Legacy systems, pricing cycles and policyholder expectations cited as Top 3 risks for Canadian P&C industry

Outdated legacy systems, managing pricing cycles and changing policyholders’ expectations are three of the top risks facing the Canadian property and casualty industry over the next three to five years, according to Susan Meltzer, assistant vice president of risk management at Aviva Canada.
Meltzer was responding to a question from the audience after delivering a presentation, ‘Risk Managing the New Normal,’ at the CIP Symposium 2010 in Toronto.
“I think the single-biggest risk facing the industry right now, in the short term, is our legacy systems and our information technology,” she said, making clear she was not speaking in her role at Aviva. “I think we just suck, and I think we’re not ready for the new generation.
“Some of us are a little bit more ready than others, but we’re really not ready [as an industry]. And that is the biggest exposure for all of us.”
Second, Meltzer said she is concerned a hardening market cycle, particularly in personal lines, is manifesting itself at a time when consumers are experiencing a market downturn. At a time when insurers are asking policyholders for more money, the policyholders have a reduced ability to pay higher insurance premiums.
Meltzer said it is one thing for this to be happening in personal lines, but it bothers her most when commercial lines insurers simply follow this same pricing cycle.
She suggested attention should be paid to how a pricing cycle interacts with the economic reality of the broader community of policyholders.
“We were all sitting around waiting for the market to turn, right? Who cares?” she said. “Our biggest challenge, and the risk we have, is that we operate our companies based on the inevitability of the market cycles rather than in a strategic way of matching [pricing cycles with economic cycles] and being able to provide affordable insurance.”
Finally, Meltzer expressed concern that something analogous to what happened in Louisiana after Hurricane Katrina could happen in B.C. after an earthquake.
Insurers in Louisiana thought their home insurance policies covered wind damage, but not water or flooding damage, in the event of a hurricane. But regulators, representing the changing expectations of policyholders, challenged this interpretation in the courts.
The courts ultimately found the homeowners’ insurance policies covered both wind and water damage. 
“The third really horrible, plausible thing I worry about, which is off the radar screen, is about policyholder expectations and changes in [policy] wording because a government decides that we should pay a claim,” she said, referencing the Hurricane Katrina scenario. “So we’ve all got our deductibles in place for British Columbia and [we know] how we’re managing earthquake, and then the government is going to say: ‘No, you can’t do that.’ And then we’ll have more exposure.”