CEOs say hard market is here to stay

Anyone living under the impression that the current hard market will be short-lived may have pause to reconsider, members of an industry panel tell delegates at the 12th Annual Canadian Insurance Congress this week. Panelists agree it will take prolonged rate increases to bring the industry back up to profitable levels. “I don’t see this hard market as a 24-month exercise,” says Toby Stubbs, property reinsurance underwriter for Lloyd’s syndicate Wellington Underwriting.
“If the hard market is too short, the next round will be even more painful,” comments George Cooke, president of Dominion of Canada General Insurance. Despite over-capitalization, underwriting discipline should last, says Larry Simmons, president of Royal & SunAlliance Canada, because insurers are not just hiking prices, but also looking at policy terms and respond to global parents’ push for profits.
However, if the stock market rebounds, insurers may be tempted to revert back to price competition, notes Igal Mayer, president of CGU Group Canada. “If we see the Dow returning 15% returns again, all bets are off.”
Insurers have and will continue to face increases in the reinsurance market as well. Reinsurers had little option but to pursue this course in the last round of renewals, notes Patrick Lacourte, chief agent for Partner Re. While insurers hope for consistent returns, reinsurers need to have some very strong years to balance out heavy loss years, he explains.
There is concern about the spread of capital in the industry, which while overall criticized as over-capitalized, has some top-20 players under careful review by the regulators as they creep towards capital adequacy trouble. “The last thing we need is more people pulling out of the market,” says Robert Landry, president of Zurich North America Canada. He hopes sustained hardening will help “settle” the industry, and predicts the hard market could extend into 2005.
Panelists were critical of regulators, particularly in the auto market, for being reluctant to allow rate increases. Unlike commercial lines increases, which were across the board, regulated lines are much harder to address, says Cooke. He is still hopeful that the B.C. auto market will be opened up to full competition and notes that regulators there will need to be more flexible if insurers are to succeed in that market.
However, panelists seemed less convinced than a year ago that changes in B.C. would come to pass. “There isn’t the level of dissatisfaction from the consumer in B.C. to bring about the change we want,” says Mayer. Lacourte warned insurers to be careful about entering into formerly public insured regions, noting that he has seen insurers post very bad results from doing so in other countries.
Among the key concerns of CEOs is the rise of class action lawsuits. “Every time I read the paper, there’s the seed for a class action,” says Landry. He notes that although severity might not be the issue, the frequency potential in class actions could give insurers headaches.
Mayer adds that the continual “broadening” of coverage is of concern, as insurers seek to write every possible risk. Certain risks, such as terrorism may just not be quantifiable and therefore not insurable.