January 30, 2005 by Canadian Underwriter
2005 is shaping up to be an interesting year for Canada’s property & casualty insurance industry, says Omega Insurance Holdings CEO Philip Cook. Cook looked into his crystal ball to outline “33 trends” the industry may see this year, speaking to a breakfast meeting hosted by the CIP Society.
In commercial lines pricing, Cook expects property rates to remain flat or slightly decrease, while general liability rates will likely decrease. However, certain liability lines are “all over the map”, namely professional indemnity. “One of the main reasons is that underwriters are reading and looking at information from all over the world,” Cook explains. While some underwriters are extrapolating U.S. tort issues to the Canadian market, others see Canada as very distinct and not prone to the same concerns witnessed south of the border.
Responding to the broker compensation crisis, Cook says large brokers will likely “unbundle” the services they provide so that they become more transparent, and also as a means to create revenue opportunities. “Rather than just saying ‘we get 12.5% commission’, they will have to justify exactly what they do for that 12.5%.” This means services such as risk management, surveys, assessments and the like will be charged for separately.
On the personal lines front, Cook says Ontario auto remains troublesome despite headway made in the past year. “I don’t see on the horizon necessarily the resolution of that [auto reform] in the next 12 months. The political will to change it is there.”
Overall, Cook expects there will be some new capital entering the Canadian market, specifically with new players coming in to write very specific lines of business. While new capital seen thus far has been in reinsurance, he also expects at least a couple new insurers to come into the marketplace this year. At the same time, some existing players may withdraw from Canada, not having reaped the returns they may have expected given that Canada is viewed as a safer market, specifically compared to the U.S. This may take the form of closing a branch, but might also involve taking back excess surplus from this market.
And consolidation will no doubt be seen in insurer ranks, with the potential for both domestic mergers and acquisitions and also global parent mergers impacting Canadian branches. This is inevitable, Cook suggests, because “there are still too many insurers in Canada”.
But consolidation in broker ranks should slow, he adds, with fewer brokers willing to put their firms on the market while they are at a low point in terms of value. At the same time, some of the broker networks are under pressure to break up because of lack of returns, he concludes.