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What’s at the heart of Canada’s Hard Market?

By September 18, 2019Business Insurance

When insurers experience significant losses, they must make major changes to ensure their company stays profitable. Right now, Canada is experiencing a period when insurance company premiums are increasing and their ability to write new business is decreasing. As industry experts closely monitor the market, the state of the insurance industry continues to fluctuate.

This can be confusing for business owners trying to forecast future insurance costs while experts try to project whether insurance premiums will rise and by how much. The origin of today’s hardened market cycle is a natural evolution of a very long soft market cycle.

“I really believe that we had a soft market that lasted too long,” said Stéphane Cossette, senior director of risk management with Quebecor Media Inc to Canadian Underwriter.

Rates are a “bit lean” right now, he said, and definitely capacity is scarcer. However, although he is seeing rate pressure, it’s “reasonable.”As for rate increases in the marketplace, “you’re looking at 10-15%,” he said.

The current hard market will likely continue until the end of next year, he predicts. “For the time being, throughout mid-2020, we should see very hard conditions.”

Why now?

A series of catastrophic events, a lawsuit-first approach and/or a poor economy can reduce insurers’ capacity to write new policies. This is known as a ‘hard market’. When the market hardens, insurers tighten their underwriting standards.

What distinguishes this hard market period from others? Well, there is some debate about whether other anticipated hard markets ever fully materialized, as Cossette observed. And if previous hard markets were simply blips on the radar screen, one could make the argument that the soft market has been going on for much longer than you’d think.

After the 9/11 terrorist attacks on the World Trade Center in the United States in 2001 and the global financial crisis in 2008, it looked like the beginning of a hard market, but it didn’t happen, Cossette observed.

For example, in 2001, it was a capacity issue, but very niche. “There was a little casualty, but mostly it was property-driven,” Cossette said. “And 2008 wasn’t a hardening market, it was a hiccup. I didn’t even see a glimpse of a hardening market.”

But in the current period, he said, “we’ve actually seen underwriters willing to cancel accounts.”

“It’s a very interesting time to be a broker,” says Wedgwood Insurance Vice President of Commercial Lines, Kent Rowe. A hardening market, momentous changes in capabilities relating to technology, changing weather patterns that represent more frequent and severe storms and escalating pressures on the broker channel provide us all with challenges.”

What’s changed?

Call it a data-driven hard market. There’s lots of data now, and access to it is easy, allowing insurers to pivot faster than ever before. In commercial lines, for example, insurers are getting out of different lines of business quicker. Once they see losses growing in one area, they are able to shift out of that line of business quicker than ever before.

In an online poll to be published in the August 2019 issue of Canadian Underwriter, about half of more than 200 Canadian brokers polled reported that they’ve had a contract with their carrier canceled over the past year. Nearly two-thirds believed the cancellation was the result of the hard market.

What is clear is that risk management, loss control, and safety continue to be crucial to the success of any business insurance package, regardless of market conditions. Now is a good time to evaluate your business’s risk management plan as a whole to ensure your business can attain favourable pricing regardless of market conditions. Need some advice? Our Commercial Risk Advisors are here to connect when you’re ready.

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with thanks from Canadian Underwriter

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