COVID’s impact on P&C insurance in 2021? All bets are off for Aviva’s CEO

Having reported improved financial results for Aviva Canada in 2020, Aviva Canada’s CEO Jason Storah has his sights set on what the future may hold for 2021 — and frankly, all bets are off.

“It’s such a volatile environment, one of the things that I’ve decided to do a long time ago is to stop trying to speculate and look into the crystal ball,” Storah told Canadian Underwriter Friday during a videoconference call about the company’s 2020 financial results.

Aviva Canada increased its operating profit in 2020 by 50% to £287 million (up from a profit of £191 million in 2019), citing the impact of rate actions taken, lower personal lines claims frequency, and risk selection. (The Canadian dollar traded at $1.75 against the Great Britain pound Friday.)

These factors all combined to allow Aviva Canada to shave its combined operating ratio down from 97.8% in 2019 to 94.7% in 2020.

But as for what 2021 is shaping up to look like, Storah implied that the impact of the pandemic will defy all expectations. “Even if I think about working from home, there were a few months last summer when you could go out, and you have lunch on a patio,” he said. “We were starting to have conversations about how we might be able to get people back into the office [in 2021 Q1 or Q2]. And then obviously with the Christmas lockdown, that changed.”

Several factors make it particularly difficult for the industry’s underwriters to predict what might happen in commercial and personal auto lines, Storah observed.

iStock.com/inspired_by_the_light

In commercial lines, he noted that many businesses were forced to adjust very quickly to an entirely new economic and business environment due to the impact of COVID-19. The pandemic resulted in a series of government lockdowns that shut down non-essential businesses and ordered people to stay at home to contain the spread of the virus, which has killed more than 22,000 Canadians.

“Last year was such an exceptional year in terms of people [and businesses] adapting and pivoting,” Storah said. “One example that comes to mind is that we had a brewery that overnight started to make hand sanitizer. We saw a lot of those examples of people pivoting, and we saw the brutal impact of COVID that we saw on so many businesses and individuals.”

As vaccines arrive in Canada, the prospect exists of an economic recovery. But what that recovery might look like remains up in the air, and Storah doesn’t want to hazard any guesses at this point. “I think there is going to be an uneven economic recovery, because I think there was unevenness in the way COVID impacted in different parts of the economy, different people, and different businesses.”

Ultimately, Storah is inclined to take “a long-term view” when it comes to navigating through the economic chaos caused by the pandemic. “We’re just looking at what businesses will need as they come out of COVID and transition into whatever the new normal is going to look like,” he said. “And [we will be looking at] what can Aviva do to make sure that we are there [for clients], and that we are offering flexible and affordable insurance for people when they need it for getting through this.”

The impact of COVID on auto insurance is also a wild card, as underwriters have been telling Canadian Underwriter. A traditional narrative is that lockdowns reduce traffic, and therefore auto claims are reduced, thus decreasing the need for insurers to raise premium rates. But insurers are now finding that there isn’t a simple correlation between government lockdowns and a reduced auto claims experience.

“I think it’s very easy for people to think, ‘There’s not as much traffic on the roads as there used to be [due to COVID lockdowns],’” Storah said. “But you know what? People are on the roads at different times of the day, and accidents haven’t dropped at the same level that driving has dropped.”

Storah noted a recent report about an increase in the number of speeding tickets in Toronto during December, the latter part of which the province was in a full lockdown.

A report by blogTO showed just one location in Toronto was responsible for 2,888 speeding tickets December. All told, 50 of the city’s photo radar cameras resulted in 22,180 speeding tickets being issued by police in Toronto during the month. And so, Storah said, while frequency of claims may be down due to lockdowns, increased speeding means more severe — and costly — auto claims for insurers.

Storah also has his eye on how the post-COVID workplace might affect driving patterns.

“When I look ahead to what being able to go back to the office means — the new agility and flexibility we all think we might have [related to working from home] — I do think the new normal is going to be new. We’re not just going to bounce back to the way we were. There is going to be a balance between working from home and working in the office. That is going to have an impact on driving patterns and behaviours, but I wouldn’t want to hazard a guess as to what that’s going to be.”

Weather patterns are always a factor as well, said Storah, noting that this year’s winter in Canada has been relatively benign compared to previous years — a phenomenon that typically translates into fewer claims.

Feature photo courtesy of iStock.ca/catchlights_sg