Insurance Market Outlook 2021
The “Triple-Whammy”: Increasing Rates, Limited Capacity and Stricter Underwriting rules
“The commercial insurance marketplace in Canada will likely continue to remain “hard” for the next couple of years” according to industry execs.
Despite the urge to blame all financial challenges on the COVID-19 pandemic, the rate momentum, coverage reduction and capacity restriction that is prevalent in commercial insurance is not a new trend. In fact, the market has been heading this way for many years; the coronavirus pandemic has only exacerbated economic trends that were already well underway.
The industry has seen years of inadequate pricing, an increase in natural catastrophe events, and the impact of lower interest rates, which has been problematic for insurance companies, who typically make returns on underwriting and investment income.
What are the issues influencing commercial insurance?
Claims costs continue to rise due to factors such as increases in fraud and the cost to repair buildings/vehicles etc. after an insured event.
The increasing severity and frequency of extreme weather events is contributing to rising claims costs. In the past 10 years, insured losses due to flooding, wildfires and storms have averaged $1.9 billion a year. This year, intense storms and flooding have already resulted in insured losses of $2 billion across Canada as of September 2020.
The current economic environment has also disrupted the insurance industry. Insurers generate income through investments to ensure they have enough money to pay claims to their policyholders. With record low interest rates and a decline in investment income, many insurers have had to increase premiums to ensure claims are covered.
COVID-19 has brought unexpected risks and challenges to every industry, compounding the existing challenges the commercial insurance industry was facing with respect to affordability and availability for business insurance clients. COVID-19 has also created significant uncertainty with respect to potential liability exposures
In summary, a ‘hard market’ looks like this right now; Re-Insurance and insurance companies alike are:
Increasing rates; significantly in many cases. On average, we are seeing 10-25% rate increases on business without claims as matter of routine. Some classes of business are seeing much higher
Limiting capacity, a narrowed appetite to write certain risks, we are seeing for the first time in decades the inability to place coverage at all classes of business. As well, there is a reduced capacity to write adequate limits in some cases.
Far tighter underwriting guidelines; underwriters are required to do a much ‘deeper dive’ on the insurance applications and renewal process’s.
Directors & Officers Liability, Commercial Realty, Restaurants, Wind Power & Transportation sectors continue to be challenged more than most.
We touched on this previously, but we are also seeing the global widespread application of explicit virus and bacteria exclusions.
Our principal focus remains to advise our clients on the best road forward in regard to their insurance programme.
We are here for you, we have resources and if you have questions, we either have the answers or know where to find them. Let one of our advisors know or
From our team to yours, here’s hoping you can stay positive of mind and negative of virus.