November 29, 2021 by Jeff Buckstein
A surprising reveal in Canadian Underwriter’s Trusted Advisor 2021 survey is that 23% of business client respondents said they’d contacted their broker to make a commercial claim over the past two years. That’s up from 20% in the 2020 survey.
“Instinctually, I think those numbers are higher than they traditionally would be,” said Stephen Stewart (pictured, above), president and CEO of Stewart Specialty Risk Underwriting Ltd. in Toronto.
He noted the common denominator for the past two years has been the COVID-19 pandemic, which led to government-imposed lockdowns, with business sectors like retail and hospitality being especially hard hit. The result was a material increase in claims.
“I think what’s happened here is because there was, and still is in some cases, uncertainty about whether there’s coverage for business interruption occasioned by the lockdown. Insureds have put forth claims because they have lost money due to the lockdown, whether it’s covered or not,” said Stewart.
A secondary cause of loss might have originated because buildings were unoccupied during the lockdown last winter. This might have caused their heating, ventilation and air conditioning systems to fail, leading to frozen pipes and further losses for which a claim is made, said Stewart.
The pandemic’s created, “lots of opportunity for things to go wrong, and for people to say ‘maybe this is covered out of my insurance policy. I’m going to call my broker and see if it’s covered.’ The claims frequency we’re talking about isn’t necessarily a frequency of indemnity. It’s a frequency of reported incidents,” he explained.
However just because a claim is made does not necessarily mean the claimant will be indemnified.
“There are a number of cases in North America that are still before the courts that intend to determine whether there is coverage resulting from lockdown occasioned by the pandemic. But for the most part I think the industry consensus in North America is that property and casualty wordings exclude loss occasioned by disease, unless you have a positive endorsement providing the coverage,” said Stewart.
Shipping delays … and more
Various logistical difficulties emanating from the COVID-19 pandemic have also created issues for insurers.
“One area that we’re looking at very carefully, especially in 2021, is supply chain management,” said Bernard McNulty, the Toronto-based chief agent and head of claims with Allianz Global Corporate & Specialty in Canada.
“Many of our clients are global and they are obtaining components [and] product from all over the world. The moment something happens to that supply chain it has a downstream effect that would impact their business,” he said.
When a necessary component for that business cannot be shipped from its point of origin, that can result in a contingent business-interruption claim. Some clients have that provision covered in their policies, McNulty said.
Another major underwriting concern in commercial lines is the impact of climate change. “We see it right now in Abbotsford [B.C.] with the flooding that’s going on there. That will certainly give rise to claims,” said Stewart.
McNulty also cited impacts of climate change, noting that at various times across Canada, severe weather events, including wildfires, hail, wind and flooding have caused major damage in 2021. “That is all front and centre from an underwriting point of view for sure,” he said.
Cybersecurity, for which there have been rising claims in recent years, also continues to be a serious threat.
“There are certainly very real cyber threats,” said McNulty. “Every sector is vulnerable to cyber hits right now. When we evaluate the risk to a business client, part of our evaluation process is to determine how vulnerable that business is to the cyber threat.”