We have taken the liberty of quoting a few paragraphs that appeared in the 2020 edition of the magazine ACCENT de l'assurance de dommages, an annual reference in damage insurance for agents, brokers and claims adjusters.
In Quebec, since 2002, we have observed a soft market in which damage insurance brokers had a variety of choices for placing their clients’ risks. However, since underwriting techniques have become more refined – with new technological tools and more in-depth data analysis – and the fact that frequency and cost of certain claims have exploded, insurers have become more selective in their risk assessment.
Indeed, Raymond Chabot Grant Thorton stated in an article on trends that “the current state of the insurance and reinsurance market makes companies more exposed to changes in rates, guarantees and conditions”. The media has also reported on companies that have had to close their doors because they could not find insurance coverage. Added to this are the new risks – including cyber crime, technology and the sharing economy – to which companies are increasingly exposed.
While some insurers are reviewing their business model, property and casualty insurance brokers need to remember their obligations in order to avoid causing prejudice to their clients.
Why is the Market Firming Up?
There are several reasons for this change in the market. The lack of profitability among insurers combined with a downward cycle in interest rates for more than a decade, which reduces investment returns, has reduced insurers’ ability to absorb certain risks, resulting in higher prices.
Another factor that justifies the hard market is the lack of insurers. In a context where the ten largest insurers or groups of insurers in the Quebec damage insurance sector collected 76.1% of the 10.5 billion $ in direct written premiums, market concentration is contributing to reducing options for brokers.
Which Markets are Tightening?
This phenomenon is particularly noticeable in business insurance. In several markets, premium increases of 50%, some with 100%, or two to three times the expiring premium are noticed: “We are observing a severe hardening of the market in the agricultural sector, the food processing industry, aviation, real estate and condominiums, and especially in sorting and recycling centers, where brokers have access to virtually only one insurer in Toronto”.
Moreover, the situation becomes increasingly critical at the end of the year when insurers or reinsurers have reached their capacity and cannot take on new risks. With the increase in deductibles or premiums, we are seeing more and more clients in the commercial sector who have the financial capacity to assume their risks or who can self-insure, at least partially. It is important to note that self-insurance must be structured, planned and funded. Although it is still rare that a risk cannot be placed with an alternate insurer, we are seeing more and more cases on the market that are not 100% placed and where a loss limit must be used.
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