Where we’re at with commercial rates with Canada

Commercial lines premium increases in Canada have abated year-over-year, but that doesn’t mean there’s a soft market, according to Applied Systems’ Commercial Index Q2 2023. 

Overall, commercial rates saw an increase of 7.44% in 2023’s second quarter, which is a decrease compared to the 8.95% rate increase 2022 Q2. However, quarter-over-quarter, rates have been increasing in 2023, albeit slower than previous years.  

“We are seeing greater variability in average renewal rate change[s], both year-over-year and quarter-over-quarter,” Steve Whitelaw, Applied Systems’ senior vice president and general manager for Canada, said in the report. 

All lines of business, excluding hospitality, saw decreases compared to the same quarter last year.

Quarter-over-quarter this year, Applied reported the following trends in commercial lines rates:

• Business and professional services rates in 2023 Q2 increased an average of 7.42%, up from 6.99% in 2023 Q1. 
• Construction, erection and installation services premiums increased an average of 7.24% in 2023 Q2, down from the 2023 Q1 average of 7.42%. 
• Real estate property insurance rates increased 6.87% for the quarter, up from 6.83% in 2023 Q1. 
• Retail service insurance rates averaged 8.31%, a decrease from 8.87% 2023 Q1. 
• Hospitality services increased 9.28% in this year’s first quarter, up from 8.90% in 2023 Q1. Comparatively, this is also an increase from the same time last year (8.82% in 2022 Q2).  

Last quarter, one commercial insurer projected property rate increases would continue, though the increase would be less pronounced for favourable risk profiles.  

“The rise in reinsurance rates following challenging reinsurance treaty renewals has undoubtedly impacted the Canadian property market, causing more strain on pricing and capacity for primary insurers. The entire market will be affected as these increases flow through,” Aon wrote in its Canada 2023 Spring Insurance Market Update.  

“Canadian commercial property insurers reported a healthy loss ratio of 48.26% for 2022 Q4, so despite pricing and capacity pressures insurers are maintaining growth targets which may allow for some flexibility, given sufficient time for negotiation.” 

On the commercial auto side, Aon reported the market is stabilizing and rates are improving after insurers reported a loss ratio of 63.34% in 2022 Q4. The global brokerage predicted low risk and loss-free clients could expect to see low, single-digit rate increases on renewals to reflect inflationary increases. 

Conditions have softened in professional and financial lines, although the pace of rate movement would be dictated by the macroeconomic landscape, Aon predicted.  

Specialty lines like cyber and technology errors and omissions saw easing market conditions, with new capacity entering the market and maintained rates and retentions. 

Feature image by iStock.com/DNY59