March 31, 2015 by Angela Stelmakowich, Editor
The recent slide in the price of oil will influence the Canadian economy over the next two years, but there may be a silver lining for the property and casualty industry in that the lower gas prices expected to follow could lead to an uptick in the demand for personal insurance products, suggests Gregor Robinson, senior vice president of policy and chief economist for the Insurance Bureau of Canada (IBC).
The slide in oil prices “is likely going to be the single biggest influence on the global and Canadian economies for the next two years,” Robinson (pictured below) told assembled guests at Swiss Re’s 30th Canadian Industry Outlook Breakfast in downtown Toronto Tuesday.
Noting that the price of oil has dropped by approximately 47% since September, he said the impacts will vary across the country. For example, Alberta, Saskatchewan and Newfoundland & Labrador are seeing investment weakness, slower growth and government budget struggles, while in Alberta, the lower oil price may translate into lower demand for p&c products, Robinson told attendees.
That said, “the fall in oil means lower gas prices. The effect is the same as a tax cut – it leaves people with more money in their pockets, which they can spend on other goods and services,” he explained. “We think that lower gas prices and the resulting higher disposable incomes could lead to an uptick in demand for personal insurance products, perhaps especially for auto.”
The lower dollar – in part, the result of lower oil prices and lower commodity prices – has served to make manufacturing exports less expensive. “This is important for Canada, as we are a small open market, with net exports expected to contribute 33% to GDP this year, according to the Bank of Canada,” Robinson said.
Strong growth in the United States together with the lower dollar “should eventually boost exports, although the impact will be uneven, with higher demand for the goods and services produced in central Canada versus the resource products of the west,” he explained. [cllick image below to enlarge]
Pointing out that Ontario may have the highest provincial growth in 2015 or 2016, Robinson said, “we think all this could be positive for the demand for commercial insurance products.”
The other major development has been the fall in interest rates, Robinson said. Lower interest rates have a “stimulative impact on consumption and capital investment. This is also positive for p&c insurance,” he said.
“So, despite the gloomy global outlook and uninspiring growth in Canada, there are some bright spots for the p&c industry. All the same, as in the past, insurers will need to stay focused on underwriting discipline,” Robinson cautioned.
Veronica Scotti (pictured left), president and CEO of Swiss Re Canada, suggested to assembled guests that there are both threats and opportunities in the ever-changing industry.
Scotti cited a global organization which found that cyber security is the number one boardroom trending topic, and not only for financial firms. “In this environment, insurers are called upon to lead. We can help our clients understand their vulnerabilities and protect themselves from the financial shock of an attack or breach,” she said.
“But technology is also primarily an enabler of our business,” Scotti emphasized. For example, drones can be used for everything from surveying a storm-damaged area to personal use.
“Drones offer another great example of technology as an enabler, but it comes at a cost,” Scotti said. “The other side of this double-edged sword is just as sharp. Drones are bringing up a host of thorny issues for their operators, such as personal privacy, physical damage, bodily injury, trespass and nuisance.”
“Policy language, terms, endorsements and exclusions will ultimately evolve to accommodate different uses,” she said, adding that “it will be a bit messy on our way there.”
There is also the promise and questions revolving around the autonomous car. “People in the know tell us autonomous autos are only two to five years away. For insurers, now is the time to prepare because this risk is coming to a street near you and there’s no stopping it!” Scotti said.
Robinson would likely agree, telling attendees that insurers cannot ignore that Google has entered the insurance market with its “powerful aggregator model.” Nor can insurers ignore technological developments unfolding outside of the industry, including driverless cars, UberX, cyber threats, drones and fracking.
In such an ever-changing environment, insurers must be prepared. “Because of competitive imperatives, most insurers are introducing new technologies for distribution, underwriting, claims handling, fraud detection, and so on,” Robinson said.
He advised, however, that there is no reason to think that “financial services are immune to the kind of massive technology-driven transformation that we’ve seen in newspaper, publishing, retailing, travel services, taxis and other industries.”
— Steve Wilson (@InsuranceMedia) March 31, 2015