The Covid Crisis has resulted in changing expectations of the experienced office workforce. Now that many office employees are now working from home and will likely continue in some hybrid of home and office work, there are more opportunities for these employees to work outside of their travel area. In addition, the pandemic has allowed people to move away from the larger cities to work in smaller communities because travel to the office is limited and will likely be so in the future.
For the insurance industry in Ontario, this has resulted in most insurance employees working from their home and able to telecommute to the office in the larger cities. This has allowed them to avoid the problems of traffic congestion and time delays, saving them the cost of commuting. Some have moved away from the city core and into the suburbs and beyond to smaller towns with the expectation that commuting will be limited in the future.
This offers the mutual community, greater access to more experienced insurance personnel that what was available in the past. Now mutuals can attract candidates with more experienced skills and knowledge obtained from working with larger insurance companies that have training programs. With the ability to offer interesting positions in smaller communities where there is much less traffic issues and a better life/work balance, mutuals are more attractive to these potential insurance candidates.
Canadian Insurance Mutual Professionals assists mutuals with various projects and works with other consultants in the insurance industry to provide help where needed. CIMP has a working arrangement with a top Canadian Insurance recruiting firm that sources qualified candidates for the more difficult to fill roles. Givelos Partners Search (GPS) has been recruiting qualified insurance candidates for over 30 years and has a proven track record of finding the right candidate for the more difficult positions that are not easily obtained by using on-line sourcing tools. Don Givelos was a pioneer in the field of internet recruitment search for the Canadian Insurance Industry but works today on more tailored recruitment searches.
Ontario’s Financial Services Regulatory Authority (FSRA) recently approved a 10% surcharge allowing Travelers Insurance to charge usage-based auto insurance policyholders, when they are found to be engaged in higher risk driving behaviour.
Travelers Insurance said that its IntelliDrive app allows the company to “personalize” auto insurance pricing by basing it on an individual’s known driving behaviour. According to the insurer, this can save good drivers money and also incentivize any driver who purchases the product to practice safe habits behind the wheel.
Until now, usage-based auto insurance programs could only reward policyholders with premium discounts for good driving behaviour, but this new ruling will likely allow other usage-based insurers to surcharge policyholders for poor driver safety.
Automobiles currently fitted with telematics devices will not be affected until the insurance company for the vehicle obtains permission from the FSRA to raise rates for bad drivers. If drivers are unlikely to drive according to the safety standards of the usage-based program, they need to be aware that there could be a surcharge and that these usage-based insurance programs might not be right for them. Consumers should be careful about agreeing to allow their personal information to be collected by insurers, since they run the risk that their behaviours could be used against them. Will the costs savings be worth the premium reduction if the auto useage data can be used to raise the premium at renewal or even mid-term?
As insurers review the opportunity to add surcharges to usage-based auto policies, there may be more insurers moving in this direction due to the potential to improve loss ratios and allow more individual risk based pricing.
Those insurers that do not institute auto premium surcharges, may be seen as a market for those drivers who do not wish to have their unsafe driving surcharged, resulting in potentially higher risk profiles moving from one insurer to another. This may increase the business volume of those insurers who do not surcharge but it may also increase the loss ratios derived from this new business depending on how well their risk assessment tools operate.
Insurance distribution deal activity in Canada and the United States reached unimaginable highs in the fourth quarter (Q4) of 2020, according to a report by Chicago based OPTIS Partners. The investment banking and consulting firm has attributed these deal heights to “a combination of pent-up demand as we learned to live and work in a pandemic world,” as well as a rush by firms to “avoid an expected increase in capital gains tax by selling before year end”.
Speculation in Canada about a potential increase to the capital gains tax rate has been high for some time as Ottawa seeks ways to pay down a soaring deficit amid billions in spending on pandemic-relief measures. As such, OPTIS Partners expects that insurance brokerage sellers will “continue to push to close deals as a hedge against a possible increase in capital gains tax” in the early months of 2021.
There are other factors driving brokerage M&A in Canada. The COVID-19 pandemic has forced brokers to engage in digital transformation and conduct more of their business through virtual settings. Those who haven’t been able to adjust to the new business environment spawned by COVID-19, or those who simply haven’t engaged with it (either by choice or lack of means), might be looking to sell to or partner with a larger brokerage firm or network where they can gain access to those capabilities.
Buyers, on the other hand, are interested in the brokerage/agency space for its resiliency, which has been proven through tough economic times like the Great Recession and the current pandemic. Insurance distributors have been able to produce predictable and consistent revenue streams coupled with high margins, making them attractive from an investment perspective.
Canada has seen its fair share of M&A transactions over the past few years. Hub International and BrokerLink keep making the headlines with deal after deal, and there’s been more movement towards large additional brokerage networks in Canada, like Novacord and Westland.
This heightened deal activity is having an impact on the distribution landscape in regional insurance markets. Saskatchewan Mutual Insurance Company reported that in 2012, the top 10 broker groups accounted for 32% of premium volume and in 2019 that increased to 43% premium volume with 6 broker groups owned by another broker. There has been a shift in succession planning among local brokers, with fewer independent brokerages passing down to family members, and more selling to larger broker networks
Independent brokers that join larger networks, get more leverage in the market, and they get access to new technology. By being part of a larger brokerage network, they can consolidate some of their needs together, and really enhance their customer experience.
Insurers can move alongside their brokers working together to obtain solutions that assist brokers in conducting their business easier, such as more investment in digital technology. With such a win-win situation available, it’s more than likely that insurance distribution M&A will continue to soar through 2021. Ontario Mutual Insurers are facing these broker consolidation issues and have the opportunity to review their distribution strategy to ensure premium volume and loss ratios will not be impacted negatively.
Canadian Insurance Mutual Professionals have expertise in distribution strategy with insurers, brokerages and insurance consolidators. We can assist in distribution reviews to ensure effective preparation against distribution disruptions.
Average auto insurance rates rose in Canada during the second half of 2020 despite the COVID-19 pandemic and lockdowns that led to fewer drivers on the road. The average auto insurance premium climbed by about 30% in Alberta, 17% in Atlantic Canada and 4% in Ontario over the course of 2020 according to data collected by the insurance rate comparison site for home and auto insurance, LowestRates.ca.
Price increases were due to the fact that more inexperienced drivers have been hitting the roads since the pandemic began. More young adults, who used public transit or ride sharing pre-pandemic, are applying for car insurance amid concerns about taking public transit. The number of inexperienced drivers shopping for insurance on LowestRates.ca increased by 2.9% (Q3) and 8.7% (Q4) reflecting the growth in use of personal use vehicles.
There is a trend of former public transit users now opting for personal use vehicles as concerns about health and safety remain. While new drivers pushed prices higher, many drivers saved money as they switched from commuting to work daily to working from home. There is also a large increase in the number of drivers aged 50 and over that are no longer commuting to work, resulting in reduced auto premiums. In addition to reductions in premiums for insurers, there were restrictions on new business by some insurers in an effort to limit certain risks in higher loss ratio areas.
In Ontario, prices were 4.1% higher in the last quarter of 2020 than they were one year prior. Even with auto insurance rates the highest in Canada, the trend away from public transit to personal use vehicles is increasing. Many of those obtaining insurance quotes are Inexperienced drivers are those with less than four years of driving experience.
Since the start of the pandemic, the comparison site also saw an increase in the number of older drivers who quote with very low mileages, and who do not drive to work. The distribution of users aged 50+ with personal-use vehicles who said they drove zero kilometers to work increased from 28.6% in 2019 Q4 to 35.9% in 2020 Q4. As a result of lower average mileage and fewer drivers using their car to get to work, average prices for drivers aged 50 and over fell by 8% in the fourth quarter.
The reduction in traffic has led to fewer claims and might even lead to lower prices down the road, but it will take some time for insurers to gather the data and file for rate changes. Will the recent drop in traffic and any subsequent decline in accidents remain for the long term? Will the increase in younger drivers result in higher loss ratios? Will the trend towards use of private vehicles increase or return to past levels of public transit and ride sharing, with the end of the pandemic? Will older drivers return to daily travel or continue to work from home and enjoy lower premiums?
With so much uncertainty and difference from past trends, insurers won’t be able to price these changes until they have more certainty.
The coronavirus pandemic has forced most office workers to work from home in the last year. Some companies are now looking to have part of their workforces stationed remotely for the long term or work a hybrid model of some office days and some home days. Others plan to return to the office fully. Either way, an office transition plan is needed for various reasons, such as some jobs being better accomplished in an office setting, or some employees being unable to work from home for extended periods. With the pandemic still ongoing (and in some places, getting worse), reintroducing the workforce to the office comes with risks that businesses must navigate carefully. However now is the time to consider a plan to re-populate the office, as the economy begins to re-open with the success of vaccine rollouts.
Employment lawyers suggest that there are two major areas of risk with respect to employees returning to the office. First is the risk of transmission of COVID-19 in the office, and second, the risk of violating applicable local, provincial or emergency orders related to COVID.
With respect to transmission, the risk rises as businesses return to normal – not only among employees as workforces are brought back into the office, but from vendors, deliveries, auditors, job candidates, customers, and any other visitors to an organization’s facilities. Essentially, there’s risk from all typical business activities that, pre-pandemic, were background noise to everyday offices. Additionally, organizations can open themselves up to potential risks of non-compliance penalties if they aren’t aware of and complying with the provincial and municipal regulations, particularly as those are in flux as conditions change.
One of the biggest challenges in mitigating these risks, is the ambiguity of the pandemic situation, due to lack of precedent. The best way to reduce risk is preparation and communication. Preparation is required to think through the situations where risk might arise and communication to make sure that everyone involved knows the best course of action.
With a little preparation, the organization’s leaders can put simple, common-sense restrictions in place. Also follow the local health advisory protocols for offices. Opening up slowly to avoid excessive burden on resources to manage transmission in the office, may be the best way to open while infection rates begin to reduce and become less serious due to vaccination programs being more wide spread. As for managing compliance, it is critical to have a designated person in the organization to monitor the guidance at all levels of government for all relevant protocols.
As restrictions can change from region to region, so continued awareness is critical to avoiding noncompliance penalties and mitigating the risk from employee actions if the business practices don’t take local restrictions into account. There is no mandated requirement by governments that all employees get vaccinated in order to come back to work. They are leaving this up to the employer. However, this may result in non-compliance by employees due to their personal choice not to be vaccinated. If the employer doesn’t allow the employee to return to work unvaccinated, then there could be legal action taken by the employee and a possible severance discussion required.
Organizations need to follow developments in this potential risk to their employee pool which could result in loss of staff, financial costs from forced severance and potential penalties from government agencies. This pandemic is not the time to allow individual interpretation of policies, which introduces a large degree of ambiguity. Management needs to be aware of the risks of a return to work and find defined ways to implement it. Create a well thought out plan, communicate the plan, and make sure it’s consistently applied across the business. The risk, and accompanying potential liability, from different implementations is significant and avoidable.
With Valentines Day upon us, we usually think about what we value about that special person and how they enrich our lives. So, let’s look at this from an insurer viewpoint and think about things we value and how it improves our company. While the list can be long and worthwhile to contemplate, this article is about commercial lines and a list of why it’s easy to love more of this type of business.
Higher rates can now be charged - while home and auto are limited in how much we can charge due to regulation and competition, commercial lines can be offered at higher premiums due to a hard market that is likely to last for several years.
Less worry about the competition – some insurers are now getting larger premiums for commercial risks including farm business while competition based on cutting pricing, is less than before. Time to take rate increases but just enough to be a little less than those large commercial carriers, so you get the business but still enjoy more profitable premiums.
Coverage improvements can be made – with more premium available in commercial lines accounts, better coverage can be provided without higher loss ratios. Insurers can review what additional coverages can be provided but were reluctant to add before. If not familiar with what additional covers are attractive, some research into what is being provided is helpful, in order to update your wordings.
Risk management enhancements are more valuable – with the higher premium volumes on lower risk commercial business improving profit, improvements on risk management can reduce claims further leaving more profit on risk managed accounts. It can also provide more money for risk inspections and risk audits to ensure effective underwriting is being done.
Attraction and selection of risks can be increased - the opportunity exists for better risk selection due to the attractive rates now being charged. Underwriter training and commercial underwriting manual improvements can be done to improve quality of risk selection, so that more of the profitable risks can be written. With more commercial abilities, larger commercial risk can be written with the confidence of stronger risk selection, correct coverages and better risk pricing.
Brokers will “love” your company more - as you show your commercial expertise more, brokers will see this and be attracted to your company to place more commercial business. Brokers are always on the lookout for additional commercial players who demonstrate good commercial insurance knowledge, risk selection and adequate pricing in a hard market.
Board Directors will appreciate the changes - with a growing profitable commercial lines business, larger premium volume, lower loss ratios, happier brokers/agents and enhanced business community support – what’s not to love?
Competitors will “love” you less – with your improved commercial attractiveness combined with the community values, that only mutuals provide, you will be seen as stronger competition to those larger commercial stock insurers. They may be jealous of your growing commercial lines abilities and favour within the broker community, as you might capture the “hearts” of their commercial customers.
If you want to improve your commercial “attractiveness”, CIMP has the experience and knowledge to assist you in this worthwhile endeavour. Now may be a good time to do some work behind the scenes, to get ready for post Covid opportunities.
According to Toronto employment lawyer Howard Levitt, employers may face up to a $10-million fine for carelessness towards COVID-19 under the Ontario Emergency Management and Civil Protection Act. Employers face additional massive fines under the Occupational Health and Safety Act. Also, an employer may be found sufficiently wanton in their efforts to protect employees, could potentially face a year in jail.
On top of those threats, employers who fail to keep their workplace adequately safe and in compliance with the relevant standard of care prescribed by the public health authorities, would also face the legal action of negligence from employees and third parties. Employees who are ill and enter the workplace and infect co-workers, customers or vendors and these individuals then transmit it to their families or others as a result of insufficient precautions, could result in legal actions against the employer, with court decisions potentially in the millions of dollars. If the workers in question are covered by The Workplace Safety and Insurance Board, then the employer will avoid the lawsuit, at least with respect to their own workers, but will quickly see their WSIB premiums surge.
There is one solution, which will avoid every one of the above risks. That is requiring all employees to be vaccinated against Covid19. Negligence, as well as the public health statutes, is based upon employers falling below a reasonable standard of care and employees being stricken as a result. No one can challenge an employer, who insists on their employees’ vaccinations, as negligent. Given those stark choices, which employer will not insist upon vaccinations.
Can employers require employees to be vaccinated in order to remain employed? Under employment laws, safety trumps privacy. In addition, negligence is based upon non-compliance with the prevailing standard of care.
Once public health authorities deem it appropriate to recommend vaccinations for everyone and vaccines are sufficiently available to enable that, there will be a strong argument that not requiring vaccinations will be negligent. There is no basis to require vaccinations for employees who work entirely remotely but, as vaccinations become required and offices reopen, there will be much fewer of those.
In addition to avoiding liability, employers requiring vaccines will become the employer of choice, for staff and customers will prefer attending their offices. As vaccine rollouts accelerate, those having to avoid working in the office to protect vulnerable family members will no longer be able to claim that and employers will be able to order them back to work.
The trend to compulsory mainstream vaccinations may start with U.S. companies imposing their requirements on their Canadian branches. The Equal Employment Opportunity Commission (EEOC) said that U.S. employers could require employees to be vaccinated against the flu in its 2009 guidance on the pandemic.
The only exceptions could be employees who have genuine religious restrictions against vaccination and those with disabilities prohibiting it. In that case, employers, under human rights law, will have to attempt to provide their workers some reasonable alternative to continuing to work. It cannot be based on a personal religion but a recognized religion, the central tenets of which prohibit vaccines.
If remote work is feasible or sufficient safety can be afforded through wearing a mask or having those employees work separated from all others, then that must be permitted to those employees who have a religious or medical exemption. Not to others. But if the employee cannot be accommodated, then they cannot continue in their employment and, at the very least, would have to be laid off, if not fired.
Many legal commentators have stated that employees cannot be forced to be vaccinated. They are relying on old arbitration cases involving vaccinations for the flu, at a time when the flu vaccine was found not to be very effective little more than half the time. Covid19 vaccines have 95 per cent efficacy. Most importantly, the flu virus has not shut down our economy and exposed many to poverty. Courts will take this into consideration when determining legal actions.
About 10 months into the global COVID-19 pandemic, insurance leaders are less confident about growing their business and are increasingly concerned about the cratering economy.
While 84% of Canadian CEO’s continue to be confident in seeing growth in their companies there has been a huge drop in the confidence of the Canadian economy. Before the pandemic, 77% of insurer CEOs in a 2019 KPMG survey reported feeling optimistic about the economy. Then in March 2020, COVID-19, was declared a global pandemic which significantly modified business confidence. By year end, the 2020 KPMG survey showed that confidence in the Canadian economy has significantly reduced to 48%, which is the largest shift in the history of the surveys.
But while insurers were losing confidence in growth opportunities and the economy, they did see some opportunities as a result of COVID-19. For example, the pandemic has forced them to accelerate the creation and implementation of seamless digital experiences for customers. Also, more than half (60%) of insurance CEOs said they’ll be considering downsizing their office space, based on their positive experience with staff working remotely. Nearly four in five (76%) of them said the ability to have staff work remotely means they can widen their potential talent pool beyond where their offices are located in order to raise the talent bar of their organization.
KPMG also reported that COVID-19 has changed what insurance company CEOs perceive as their greatest threats. Survey ranking showed the following top five concerns. Climate Change (#1), Return to Territorialism (#2), Disruptive Technology (#3), Talent risk (#4) Cyber security (#5). With the increasing trend of WFH (Work from Home) as the result of the pandemic, companies are quickly shifting their resources toward greater digital enablement, improved cyber protection and hybrid workforces.
While there are continued threats to returning to pre-pandemic business levels, this is an opportune time for insurance leaders to review how their companies will operate post-pandemic. Many companies are engaging in operational reviews with the expectation that the pandemic will be brought under control in 2021 and the economy will begin to recover. However, it will likely be a different operating environment with changed risk levels that will impact company policies and procedures.
Canadian Insurance Mutual Professionals have expertise in strategic and operational reviews for Canadian Insurance companies and would be pleased to provide assistance for the Mutual Insurance community.
To review the 2020 KPMG Insurance Survey in full, click on the attached PDF doc.
As a very difficult 2020 comes to a close, we hope that everyone remains safe for the holidays. With continued business restrictions and lockdowns, there's lots of challenges for 2021.
Canadian Insurance Mutual Professionals (CIMP) wishes you healthy and happy holidays.
CIMP works with other insurance consultants to support the Mutual Community. Our friends at NICExperts also send their holiday wishes – they are all very experienced and wear many different hats!
The coronavirus pandemic has caused mass disruption to the global economy. Over the past 10 months, jurisdictions around the world have been forced to inject unprecedented amounts of fiscal stimulus into their local economies to provide financial relief. This challenge is piggybacking a period of multiple years in which central banks worldwide have been providing accommodative monetary policy, which has led to a prolonged low interest rate environment. This economic outlook is not good news for insurance companies, who typically depend upon a strong economy and healthy interest rates to make returns on underwriting and investment income.
Insurance companies are having to endure this low interest rate environment and at the same time, they’re being hit with additional capital and expense requirements, whether that’s around particular lines of business that have been negatively impacted by the pandemic, or meeting regulatory compliance, or needing to upgrade technology due to COVID-19 and the need for remote capabilities. Many insurers are under significant financial pressure, and the low interest rate environment has created a need for them to analyze their investment portfolios and potentially consider investing in alternative assets.
After the 2008-09 global financial crisis, insurers experienced reduced interest rates and this put pressure on the bottom line with a focus on reducing expenses. Cloud computing and digital software innovation increased. Businesses needed to shed costs and figured out that building their business models digitally in the cloud was a lot more flexible. Now in 2020, further acceleration of digital innovation is happening due to Covid-19 forcing old business models to be reinvented.
Adding to expense costs is the need to protect insurers and their customers data from hacking or being held ransom by cyber criminals. Several insurers have been cyberattacked in 2020 and the smaller the insurer, the less resilient is their cyber protection and cyber insurance coverage. Promutuel Assurance, a Quebec based mutual insurer, was the target of a recent cyberattack that made the company’s critical IT systems unavailable for use during its December year end period.
The Covid Crisis provides an opportunity for the industry to come together and start to get serious about the broken processes, poor customer experiences and lack of access to data analytics that can help make better business decision including investing more in digital software and cyber protection.
The pandemic acts as a catalyst for insurers and brokers to do things differently and reduce ambiguity in multiple areas. Now is the time to ramp up consumer education, especially when it comes to policy wordings for home and auto insurance – two major buys for the majority of Canadians. Brokers have a big role to play in helping consumers be absolutely clear about what they’re buying and what they’re covered for.
Consumer surveys show that many Canadians still prefer human interactions, despite the growing presence of online insurance shopping channels. Most respondents are seeking omni-channel communication with their insurer and/or broker, with the option of face-to-face, phone, email and self-serve platforms.
Coming out of this crisis, the insurance sector could look fundamentally different: much more agile, secure, connected and digitally-enabled. It will be the insurers and brokers that innovate and keep up the pace with this transformation that will be the winners. Those who stick to the old ways are likely to lose market appeal. COVID-19 may be the digital wake-up call the industry needed.
Several Canadian insurers have launched paperless solutions their customers with good adoption rates. Brokers must move quickly to react to customers’ demands for omni-channel options for quoting, binding, billing and paperless policy options, all delivered digitally.
According to customer surveys, Insurance pricing still remains a top consideration but providing customers with excellent service is also a key differentiator. In fact, over 40% of survey respondents said they will place more emphasis on service as a result of COVID-19, especially those in the 30-50 year-old age group. Improving services delivered digitally will assist in not only reducing expenses for insurers but also potentially improve their customer retention and new business growth. Potentially the “silver lining” to this devastating pandemic.