Despite easing inflation, P&C insurers face challenges

Canada’s May inflation rate slipped to an annualized 3.4%, Statistics Canada said Tuesday. That’s the lowest rate in two years and solidly below the 4.4% annual rate posted in April. It’s also in line with the Bank of Canada’s efforts to cool inflation to around 3% by mid-2023.

Lower inflation is welcome news for Canada’s P&C insurers, which posted an 85.4% combined ratio at year-end 2022, according to a recent MSA Research report. It found the industry largely held its own last year, thanks in part to an historically large reserve release of over $7 billion. Without it, MSA Research president and CEO Joel Baker wrote in MSA Quarterly Outlook Report Q4 2022, “the run rate [combined operating ratio] would have been closer to 96.”

Indeed, the geopolitical and economic climate in Canada means a number of lines are still challenging, said Susan Murphy, president of HUB International Ontario.

“[Insurers] want to grow but are looking at best-in-class risks while still trying to get rate; and history shows that these two don’t work well together,” she told CU. “Generally, across Canada, 2022 saw tightening remain around most of the lines, with specialty lines loosening towards the end of the year.

“We are now starting to see more softening in several lines in the later part of 2023 as insurers are looking to grow coming off a solid performance in 2022.”

Sadly, these tensions don’t just affect Canada’s insurers. They also rebound across the global industry, said Olga Collins, CEO of Worldwide Broker Network.

“Canada has had a particularly challenging few years with the impact of natural catastrophes in the way of floods, hurricanes and most recently wildfires,” she told CU. “As a result, this year will probably be reported to be highest historical claims year; especially in rural areas where they don’t have full coverage.”

A Moody’s 2023 Northern Hemisphere Tropical Cyclone Outlook also sees continued impacts for the insurance industry. It noted that North Atlantic hurricane season forecasts for 2023 indicate a near-normal season is most likely. But those forecasts rest on assumptions about things like the El Niño-Southern Oscillation and North Atlantic sea surface temperatures that have yet to play out.

“Even though 2022 was classified as a near-normal season in terms of overall tropical activity, the insurance industry will remember the season for only one event: Hurricane Ian,” Moody’s said.

“Ian was a historic and complex event that caused catastrophic wind and storm surge damage in southwestern and central Florida and the Carolinas. Landfalling in a precarious Florida market amid rising inflation, Hurricane Ian is anticipated to be one of the costliest U.S. hurricanes on record, and one that will reshape the Florida insurance market for years to come.”

Fortunately, Canada only experienced residual impacts from Ian. But Hurricane Fiona’s Sept. 24, 2022 landfall resulted in the costliest extreme-weather event ever recorded in Atlantic Canada, and gave the industry a good look at what climate change can bring.

Canada’s insurance industry stepped up in the face of these challenges, Collins noted. But impacts from severe weather have also increased demands on brokers, who have needed to be more proactive and consultative, rather than transactional.

“Weather-related changes are only going to increase in frequency, so we need to become advocates for our clients and ensure they have the right coverage,” she said.

“Despite the challenges, some positive outtakes – which I hope remain – have emerged, notably that the industry has become more collaborative and caring, with more emphasis on people’s well-being and mental health.”

Feature image by iStock.com/Nuthawut Somsuk