Canadian P&C market stabilising with focus on risk quality

The Canadian property and casualty insurance market has stabilised, with increased competition and a more diversified appetite, says Aon, but insurers are focused on risk quality.

In its Spring 2023 Canadian Insurance Market Update, Aon says that economic uncertainty, costly reinsurance capacity, and accelerated frequency and severity of climate events has required insurers to remain strategic about the capacity being deployed.

“The focus on risk quality will be top of mind for insurers and highlights the importance of risk mitigation for policy holders,” said Russell Quilley, head of commercial risk solutions and chief broking officer for Canada at Aon. “Insurers require more information and stronger risk management practices than ever before as they navigate increasing volatility.”

In the report, Aon notes that property rate increases continue but are fluid and largely dependent on risk profiles. It says the rise in reinsurance rates following challenging reinsurance treaty renewals has undoubtedly impacted the Canadian property market, causing more strain on pricing and capacity for primary insurers.

It points out that some markets are using higher deductibles and placing a moratorium on capacity for British Columbia quake exposures, while flood-exposed risks are causing concern, particularly for non-domestic insurers, with some limitations on flood coverage.

On the business interruption side, Aon says that insurers are managing their exposures “by limiting capacity through such means as re-examining indemnity periods in their coverages and placing a volatility maximum clause on commodity prices. On a positive note, these challenges have motivated companies to improve their business continuity planning and build stronger resilience to mitigate these risks. Clients are strongly cautioned to re-examine their loss scenarios to ensure they reflect true indemnity periods and up-to-date valuations.”

As for the liability insurance market, capacity is readily available, with new market entrants and existing markets expanding their limits. The broker says pricing for accounts with more favourable attributes are in line with inflationary increases, while those with more acute risk challenges such as heavy US exposures, transportation, energy, and high claims frequency may experience similar results to past years.

According to the update, conditions in the cyber and technology error and omissions market are easing, with new capacity and expanded insurer appetite. Aon says the improvement in risk mitigation practices and cyber security controls have contributed to more favourable market conditions, though rates and retentions are being maintained.

There are favourable market conditions in the environmental insurance market, with competitively priced coverage available, although Aon stresses that the heightened level of technical underwriting remains and investing in loss control measures is still critical. It notes: “The purchasing of environmental insurance is rising, with more coverage exclusions for environmental losses by standard property and casualty policies resulting in many gaps in coverage for clients. This is leading to the strategic use of environmental layers in insurance programs becoming more prevalent.”