Canadian P&C industry must return to basics to succeed in recession

If members of the insurance industry are going to survive the hard market in an economic downturn, they must go back to basics, said Bob Tisdale, president and chief operating officer of Pembridge Insurance.
Tisdale spoke at the Insurance Brokers of Toronto Region (IBTR) luncheon on Feb. 17, 2009 in Markham, Ont.
Surviving the economic crisis in the insurance industry is going to be “very interesting,” Tisdale said.
He observed that as the rest of the economy “deflates,” the insurance industry is experiencing increasing loss ratios and will likely experience an increase in fraudulent claims and the liquidation of assets.
Because of this, the insurance industry will have to “inflate” (i.e. raising rates) and consumers may not understand the reasons why. “It is never a good thing to have a hardening market in a down-turned economy,” Tisdale said.
The current economic climate creates a number of challenges for the insurance industry, Tisdale observed:
•    Lower interest rates create a huge discount on reserves, and the bulk of the industry’s investments are in bonds.
•    The need to build and protect capital margins. Tisdale noted the results of minimum capital tests (MCTs) have deteriorated in 2008. “The top 15 property and casualty markets in Canada saw their capital level drop by more than 8% in 2008 Q3 when compared to the averages for Q3 from 2003-07,” he said.
•    Fierce competition for the best investments will drive down returns. There is so much capital looking for high-quality investments, the risk levels attached to those investments decreases, thus reducing the yield for those investments.
“Moving forward, consumers need to come first,” he said. “We need to understand them, not them us, which as an industry we’re not very good at.”
The industry as a whole needs to return to its core fundamentals, he said. These include underwriting for profit, shedding non-core lines of business and focusing on core competencies he said.
“There are tremendous opportunities once you understand what’s going on,” he said.