Definity CEO on how recession fears are affecting insurance

Fear of a looming recession doesn’t appear to be affecting consumers’ purchasing behaviours yet, Definity Financial Corporation president and CEO Rowan Saunders said during a virtual fireside chat with RBC Capital Markets.

“Insurance is quite close to being a recession-proof business,” Saunders said as part of larger discussion on the recessionary environment. “You have to buy car insurance, you have to insure your house if you want a mortgage, you have to have D&O if you want people to sit on your board of directors, etc. So, [if an impact] does happen on the margin, it’s probably, let’s call it, a point or two on the top line.”

Saunders made his comments in response to a question from moderator Geoffrey Kwan, managing director in global research with RBC Capital Markets. Kwan noted that it seems like Canada is heading into a recession of high interest rates, high inflation, and, from a P&C industry perspective, continuing hard market conditions.

Kwan asked whether there are signs that property or commercial customers are adjusting (whether through coverages or deductibles, for example) to manage in the current environment and, if not, if he expects to see that behaviour if the recessionary environment gets worse.

“We’re really not seeing very much of that kind of attritional-type behaviour yet,” Saunders responded. “Almost to the contrary, what we’re seeing is much higher retention. We’re really seeing pretty stable and high retention rates.”

Saunders acknowledged the environment “hurts us a little bit on the Sonnet model, because we want people to shop as we’re building and new business is very important to a growth company like Sonnet, but there’s a natural hedge on the broker side. And so, the benefit of that is our retention is at an all-time high in our broker retention, more of both property and automobile.”

Sonnet is Economical Insurance’s (Definity’s parent company) direct-to-consumer home and auto online insurer.

Saunders noted that as the country gets into a potentially recessionary environment “some things… do happen.” For example, consumers sometimes drop one of their cars, drive less or increase their deductibles. “And particularly in commercial lines, you might see an impact on some insureds or the limits that insureds [purchase]. But again, I would put that into context,” Saunders said as he mentioned that “insurance is quite close to being a recession-proof business.”

And there could be a pick up in exaggerated/fraudulent claims, he added.

Kwan asked if a recessionary environment could see competition in the industry increase.

Saunders replied that what drives competition and the insurance cycle is claims cost. So, inflation is driving up claims costs. And in certain lines, such as property NatCat-affected lines, there will be a firming reinsurance market.

“As you get into a recessionary environment, there’ll be some segments that are impacted worse than others,” Saunders said. “We anticipate which segments are likely going to come under the most amount of duress or stress, and things like tourism and hospitality and restaurants, we actually are quite underweight on and we’re happy to do that and that is by design.

“So, I think that in some of those areas when revenue does fall, there could be more competition.”

Saunders made his comments days after Definity released its 2022 Q3 results on Nov. 10. The insurer saw a combined ratio of 96.6%, including 5.7 points of catastrophe losses (3.5 points relating to Hurricane Fiona). This was up 4.3% from 92.4% in 2021 Q3. Gross written premiums increased year-over-year by 10.9% to $944.1 million from $851.5 million.

Feature image by iStock.com/sefa ozel