to ride it out. I think it’s probably going to be a year or two of that.”

Bryant Vernon, chief claims officer at Aviva Canada (left), and moderator Bryan Falchuk, founder and managing partner of Insurance Evolution Partners, at The Future of Connected Claims Canada webinar, hosted by Reuters Events.

On the property side, supply shortages and the skyrocketing price of lumber, when combined with project delays and the continued effects of the pandemic, have increased property reconstruction costs in Canada, Opta Information Intelligence reported at the beginning of June. Property reconstruction costs increased by 6.4% across Canada year-over-year between May 2020 and May 2021.

Lumber prices in particular have been a hot topic. Year-over-year, lumber prices have risen between 120% and 140%, with a further increase of up to 35% expected this year, Opta reported. Overall, price increases are approaching 400% from 2019.

“We expect [that] these inflationary costs — not just on lumber, but other materials — will continue to be with us for the remainder of this year,” Opta’s president, Greg McCutcheon, told Canadian Underwriter earlier. And while it’s too early to predict what will happen in 2022, McCutcheon said he believes there is going to be a tail on these costs.

The effect has definitely been felt on the claims side of the industry. “We’re such an operationally-intensive, supply chain-intensive part of the business, and we’ve seen some disruptions in the supply chain,” Vernon said of the impact on claims. “It’s very hard to do anything around inflation at the moment, and you just have to ride it out. Every company’s got to figure out how…they manage those costs.”

Vernon said he believes “speculative activity” drove supply chain prices up, but “we’re starting to see those pressures subside.” Anecdotally, he’s heard the challenges revolve around routing material and getting material to places, rather than any inherent shortage of fundamental supplies.

Moderator Bryan Falchuk, founder and managing partner of Insurance Evolution Partners, noted that “moves have been taken to right the ship.” However, there’s a long lead time, so the pressures could persist for some time, he said. “We still have to see the supply chain even out.”

Feature image by iStock.com/shaunl