Canadian insurance market “complex” but headed to profitability – Aon

Aon made the assessment in its 2022 Canada insurance market report and said that, for brokers, it’s critical to strategically plan and prepare for their clients’ renewal period.

The annual report, published to help Canadian clients make better decisions about risk management and insurance programs, cited the following key influences on underwriters:

Geopolitical uncertainty
Residual supply chain issues form the pandemic
Inflation
Climate change

“Insurers have reached a point where their rates are in an adequate place and they’re able to manage their exposures,” said Sean Kavanagh-Lang (pictured), senior vice president, national broking director – operations, data and analytics at Aon. “We’re starting to see growth within their portfolios. So, because of all these adjustments and everything that transpired in the market over the last few years, there is now upswing for growth.”

However, underwriters are “closely monitoring their exposures and deploying capacity based on careful risk selection,” the report continues. Aon also said it forecast a “challenging” reinsurance renewal period at the end of the year, as inflation, supply chain snags, and labour shortages raise costs.

“Although inflation has materially increased true exposure values, there is a significant lack of availability of contractors, supplies and equipment, which is extending the recovery periods for business interruption claims,” said Russell Quilley, head of commercial risk and chief broking officer for Canada at Aon. “These factors are contributing to material increases in the costs of claims and insurers are insisting on pricing increases to reflect true indemnity costs.”

Brokers should know that the market softens much more slowly than it hardens, and it could be a few renewal cycles before reductions kick in, according to the Aon report.

What was the impact of Hurricane Fiona and other natural disasters on the Canadian insurance market in 2022?

Hurricane Fiona, which struck the Atlantic coast of the country in late September, is now among the ten most expensive natural disasters in Canada by insurance payouts. According to data by the Insurance Bureau of Canada, the disaster wiped $660 million from insurers’ pockets, but it was only one of several costly catastrophes to hit Canada in 2022.

The derecho in late May in southern Ontario and Quebec led to billions in cat losses, and around $875 million in insurance payouts. Severe convective storms were the primary driver of global insured cat losses in the first half of 2022, at US$38 billion or 18% above the 21st-century average, according to Aon.

“The windstorms earlier this year had more of an impact on the Canadian insurance industry [than Hurricane Fiona],” Kavanagh-Lang pointed out. “But there are a lot of protection gaps that were uncovered by Fiona because some areas were ineligible for flood coverage. So, it ended up having a greater consumer and governmental impact.”

Aon’s report also noted that some markets are managing nat cat exposures by reducing capacity for earthquake and flood exposures, and imposing moratoriums for accounts in wildfire risk areas. With catastrophes projected to increase, the insurance industry must aid in Canadians’ transition toward overall resilience.

“The impact is going to be in how firms and consumers rebuild and become more resilient to these natural disasters in the future,” Kavanagh-Lang told Insurance Business. “The best way we’ll be able to protect against future losses is to ensure that we’re building resiliently to withstand the impact of storms and other catastrophes.”

What are the opportunities for the Canadian insurance market in 2023?

Despite continuing pressure on the industry, Kavanagh-Lang sees the ongoing digitization of insurance, as a bright light for next year. Improved reporting and the implementation of data and analytics will open doors for brokers and enable them to find the best solutions for clients.

“We are an industry that trades on information, but a lot of this information is trapped. It’s in static documents, Word files and PDFs, not in databases,” said Kavanagh-Lang. “If we’re able to extract that data, the power is immense. We can do so many different things for our clients. Our clients can get better solutions in the marketplace. Insurers can better understand risk and how it’s placed, and how different perils are impacting claims.”

Have any thoughts on the Canadian insurance market in 2023? Leave your comment below.