Optimism of Canadian insurers stronger than U.S. counterparts: KPMG

A survey of Canadian life and non-life insurers shows a high level of confidence about their ability to beat expectations in the next year, says consulting firm KPMG.
KPMG surveyed industry attendees at its 13th Annual Insurance Issues Conference in Toronto in mid-October. The results show that 68% of Canadian insurers predict they will outperform compared to expectations in the next year, versus just 57% of U.S. insurers showing such confidence. Canadian insurers also showed more confidence than their U.S. counterparts when it comes to the ability to increase margins over the next one to three years, which 81% responding positively here, compared to 65% south of the border.
The results are not such a surprise, particularly for p&c insurers, given the relative strength of the industry’s performance this year, as well as the overall health of the Canadian economy, says Neil Parkinson, national director of KPMG’s insurance practice. He points not only to the “tremendous year” p&c insurers are having in Canada, but also the stabilization of the stock market and the government’s underlying fiscal approach here, including the absence of trade budgetary surpluses seen in the U.S.
However, Parkinson says there are signs of caution, specifically regarding the auto insurance market where the present improvement in results is not taken for granted as a long-term trend. “I don’t think people think the current level of profitability is sustainable over the long-term. It hasn’t been the kind of business where you have a few good years, a few excellent years and then a few bad years,” he says, noting that one or two years of satisfactory results are not seen as ample antidote to several years of horrible results in the auto segment. “
Canadian insurers put heavy emphasis on auto and regulatory issues, much more so than their U.S. counterparts, who, Parkinson notes, are more preoccupied with Sarbanes-Oxley than other regulatory issues. He adds, however, that the survey was taken just days after the announcement of civil charges being filed against Marsh & McLennan by New York Attorney General Eliot Spitzer for bid-rigging and other market conduct issues, and at that time insurers he spoke to had not fully digested the impact of the Spitzer investigation. He also found that in informal discussions, the issue was at the time perceived to be largely a U.S. phenomenon.
Comparing the last two years’ survey results, one thing has not changed for Canadian insurers and that is the importance being placed on the customer customer focus ranked as the most significant key to growth in both of the last two years. Parkinson adds that even the surprising increase in attention being placed on technology as a growth strategy (cited by 35% this year versus 20% last year) may well be linked to its role as a “customer touch point”, along with a perception of increased affordability and better quality in available technology.