Growth? Maybe. Why carriers aren’t promising a soft market yet

Beyond the obvious threats of inflation and a possible economic downturn later in 2023, a confluence of other issues is triggering duress for brokers and insurers, which has carriers cautioning the hard market isn’t over yet.

Taken together, these factors are exacerbating existing hard market conditions, characterized by increased premiums and deductibles, and a reduction in insurance capacity, industry sources tell Canadian Underwriter. And so, although the P&C insurance industry as a whole turned an underwriting profit in 2022, carriers are still hesitant to say the market is turning, largely because expected claims costs could still swing higher in 2023.

For example, real estate companies are not likely to see reduced premiums in 2023, predicted Ilan Serman, regional president of Ontario at Gallagher. This is despite in-office work activity remaining below its pre-pandemic peak.

And, in commercial auto, brokers may see a reduction in driving activity, but carriers will still experience an increase in claims costs. Plus, inflation increases the value of vehicles (and car repairs), so that will increase premiums as well.

Other knock-on effects of a recession could include a rise in the frequency and severity of claims. Part of this may come from opportunist policyholders who commit auto fraud to make cash.

“I think whenever there’s a recession, we get more fraudulent claims happening,” said Tina Gardiner, manager of risk management services at the Regional Municipality of York.

“Anybody who’s dealing with taxis, trucking, commercial and personal auto lines, bus lines, transit claims, they’re going to see an increase in claims.”

Likewise, Serman said it’s reasonable to anticipate “an increase in nuisance or opportunistic claims during a recession.”

Plus, the industry can’t forget about the impact of geopolitical tensions on the supply chain, said Yvonne Steiner, head of property at Zurich Canada. For example, a global reduction in container freight availability has affected the movement of goods worldwide.

“We cannot just look at it within a very narrow scope of local economy or a Canadian-only context,” she said.

These supply chain issues are extending business interruption claims following a loss, thus resulting in premium increases.

“If [a client] had an expectation in the past that their organization would be impacted for 12 months post-loss, well, that’s getting pushed out because of supply chain issues,” said Russell Quilley, head of commercial risk at Aon. “You want to make sure that you understand what those time periods are and you’re buying to the limit that will benefit your business.”