How Canada’s P&C market shifted in 2022

Market conditions remain complex but are stabilizing as the industry approaches its last quarter this year, Aon’s 2022 Canadian Insurance Market Report found. Increased competition, along with positive underwriting results and loss activity, marks a transition from significantly challenged market results toward profitable growth.

Signs of growth or improvement are showing across commercial property, casualty, commercial auto and directors & officers (D&O), however insurers remain worried about cyber and technology errors & omissions (E&O). The market’s changed significantly over the last two years, Aon observed, with insurers maintaining strict underwriting guidelines and placing a heightened focus on technical underwriting and risk selection.

After challenging commercial property market conditions in 2021, insurers now see modest improvements. Rate increases are continuing, albeit moderately compared to 2020 and 2021, as most of the remediation to insurer portfolios was done in those years. Clients with high-risk exposures such as flood can still expect increases in retention and deductibles, Aon said.

While insurers are maintaining strict underwriting standards, they’re also showing a willingness to collaborate with certain segments that have loss-free accounts, Aon found. And while rates are stabilizing, inflation is now impacting pricing.

The report noted some insurers are insisting on 10% to 15% increases on client valuations across all sectors in order to reflect inflationary prices. Clients that don’t conduct valuation exercises can expect rate increases or co-insurance clauses.

In the casualty market, insurers are expressing a ‘tentative interest’ in growth, and many find that capacity is stabilizing. However, supply chain issues, social inflation and lingering results from COVID-19 remain a concern.

Real estate, trucking, mining, roofing and food manufacturing are all challenges in the casualty market. Insurers are concerned about Canadian companies with large U.S. operational exposures and, as U.S. litigation costs continue to drive up rates and retentions, are significantly restricting capacity for this coverage.

Casualty markets underwriting remains strict, Aon said. Insurers are watching the Canadian landscape for issues such as sustained social inflation, climate events, return-to-office activities, and environmental, social and governance (ESG) regulations. They’re also insisting clients provide higher risk-control measures and detailed underwriting information.

While challenged by inflation and higher costs for vehicle replacements and repairs, the commercial auto market is seeing moderate signs of improvement for capacity and pricing. And D&O market capacity is expanding in Canada, with insurers transitioning toward less-strict underwriting, a signal that a softer market is not too far off.

Insurers are instead focusing on profit growth and increasing their exposure by offering more capacity, while continuing to remediate their portfolios.

When it comes to public company D&O coverage, however, rates are ‘rapidly changing’ but vary by account and are expected to moderate throughout 2022, Aon said. Some industries — including mining and biotechnology — may experience higher-than-average rate increases.

Quebec is proving to be a challenging market, due to the province’s ‘duty to defend’ requirement for insurers. However, legislative amendments may ease some of these challenges.

Cyber and technology E&O also remains worrisome. Capacity in cyber and privacy markets for high-risk sectors (cannabis, cryptocurrency, payment processors, public sector, municipalities and educational institutions) remains reduced. However, Aon said new cyber capacity has entered the global marketplace in 2022 Q4, which is softening conditions slightly.

Events such as rising ransomware attacks in 2020 and 2021 have impacted insurers’ profitability and many are looking to restrict ransomware coverage, place sub-limits within cyber policies and require clients to carry a 50% minimum co-insurance.

Aon’s other predictions and findings include:

While inflation and rising interest rates continue to dampen growth, Canada’s economy should remain strong.
Since the largest economic losses generally happen in the latter half of the year, insurers continue to monitor the Atlantic hurricane season and wildfire activity.
Catastrophe activity has depressed reinsurer shareholder returns, making raising capital a challenge.

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