Depending on who you ask, the Canadian insurance industry hit rock bottom at the end of 2018 or the start of 2019. Everyone agrees, however, that the market began to become more difficult long before COVID-19. Many others have also said that the market would not improve for some time. Despite the fact that rates have mainly stabilized, “troubled industrial sectors are projected to continue to confront pricing pressure and capacity concerns,” according to Deloitte.
Brent Hunder, a marketer at Megson FitzPatrick Insurance Services, spoke with InsuranceNews Canada on what makes a market difficult and what this implies for Canadian insurance brokers.
What distinguishes a “hard insurance market” from a “soft insurance market”?
People are aware that the insurance industry experiences harsh and soft market cycles.
Higher insurance prices, less ability for insurers to take on business (both renewals and new business), tougher underwriting requirements, less coverage, and less competition define hard insurance markets.
A soft insurance market features cheaper insurance prices, greater insurance company coverage, less stringent underwriting criteria, more insurance firms that can accept business, and more competition among insurance companies.
To summarize, a hard market is one in which there is a high demand for insurance but insufficient coverage.
The insurance industry has been somewhat stagnant until roughly the middle of 2018. However, the market has been difficult since the autumn of 2018.
What made this market so difficult?
Because risks that are not covered at prices that are too low to last must ultimately be made up for with higher premiums, soft markets are usually followed by hard markets. After a few difficult years, the Canadian insurance industry has been losing money in all sectors. The money insurance firms can recoup from premiums and investments is insufficient to offset the escalating expenses of paying out claims.
Many factors may cause a market to go from soft to hard, including:
- The frequency and severity of claims have both increased. When an insurance company is forced to pay out billions of dollars in claims due to a large loss or a series of modest losses, it reduces the amount of business it can take on in the future.
In the previous ten years, Canada has had some of its most costly natural catastrophes. These include the Fort McMurray wildfires in 2016, the floods in southern Alberta and Ontario in 2013, and the Calgary hailstorm in 2020. Weather-related insurance claims in Canada are estimated to total $2.1 billion by 2021. In 2017, Hurricanes Harvey, Irma, and Maria caused up to $200 billion in insured damage worldwide.
- Low rates of return on investment and interest rates. Insurance firms get their money to settle claims from both premiums and investments. When interest rates fall, insurance firms will be forced to rely more on the money they get from premiums to cover claims.
- Claims expenses rise as a result of the consequences of inflation on goods and services. Inflation is affecting many aspects of people’s life, including insurance. Because costs are rising and fewer items and personnel are accessible, claims are becoming more costly and requiring longer to process.
- Years of low rates and cheaper premiums because firms competed with one another. As a result, existing coverage premiums are insufficient to keep businesses successful.
What does the hard market imply for insurance buyers?
Because the market is becoming more competitive, many insurance consumers have seen their rates rise, their coverage decrease, or the renewal process become more difficult.
Some clients have been forced to choose a new insurance provider after their previous one refused to renew their contract. This may result in significant increases in rates, and in the worst-case scenario, some consumers are unable to get insurance at all.
How long will this last?
It’s difficult to predict how long each market cycle will go, and no one knows for certain when this difficult market will conclude.
Some industries, like as property insurance, entered the hard market rapidly. They have begun to stabilize, and this is expected to continue throughout the year. Some financial and professional lines are expected to remain the same or become more difficult during the next year or two.
The hard market will cease when insurance firms regularly charge rates that cover their expenses and begin to earn more money than they pay out in claims.
What can insurance agents do in this difficult market?
You should definitely be prepared for some premium rises, according to one insurance broker. There are, nevertheless, actions you may do to assist your consumers as little as possible:
- Begin the procedure of renewing or submitting a new business as soon as possible. Allow yourself ample time to review and collect all of the information you want from your client, prepare your application, call insurance companies, get any additional information they require, and compare the quotations you receive.
- Make sure your submissions are thorough, include all required information, and are simple to understand for the insurance company. Everyone is busy right now, and getting a response might take a long time. Anything you can do to help the insurer’s task and get your application to the top of the pile will boost your chances of success.
- Take a proactive approach with your customer when it comes to their loss prevention measures. Discuss yearly rebuild cost estimates, loss control inspections, and the insurance company’s loss control resources. Anything that distinguishes your client’s submission from the others will be beneficial.
Consider various coverage and deductible alternatives. Low deductibles of $1,000 or $2,500 were prevalent in a weaker market. In the present market, the customer may be better off raising their deductible in return for a reduced premium.