The Ontario Broker - June 2019 - 8

KEEPING UP WITH THE TIMES:
THE EVOLVING COMMERCIAL INSURANCE PROPOSITION
BY PAUL LUCARELLI - SVP, COMMERCIAL INSURANCE, RSA CANADA

T

he driving forces in today's
changing insurance landscape
include climate change,
economic uncertainty,
regulatory changes,
technological disruption and increased
customer expectations. In response,
commercial brokers must adapt their
approaches to servicing customers and
helping them protect their businesses.
MAKING AN IMPACT

The commercial insurance industry in
particular has experienced several changes
of late. For the first time in many years,
commercial rates are rising, primarily driven
by the increase in frequency of weather
events and large losses, as well as increased
costs of attritional losses. To return to a
position of profit, most commercial insurers
have no option but to increase rates and
tighten terms, causing an overall surge in
the market. The market has also witnessed
big exits as capacity decreases due to poor
performance year over year, thus driving the
onset of hardening market conditions.
Severe weather events have continued into
2019 across Canada. The first half of the year
saw heavy snowfall, wind, freezing rain and
rain while snow and ice were on the ground,
which has led to elevated property damage
from water infiltration and a record number
of roof collapses. Freezing rain and intense

JUNE 2019

cold have also led to a higher frequency of
burst water pipes and auto collisions.
Labour costs are on the rise, driven by wage
increases in the wider economy, increased
regulatory construction requirements and
the need to hire employees with specialized
training to handle the complexities of
new technologies. Facultative and treaty
reinsurance are important instruments for
insurers to manage weather and large loss
events. Demand has grown and is reflected in
increasing rates.
Finally, with inflation and increased
healthcare costs, average severity of liability
claims continues to escalate to new levels
- the "new norm." A social shift is another
contributor as customers are more aware
of their options to litigate, and personal
injury lawyers are ready and available. The
liability market has been soft and pricing
has been depressed due to competitive
pressures. The observed increase in rates is a
correction to catch up to claim trends. With
liability traditionally much slower in its rate
adjustment compared to property insurance,
we expect continued rate increases in liability
over the next two years.
LINES OF BUSINESS IMPACTS

The commercial property market has
come out of numerous years of capacity
abundance, year-over-year rate decreases

8

resulting from the highly competitive
landscape, and escalating claims costs.
Over the past two years, commercial
insurance results for most carriers have
shown that this trend wasn't sustainable.
Underwriting and pricing strategies in
2019 have been implemented to address it.
Some segments more than others have felt
this pressure in the first half of 2019, but
with the continued impact of weather and
large losses, it's not expected to subside by
the end of the year.
The trend in auto is rising popularity in
larger vehicles (SUVs) and light trucks. In
the past, a bumper consisted of 10 parts.
Nowadays it's made up of over 40, so
repairs involve more complex components
at high quantities, resulting in an increase
in costs. For commercial insurance, the
sophistication of attached machinery and
technology not only contributes to the
indemnity cost, but also the cost of finding
replacement units and downtime.
THE ROLE OF BROKERS IN THIS
CHALLENGING MARKET

What does this mean for brokers and their
customers? It means being proactive in
the way you service customers, planning
appropriately and being prepared for
market dynamics to stick around for the
foreseeable future.

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The Ontario Broker - June 2019

Table of Contents for the Digital Edition of The Ontario Broker - June 2019

In This Issue
The Ontario Broker - June 2019 - Cover1
The Ontario Broker - June 2019 - Cover2
The Ontario Broker - June 2019 - 3
The Ontario Broker - June 2019 - In This Issue
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The Ontario Broker - June 2019 - Cover3
The Ontario Broker - June 2019 - Cover4
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