Since autumn 2018, the insurance marketplace has become increasingly volatile. In 2020, we continue to see insurers with diminished capacity, less flexible underwriting, and increased premiums, in what is called a “hard market.”
The difference between a “hard market” and a “soft market”:
Until mid-2018, we spent over a decade in a soft market. Soft markets provide lower insurance premiums, broader coverage availability, and more flexible underwriting criteria. Insurers tend to be willing to take on more risks, which helps increase competition amongst insurance companies.
However, in the past 18 months, the marketplace has shifted toward a hard market. Hard markets are characterized by higher insurance premiums, and more stringent underwriting criteria. Insurers have reduced capacity for risk (both for renewal business and new business), and there is less competition amongst the insurance companies.
What caused this hard market?
The hard market is being driven by catastrophic losses (see below), including large scale flooding and fires, costing billions of dollars in insurable losses. Additionally, the continued effects of the global economic uncertainty is adding pressure to insurance companies operations.
The insurance industry as a whole is now operating at a loss, with growing claims costs and expenses outpacing premiums in recent years. While major weather events are causing extreme property damage, the Liability and Professional Indemnity sector has also seen climbing claims and poor financial underwriting performance. To correct for this, insurers will require increased rates. In more extreme cases, insurers may move away from insuring the operations or professions that have under performed. There have been a few Lloyd’s syndicates who have withdrawn from the Canadian marketplace altogether.
How long will it last?
The “re-underwriting” of accounts began in mid-2018. This will provide more confidence for insurance companies as losses decrease, especially when combined with the increased revenue from higher rates. The marketplace should begin to stabilize by mid-2020. However, we expect that rates will continue to go up, and insurer capacity will continue to constrict into 2021.
what can you do?
The current marketplace may require your account to be reviewed in more depth, and therefore long form applications, appraisals, and loss control may be required. Make sure you are responsive to your broker’s inquiries, and provide accurate and complete information.
Top five Canadian catastrophic losses:
Fort McMurray Wildfires (2016) | $3.7 Billion
Alberta Floods (2013) | $1.6 Billion
Toronto Floods (2011) | $943 Million
Slave Lake Fire (2011) | $700 Million
Alberta Hailstorm (2014) | $537 Million
Recent global catastrophic losses of note:
2019 – $92 Billion in losses, due to:
– Tropical Cyclones in Japan
– Severe Thunderstorms in the US
– Hurricanes in Latin America & The Caribbean
– Bushfires in Australia
– Winter Storms in Europe
2018 – $34 Billion in losses, due to:
– Hurricane Florence
– Typhoon Jebi, in Japan
2017 – $200 Billion in losses, due to:
– Hurricanes Harvey, Irma and Maria
– South/Central Mexico Earthquake
We’re here to help:
Our team is available to discuss the current hardening insurance market, and how it may impact your policies, should you have questions or want more information. In any market, hard or soft, we are dedicated to working with you and your insurer to find the best solution for you.