How can the Canadian P&C industry address its biggest challenge in 2024?
How can the Canadian P&C industry address its biggest challenge in 2024? | Insurance Business Canada
Insurance News
How can the Canadian P&C industry address its biggest challenge in 2024?
DBRS Morningstar expects “increased focus” from insurers and regulators
Insurance News
By
Gia Snape
Addressing insurance affordability will be a main theme for Canadian property & casualty (P&C) insurers this year, according to DBRS Morningstar.
In its 2024 outlook, the credit rating agency affirmed that conditions are supportive of premium rate increases for Canadian insurers. Inflation, higher claims costs, reinsurance prices, and the growing severity of weather events are trends that could influence rate decisions.
But, at the same time, insurers must balance consumer fatigue towards rising prices as Canadians grapple with an ongoing cost-of-living crisis.
“We do see the two opposing sides of this equation: the need for higher insurance prices driven by all those trends we talked about and the increased demand for insurance coverage,” said Nadja Dreff (pictured), senior vice president and head of Canadian insurance at DBRS Morningstar.
“Consumers are experiencing overall higher levels of inflation, not just in terms of insurance, and that is putting pressure also on insurers to absorb some of those additional costs if possible.
“Regulators, including international regulators, are looking at possible actions that would improve affordability, but also availability and uptake of insurance to protect against natural catastrophes.”
Insurance availability under pressure
The choice between insurance profitability, or solvency and availability, will come under more focus for the industry and regulators.
“What we would like to see in 2024 is more attention being paid to these affordability concerns in light of increasing risk,” Dreff said in an interview with Insurance Business.
“We’re seeing insurers increase [rates] to compensate for the higher risk, [but] we’re also seeing consumers being more pressured in terms of cost-of-living expense.
“The only way forward that we see both these issues being addressed is to focus more on adaptation and resiliency measures because that’s the only meaningful way to reduce risk and, therefore, reduce insurance costs.”
Positive outlook for Canadian P&C insurers
Of the five P&C insurance companies rated by DBRS Morningstar, three received upgraded ratings in 2023. The agency has also given a predominately “stable” credit outlook for the industry in 2024.
Still, even as inflation pressures ease somewhat, Dreff said volatility remains a significant concern.
“The market is not yet certain that inflation has completely come under control, and for claims-related expenses, and as a result of various supply chain pressures, we could still see pockets of much higher-than-expected inflation this year,” said Dreff.
“Insurers are looking at those trends and monitoring them closely, especially as they relate to expenses that affect their bottom line.”
Elevated interest rates, while cushioning the impact of projected rate increases, won’t be enough to offset them.
DBRS Morningstar said it anticipates regulatory action throughout the year as rate increases come into effect.
“Regulators, too, are paying attention to these trends and certainly don’t want insurance availability to become an issue. We may get more of a regulatory intervention or at least involvement,” Dreff said.
How are Canadian insurers handling reinsurance renewals?
More costly reinsurance will also factor into the hard market dynamics in commercial and personal property insurance.
Though Dreff noted that 1/1 renewals were “more orderly” than at the beginning of last year, DBRS Morningstar found sharp increases in reinsurance prices and much tighter terms, which will reflect in insurers’ capital strategy.
“Insurance companies have had to increase their retentions, so they’re bearing more risk throughout the year. So, we may see more underwriting profitability volatility from that perspective,” she said.
Dreff also observed that insurers are more prepared to be flexible with their reinsurance programs this year.
“They’re paying more attention and planning for [increases] and are ready to react should they want to either pay a much higher price or reduce their reinsurance coverage,” she added. “These are decisions that they’re on alert to make, especially after last year, which was a bit of a shock to many.
“Then, of course, the actual price on their specific portfolios will vary based on geographic region and the claims experience. If insurers haven’t had a lot of claims, and if it was a particularly benign year in that geographic region or specific business line, they can expect more orderly, much more favourable conditions.”
What are your thoughts on DRBS Morningstar’s Canadian P&C insurance industry outlook? Tell us in the comments.
Related Stories
Keep up with the latest news and events
Join our mailing list, it’s free!
