Canadian Underwriter

Canada’s hardest-hit commercial lines — and a reason for optimism

February 18, 2021   by David Gambrill

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Commercial lines market hardening in Canada — and globally — should continue through the early half of 2021, with some possible easing of rate increases during the second half of the year once vaccine rollout is widespread, an Aon report predicts.

“There is general optimism that the rollout of the COVID-19 vaccine will have a positive economic impact,” Cynthia Beveridge, president of Aon’s broking and commercial risk solutions divisions, said while announcing the release of Aon’s Q4 2020 Global Market Insights Report. Beveridge was talking about the global insurance market generally and not specifically about Canada.

“Along with the introduction of additional capacity into the market, this may result in an easing in the second half of 2021 of some of the challenges experienced in the risk and insurance environment during 2020,” Beveridge predicted. About US$20 billion of capital entered the market globally between March and December 2020, Aon reports.

However, despite the global capital infusion and vaccine optimism, commercial lines throughout the world are still in the grip of a hard market.

“Risk complexity will continue to be impacted by supply chain vulnerability, a virtual workforce, ongoing economic uncertainty, social inflation, and weather volatility,” Beveridge said. “We expect heightened underwriter scrutiny on supply chain transparency and resilience, COVID-19 and communicable disease safety measures, and cyber threat resilience. Pricing and coverage terms will continue to address these concerns.”

In Canada, the hardest-hit commercial lines — where rate increases have exceeded 30% — include construction, financial lines, and professional indemnity for all sizes of accounts, according to Aon’s report.

Deductibles for Canadian businesses are up in eight out of 10 major business classes, including commercial auto, aviation, casualty/liability, construction, cyber, financial lines, professional indemnity, and property. Deductibles have remained flat in Canada’s marine and product liability lines.

Aon sees capacity as “tightening” in all of the above Canadian business classes except for aviation (where Aon rates capacity as “ample”).

In the small and mid-sized business market, Canadian P&C insurers are ranked as “aggressive” in seeking rate increases across all lines. Exceptions are aviation, cyber, marine, and product liability, where Aon rates insurers’ attitudes as “prudent” (the next level down from aggressive).

For larger and complex risks, Aon rated Canadian insurers as “aggressive” in seeking rate in commercial auto, casualty/liability, construction, financial lines, professional indemnity, and property lines.

Financial insurance lines in Canada have seen “a notable withdrawal of capacity,” Aon states in its report. “New capacity is coming into the market on a very limited and conservative basis.”

Canadian underwriters are imposing higher retentions and cyber exclusions in financial lines, in addition to removing their “defence outside the limit” coverage for private and non-profit organizations, Aon states. The most challenging risks in financial lines are mining, oil and gas, cannabis, Quebec-domiciled companies, retail, hospitality, travel, and healthcare/long-term care facilities.

In commercial auto, social inflation has affected auto insurer performance in Canada, Aon reports. “Organizations with unaddressed quality issues — or with U.S. trucking exposure — are finding very limited insurer appetite,” the report states. “Excess insurers are requiring $5-million attachment points, and primary limits are being increased accordingly. Twenty-five-million-dollar attachment points have become the minimum for some insurers.”

In Canada’s commercial property market, insurers are looking to transition away from manuscript wordings in favour of their own policy language, Aon reports. In addition, they are looking to establish clarifications and exclusions for cyber, communicable disease, strikes, riots and civil commotion, and for business interruption.

With all of this activity in commercial property, brokers are having a harder time getting quotes on a timely basis, Aon states. “Due to the high volume of submission activity,” the brokerage said, referring to Canadian commercial property lines, “turnaround times for quotes have slowed significantly. There is some optimism that the Canadian property market will temper in 2021.”


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