Canada’s commercial market feels “weird,” insurer execs say

Commercial insurer execs describe the softening commercial market in Canada right now as “weird,” because there seem to be different market cycles going on simultaneously within various segments of the market, brokers heard at IBAOcon in Niagara Falls last week.

Competition for growth in the large commercial space is starting to become disconnected from loss experience, some insurers observe, whereas small and medium-sized businesses aren’t experiencing the same type of market softening.

Even within the softer commercial lines segments (contractors, for example), mini markets exist in which pricing is firmer in some sub-segments than others.

How long will this weirdness last?

Within the more competitive classes, look for the soft commercial market to last until at least the end of 2026, if not longer, brokers told a panel at the Insurance Brokers Association of Ontario (IBAO)’s annual conference.  

“To be totally honest with you, I was really struggling with how to label the market right now,” said panellist Alyson Paisley, deputy senior vice president of commercial and national distribution teams at Intact Insurance in Ontario. “I think personally, I keep using the word ‘softer.’

“I know a lot of people have gotten to the point of saying ‘soft.’ But I think the reason there’s some hesitation in how we label the markets…is the fact that what we’re seeing in terms of competitive pressure on rates, it’s not universally applicable to every segment and to every class. And there are still some pockets where we are seeing upward movement on rate.”

Obaid Rahman is senior vice president and chief underwriting officer of commercial insurance at Definity. He described the commercial market as “bifurcated” between the larger and smaller commercial business segments.

“I would say in the upper middle market segment, the specialty segment, competition has accelerated through the [past] four quarters,” he said. “I think today…it’s a bit disconnected from, in our view, the fundamentals of where the pricing is supposed to be.”

But even within these larger, competitive commercial markets, sub-segments exist, said Paul Fletcher, managing director of business insurance at Aviva Canada. He cited the example of business insurance for contractors.

“Most insurers will say [the] contractors [segment] is profitable and competitive right now. But there are probably 15 or 16 sub-segments within contractors,” he said. “And, from Aviva’s perspective at least, [in] at least two of those, we predict next year we’re going to cross a line and probably be…unprofitable.

“So what you’ll see is, maybe in six months time, [those] two [unprofitable segments have] turned into four or five. So each of these sub-segments is operating in its own little mini-cycle right now….”

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Conversely, in the small and medium enterprise (SME) segment of commercial lines, pricing remains aligned with claims loss experience, said Rahman.

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“The story is different when you look at the SME part of the business, the smaller businesses, which, by the way, is the majority of business out there if you’re just looking at the number of businesses. Their pricing has very much sort of remained in line. It’s keeping up with lost trends. And so the market is much more stable. I don’t see a big change on that part.”

Fletcher said he would encourage broker teams to listen carefully to the signals from carriers about their specific market appetites. He said brokers can use this type of specific intelligence to guide their discussions with clients moving forward.

This market dynamic may be around for awhile, he added.

“So yeah, the market feels weird right now,” Fletcher said. “The conditions are in place for a fairly extended soft cycle, I fear. It’s not going to be the sort of, ‘Two years and we’re out.’ It’ll be a bit longer.”

David Gambrill

David has twice served as Canadian Underwriter’s senior editor, both from 2005 to 2012, and again from 2017 to the present.