The good and bad news for commercial insurance

There’s good and bad news when it comes to commercial lines in the Canadian property and casualty insurance industry.

The good news is there’s encouraging signs the commercial market is stabilizing, said Don Forgeron, president and CEO of Insurance Bureau of Canada (IBC). But the bad news is that there’s still a long way to go, he said.

Commercial lines issues are front and centre at the IBC board table, Forgeron said during a session with Travelers Canada president and CEO Heather Masterson at IBC’s 2021 Commercial Insurance Symposium, held virtually on Wednesday.

“I don’t need to tell anybody here that the issues with respect to the global commercial market emerged a couple of years back,” Forgeron said during Learning from our Past, Charting our Future: A Discussion with Don Forgeron and Heather Masterson. “And understandably, they’ve been exacerbated… by two key factors.”

The first is the impact of the COVID-19 pandemic on business and the economy in general. And the second is “a prolonged period of increasing claims, lower returns, lower profits within the industry, and a much greater scrutiny amongst multinational insurers about where and how they put their capital to work in markets around the world,” Forgeron said.

He noted that the combined ratio for commercial liability was 113% in 2020. Specific lines, like excess liability and CGL, also saw combined ratios above 100% at various times.

“Now, I can’t say with any certainty how long this hard market is going to last,” Forgeron said. “I was around for the last hard market back in the early 2000s. But none of us can predict how long it’s going to last. There are some reports that price increases are not as high as they were in 2000, and the market might be stabilizing in some areas.”

Don Forgeron, president and CEO of IBC, and Heather Masterson, president and CEO of Travelers Canada and IBC board deputy chairwoman, at IBC’s 2021 Commercial Insurance Symposium.

Limited capacity is also returning to the market, but challenges are going to remain, especially in certain sectors like trucking, construction, commercial property, and hospitality, Forgeron said. “We’re not out of the woods yet clearly,” he said. “There’s a lot more work that needs to be done, but it’s gratifying to see that we’re making progress.”

Forgeron credited several industry initiatives with helping the situation. For example, IBC launched a commercial insurance task force, a Business Insurance Action Team (BIAT), as well as a business insurance helpline, the latter of which helped small businesses mitigate their risk profiles and draw greater interest from underwriters. “Over 80% of the businesses that have reached out to us for risk management assistance, have found the path to insurance,” Forgeron reported.

He asked Masterson, who is also the deputy chairwoman of IBC’s board, how the pandemic changed underwriting decision at Travelers. Masterson said the insurer took a number of steps, including implementing rate capping, not counting the days a property was vacant for vacancy permit requirements, and ensuring underwriters had a high degree of flexibility.

“When we entered into the hard market, we entered into a phase where our brokers and our underwriters and our claims adjusters and our team of professionals hadn’t necessarily been through a hard market before,” Masterson said. “It had been 17 years since the prior hard market.

“So needless to say, we were feeling the strain operationally, motivationally across the board as an industry. By the time the pandemic hit, we were probably well into getting our hard market legs, but then we had more change, and that more change was around moving to a remote work environment, and managing business continuity with business as usual, and making sure that we could operate effectively…”

Other challenges revolved around low investment income, low interest rates and underwriting income, fighting for underwriting profitability, and capacity constraints, Masterson said. “And that’s at a time when we are all deploying more investment income into our businesses, modernizing our platforms, you know, implementing digital capabilities, enhancing digital capabilities.”

So, what needs to happen to improve capacity?

“I can’t underscore the importance of risk management… and having sophisticated pricing segmentation,” Masterson said. “That’s really important in terms of opening up capacity.”

Joint and several liability has also been challenging in certain provinces in the hospitality sector, Masterson said, referring to a situation where a plaintiff may sue any or all defendants, and collect damage awards from any or all of them.

“If we could have some advancements relative to joint and several legislation, I think the level of capacity that would could back halfway into the hospitality sector would be meaningful,” Masterson said.

Feature image by iStock.com/SARINYAPINNGAM