Hard market “fatigue” setting in, P&C industry survey suggests

Hard market fatigue is starting to become an issue for Canada’s property and casualty insurance industry, and several industry professionals are worried ongoing capacity and pricing issues could invite government intervention down the road.

“We will continue to have many customers not be able to buy insurance because no carriers will offer capacity and if this pace continues, we can only expect government intervention,” said one of almost 400 P&C industry professionals to complete Canadian Underwriter’s ‘Outlook 2023’ online survey Tuesday.

Overall, the Canadian P&C insurance industry’s ongoing hard market ranked fourth as the biggest issue facing the industry in 2023. Fifteen per cent of CU‘s survey respondents chose it as their top issue when given a list of 13 issues from which to choose. Only talent acquisition and retention (45%), natural catastrophes/climate change (32%), and economic recession (17%) ranked above it.

But when asked to discuss their top issue in an open question, many industry professionals observed the NatCat/climate change issue has intensified the impact of the hard market over the past three years.

In a nutshell, insurance professionals are concerned increasing natural catastrophe losses will drive up claims costs, thereby negatively affecting insurers’ profitability. And this in turn will prolong an already-extended hard market cycle, characterized by rising premiums and deductibles, and reduced capacity for many lines of insurance.

“Rate fatigue from consumers” is getting to be dire, observed one survey respondent.

Several worried that if the hard market cycle doesn’t get better soon, regulatory intervention may result.

“The effects of climate change and increased natural disasters will drive up claims costs, driving up rates and premiums — bringing higher scrutiny to insurance-to-value and application of coinsurance,” one industry professional remarked, adding this “could be detrimental to policyholders.”

And now with the January 2023 reinsurance renewals closing, primary insurers will be further squeezed by rising reinsurance rates as a result of NatCats such as Hurricane Fiona ($800 million in insured damage in Canada, per Catastrophe Indices and Quantification Inc.), the Spring 2022 derecho event in Ontario and Quebec ($875 million, per CatIQ), and North American losses for Hurricane Ian ($50 billion to $65 billion, per Swiss Re).

As a result of these NatCat events and more, reinsurance capacity is now at a “generational low,” one insurance professional observed.

This is widely expected to contribute to the extension of the current market well into 2023. “High claims costs and continued catastrophic losses will drive up the costs of reinsurance and make the profits of insurers thinner,” one industry professional observed in the survey. “While brokers and insureds expect relief on premiums, this may not be feasible and will potentially result in underinsurance in the marketplace.”

And that protection gap — the difference between total NatCat losses and insured losses — will no doubt draw the scrutiny of politicians and regulators, several said.

“Staying relevant,” one respondent replied, when asked about the biggest challenge facing the industry in 2023. “New and emerging risks are [now] considered uninsurable or not adequately insurable — flood, cyber, etc. These will be compounded by the hard market and [a] lack of reinsurance capacity. Can the industry continue to provide solutions for people before governments and regulators intervene?”

Feature image courtesy of iStock.com/VioletaStoimenova