Why P&C execs predict 2024 will look similar to 2023

Thanks to economic instability due to inflation and geopolitical conflict, Canadian P&C insurers predict 2024 could look much like 2023, in terms of lingering hard market conditions.

“If we look at the economy…I would say that each year, whatever happens is pretty much not what we thought would happen,” Gore Mutual Insurance president and CEO Andy Taylor said at IBAOcon’23, held in Toronto last Thursday. “You head into the year and it turns out to be completely different…..

“If I look at next year, unfortunately, the trends are still worrying. It seems like every day, things are getting worse around the world, not better. If you think about inflation, and how that’s putting pressure on industry, I think we can continue to see that next year…..2024 is not going to be an easy year from our point of view.”

As bankers battle to bring Canada’s 3.8% inflation rate down to their 2% target, insurers are seeing 30% inflation rates on auto pricing, replacement parts, and building supplies. And that’s driving up claims costs, said Heather Masterson, president and CEO of Travelers Canada.

“When we see [a] rise in inflation, we absolutely see it impact our loss costs,” Masterson said at the Insurance Broker Association of Ontario (IBAO)’s annual CEO panel. “And then in turn, we are seeing the impact on premiums.

“We always need to stay ahead of our loss costs. If you take a look at a couple of examples — things that have happened in terms of inflation over the last four years — the Number 1-selling vehicle in Canada happens to be a Honda Civic. So in 2019, a Honda Civic cost between $22,000 and $23,000. If you went to buy a similar model, but a 2023 model, for a Honda Civic, you’re now going to pay anywhere between $28,000 and $29,000 So what that shows you is a 30% inflation increase.

“Let’s take a one gallon can of paint. In 2019, that can of paint cost $53. Today, the same can of paint costs $69. Again, a 30% increase.

“So if we look back over the last four years, it’s no surprise that our loss costs have been trending up around 30-plus percent. So we’re trying to keep pace. We need to keep pace.”

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Geopolitical conflict in Ukraine and now in the Middle East is also a factor in rising oil prices, potentially making inflation worse, said Masterson. “We’ve got a lot of geopolitical unrest,” she said. “And that impacts inflation. It impacts energy [pricing]. It creates volatility. And that’s something that we’re going to have to watch.”

Louis Gagnon, president and CEO of Intact Insurance, called current geopolitical tensions “very, very concerning.” He said the war in Ukraine, the conflict in Middle East, and the 2024 U.S. election “are probably the three things that could send a curveball to the economy, to world stability.”

Inflation doesn’t just have an economic impact, Gagnon said. It also frames consumers’ expectations around insurance pricing.

For example, when banks try to curb inflation, their tool is to raise the cost of borrowing money. That means higher interest rates on bank loans, such as mortgages. The theory is that higher cost of debt will dampen consumer spending.

But if consumers are having trouble making ends meet in a tough economy, they will be looking for a break on their insurance costs. And that puts pressure on insurers to seek higher rates to make up for their inflated loss costs.

Brokers will be under pressure to educate the public on how the insurance product is priced.

“Inflation, for sure it [increases] our [claims] costs,” Gagnon said. “But at the same time, it creates consumer resentment towards [the higher price of] all sorts of goods [such as insurance]. We saw the federal government trying to control grocery bill [costs]. And we see there’s a lot of attention to the cost of living, trying to make sure that companies are good citizens, that they are socially responsible.”

Such attention will likely intensify over the next year or two, Gagnon cautioned. That’s because the full impact of the interest rate increases may not have affected consumers’ mortgage payments yet.

“I would say in this year, not many people have renewed their mortgages at 7%,” Gagnon observed. “They’re still paying 2% or 2.5% on their [fixed rate] mortgage. [The change] is coming in 2024, 2025, and 2026.

“I think that’s going to put a lot of pressure on us and on brokers to discuss [the impact] with people, to try to find [an insurance] solution, and to make sure we understand how we can help these folks.”

Feature image courtesy of iStock.com/francescoch