Canadian P&C market will continue to “deglobalize”

The Canadian property and casualty market is increasingly becoming dominated by domestic players, a trend that brokers cannot and should not ignore, one industry head says.

“Globalization was the trend we were all reading about,” several years ago, but now the trend here is toward deglobalization, Alister Campbell, CEO of the Guarantee Company of North America said during the P&C Crystal Ball event in Mississauga, Ont. Thursday.

In the late 1980s and 1990s, the industry’s top 15 companies by market share was dominated by major companies, often based in the United States or European capitals, he noted.

Now, two thirds of the P&C market here is made up of Canadian-owned insurers, Campbell noted in his presentation. That’s not solely due to Intact Financial and its acquisition activity, he noted, which is “emblematic of the trend,” but not its specific cause.

Rather, the trend is more likely because of certain unique Canadian factors. “It’s possible that there’s elements of the goodness in Canada that make it less attractive to be a foreign insurer active in this market,” he said.

The Canadian regulatory system has also had a definite impact on domestic insurers’ success, he noted. “Federally, as Canadians, I think we can all be proud of how our financial institutions survived and even prospered during the financial crisis that is still unfolding in the world,” he commented.

Capital requirements here are onerous, making it less attractive for foreign-owned insurers to invest more here. For Canadian executives reporting to head offices abroad, the regulatory environment can make it more difficult to convince decision makers to invest in more staff and resources in Canada, Campbell said.

Those high-up executives and companies can also impose global mandates that may not work well here, he said. “No matter how great a global company is, sometimes, just because it’s global, it’s going to be slower to make a local decision,” he said.

Another contributor to the deglobalization trend is the Canadian distribution channel, Campbell said. “The independent broker channel in Canada has turned out to be more robust and resilient than the independent broker channel of any other Western developed nation,” he commented.

Canadian insurers may be able to leverage that network better than foreign-owned companies, who might view the broker channel as a distribution system that won’t last, he said.

Still, the growing market share hasn’t necessarily meant more profitability, partly because of regulations here and capital requirements, he said. 

Canadian insurers have had the worst loss ratios for 15 of the past 20 years, when government insurance is included. When government is not, Canada and the U.S. are evenly divided in having the worst loss ratio, with European companies never last, Campbell noted in his presentation.

“We may be way bigger now, in a way that is fascinating, but we’re not necessarily yet the most profitable,” he said.

Regardless of the theories as to why it’s happening, Campbell said he bets on the deglobalization trend continuing and that brokers should be looking five to 10 years ahead and making strategic decisions about their partnerships.