How will U.S. tariffs impact Canadian P&C pricing?

Besides manufacturing and supply chain risks, the Canadian commercial lines market is not really seeing the impacts of inflation and U.S. tariffs, speakers said last week at IBAOcon, the Insurance Brokers Association of Ontario’s annual conference held this year in Niagara Falls.

“The big discussion right now is, what’s the impact of tariffs going to be?” asks Paul Fletcher, managing director of business insurance at Aviva Canada. “It’s not really showing up too much.”

Fletcher says there’s been a lot of predictions and Aviva’s teams have been analyzing worst-case scenarios. They’ve also been looking at how the geopolitical environment could play out in terms of pricing, including if pricing should come before or after tariffs.

“Now, an actuary would say, ‘You’ve got to price before [tariffs] come through, otherwise you’re vulnerable,’” he says. “A regulator in personal auto would say you price later.

“That’s one area where we’re not yet seeing too much pressure,” Fletcher says. “Signs are there, but CUSMA is protecting some of it as well,” he says, referring to the Canada-United States-Mexico Agreement on free trade that covers a majority of goods traded between Canada and the U.S. “So, the pressures are a little muted…”

Related: How commercial brokers can help with ongoing tariff fallout

But pressures do exist in manufacturing and supply chain-type risks, says Sarah Scott, vice president of commercial lines – product and pricing at Wawanesa.  

“I think of…business interruption coverage — how do you work with your client [who thinks] that they might be shut down for six months?” Scott asks. “But is it six months? Is that equipment available? Is what they need to run their business available within that time? That last thing you want them to do is be short on that and have those difficult conversations.”

It’s important for clients to understand how long it takes to get back up and running. “So, if you can hold their hand through this process and help them feel more secure, and that insurance is there to support them during these unknown times, it is a really critical purchase and it is something that should be thoughtfully done.”

Inflationary impacts

Alyson Paisley, deputy senior vice president of Ontario commercial and national distribution teams with Intact Insurance, says the insurer is often asked how it applies inflation coverage limits.

With inflation now easing, the concern is that there could be overinsurance on policies. But this fear is unsubstantiated, Paisley says. “We’re not seeing — or at a point where we’re seeing — overinsurance. Our claims analytics would tell us that there’s still some underinsurance in the system.

“And despite the fact that we’re seeing lower inflation right now, there was a surge of inflation during COVID for a myriad of reasons, [with] supply chain being a big part of that,” she adds. “So, you see this big surge in reconstruction cost inflation, yet our coverage inflation was moving at a more moderate pace, and it just hasn’t intersected yet.”

Intact has ‘slightly’ reduced the inflation it applies on coverage limits recently, “because we’re seeing some stability in the system,” Paisley says, using the supply chain for reconstruction material as an example. That said, there’s still volatility in the system — whether it’s geopolitical risk or the skilled labour shortage that adds inflation to wages, for example — and it needs to be continually assessed.

CAIB New Edition 1.0 – a New Standard for Broker Education Image

Insights Paid Content

CAIB New Edition 1.0 – a New Standard for Broker Education

Preparing brokers to navigate an increasingly complex insurance landscape.

By 

Sponsor Image

Obaid Rahman, senior vice president and chief underwriting officer of commercial insurance at Definity, agrees the industry is not seeing an underinsurance problem from an inflation standpoint. For him, the biggest concern surrounding tariffs and trade friction is the uncertainty.

The worst-case scenario would be no trade deal between Canada and the U.S.

“That is still a possibility, and if it happens, then it’s very significant from a cost standpoint on the industry because the tariff has an immediate impact on cost…but it takes a while for pricing to catch up,” Rahman says. “So, you end up in that mismatch. If it does happen, I think we’ll be having a very different discussion on market conditions next year.”

Jason Contant

Jason has been an award-winning journalist with Canadian Underwriter for more than a decade, including the past three years as associate editor and, before that, as digital editor for seven years.