Canadian P&C marketplace stable, but underwriting discipline, risk management still key: Aon

The Canadian insurance market is stable, but last year’s severe flood events and recent consolidation among major insurers have changed the landscape slightly for 2014, according to Aon Canada’s new insurance market overview report. 

Generally, things aren’t likely to change dramatically for policyholders this year, according to the report, which provides a breakdown of what can be expected for various insurance lines.

“The insurance market would need to see a prolonged trend of large non-catastrophe losses and a decline in the availability of surplus capital to shift to a hard market environment,” the report notes.

However, despite cat losses causing a major shift for the Canadian marketplace last year, the cost of such losses is trending upward, the report suggests.

“The increased frequency and severity of weather-related events presents a very real issue for the insurance industry; it must built in underwriting practices and pricing that will allow insurers to absorb significant losses as they occur,” it says.

Despite severe flooding in southern Alberta and the Greater Toronto Area last summer, the long-term impact will be minimal, according to the report.

Insurers are, however, changing their approach to underwriting flood risk in the wake of the severe flooding and storms last summer, Aon suggests.

In personal lines, policy language confusion between “river flood” and “sewer backup” led to claims being paid out where coverage wasn’t included, Aon notes.

“Given the reputation risk involved in denying claims from such a high-profile event, even those insurers who had very clear wordings that excluded the concurrent occurrence of flood and sewer backup accepted claims to mitigate the risk,” the report says.

“For now, insurers are taking steps to better understand and underwriter the risk of flood, and those policyholders who are considered to have a material exposure will see premiums increased, limits reduced, deductibles increased or some combination thereof.”

Merger and acquisition activity in recent years has also created changes in the landscape for 2014. Now, the top 10 largest insurers control roughly half of the overall marketplace, according to Aon.

It’s also expected that more companies will enter the Canadian marketplace in 2014, including Allied World, HDI-Gerling and C.V. Starr, the report adds.

Aon’s full Insurance Market Overview report for Canada is available online.