Economic climate likely to lead to increased losses for insurers

The current economic and political climate will likely lead to increased losses for insurance carriers, and potential developments in directors and officers (D&O) litigation, said Lynn Oldfield, president of AIG Commercial Insurance Company of Canada.
Oldfield spoke at the Ontario Risk and Insurance Management Society’s ‘Insurance Market in Canada Update’ seminar in Toronto.
“In a recession we see more losses presented to carriers — that’s a fact,” said Oldfield. “They usually increase between 10% and 16%, depending on the line of business.”
An increase in insurance fraud will also likely occur, she added.
As job layoffs and bankruptcies increase, people will be more likely to file a claim that they may not have otherwise filed. “As people get laid off, workers comp claims go up, slip and fall claims go up, it’s a natural outcome of the type of economic climate that we see developing,” she said.
While there is currently plenty of capacity in the commercial corporate director and officer (D&O) marketplace, economic and political trends may lead to developments in D&O litigation, she continued.
She reminded delegates that back in 2003, with the passing of Bill 198, many experts were predicting a tidal wave of “US-style” class action suits in Canada.
“Since then, we have had a total of five in Ontario,” she said.
Possible reasons for the small number of D&O litigation has been a strong economy in Canada, and the ‘squashing’ of the plaintiff’s bar in the U.S, she continued.
“Millberg Weiss, the largest plaintiff’s firm in the US has been convicted of basically paying people to be plaintiffs,” she said. “And they were the machine that was turning out a lot of the securities class actions in the US.”
But, a “Democratic sweep” from the White House to Congress to the Senate, will likely lead to a much more “trial friendly government” in the US as we move forward, and the downturn in the economy may mean that people will be more likely to sue — on both sides of the border.
“I think you are going to see some development,” Oldfield suggested. “Because it arises from the type of economic climate that we’re in right now.”