Heightened political risk has repercussions for Canada’s insurance industry
Heightened political risk has repercussions for Canada’s insurance industry | Insurance Business Canada
Insurance News
Heightened political risk has repercussions for Canada’s insurance industry
Carriers and brokers urged to take action
Insurance News
By
Gia Snape
Economic divisions and political turbulence worldwide are increasing the risk of demonstrations and protests that can cause disruption and damage. A new report from the Insurance Institute of Canada has spotlighted the impacts of this turbulence on the country’s property and casualty (P&C) insurance industry.
Though Canada has had a history of relative social cohesion, Canadians are currently confronted with higher costs of living, repercussions from the conflict in the Middle East, and an escalating climate crisis. According to the report, the risk of violent actions is expected to increase in Canada over the next 10 years, driven by long-term trends such as inflation and growing income inequality.
“Our history is much less tumultuous compared to other countries. From the outset, Canada has prioritized principles of stability and cohesion in its political process,” observed Paul Kovacs (pictured), senior researcher at the Insurance Institute and author of its latest report on political risk and the implications for Canada’s insurance industry.
“But the growing gap between the affluent and the less affluent, coupled with rising living expenses, poses significant challenges. These are global issues that Canada must confront.”
How might political unrest affect insurance?
Kovacs pointed out that while social unrest is a global issue, Canada has managed to navigate turbulent periods with relative ease compared to many other nations.
However, the insurance industry cannot afford to be complacent. Kovacs warned of the potential for protests to turn violent, resulting in significant financial losses for insurers.
“When protests escalate, insurance claims can skyrocket,” he said. “While Canada has experienced fewer large-scale protests than other countries, insurers must prepare for unforeseen events.”
Political turmoil can also make the industry’s lobbying efforts more challenging.
Kovacs explained: “Conversations around protests can be all-consuming at the political level. The insurance industry is only one of many that regularly raises its own issues and has important things that need to be done. But it can be harder in this kind of environment to get attention and to get things to happen.
“It is never easy to get attention for your issues. [Social unrest] can just add to the challenge, as I think this will show up a little bit more frequently and perhaps on a bigger scale than in the past.
“Auto insurance reforms, flood insurance, and climate resiliency are just some of the most important files the insurance industry is discussing right now. It must continue to be proactive and bring its advice forward to the government on these conversations.”
In response to these challenges, the Insurance Institute of Canada’s report outlined recommendations for the insurance industry:
Provide clear communication on coverage and policy wordings.
Build capacity to respond during and immediately after an event and share timely information to reduce the risk of loss for policyholders.
Strengthen understanding of political risk factors and identify loss prevention best practices.
Kovacs stressed that the industry must anticipate conversations about coverage and be as clear as possible. He noted that the lack of clarity of coverage and terms has resulted in complicated and messy legal battles in other countries.
“Insurance companies need to be transparent about coverage and potential risks,” Kovacs said. “Clarity is essential to ensure customers understand their policies and are adequately prepared.”
What is the broker’s role in helping clients navigate political risks?
Additionally, Kovacs emphasized the role of brokers in educating customers about political risks and mitigation strategies. He urged brokers to proactively engage with customers and provide relevant advice to minimize potential losses.
“Brokers play a crucial role in helping customers navigate political risks,” Kovacs said. “By offering guidance and resources, brokers can empower customers to protect their assets and mitigate risks effectively.”
Looking ahead, Kovacs remains optimistic about Canada’s ability to weather political storms.
While acknowledging the challenges posed by global trends, he emphasized the resilience of Canada’s political and social fabric and the continued efforts for social harmony.
“We haven’t solved all the issues, but we’ve been working on them for decades,” Kovacs said. “There’s still progress to be made, but we’ve laid a solid foundation.”
What are your thoughts on the growing risks associated with political instability and lack of social cohesion? Please share them in the comments.
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