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.
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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.

​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?
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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.
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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.
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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.  
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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. 
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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!
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​​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.
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If you remember that song “Who let the Dog out” then maybe it’s time to let the CAT out!

The CAT is a “Commercial Audit and Training program” to assist mutual insurers in improving risk selection, pricing and acceptance through risk reviews and quality control. 
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​Commercial insurance is a more complex but also a more profitable product than personal lines.  However, in today’s trying times and hard market, it can be more difficult to select the better risk and price them to be acceptable to the customer, as well as meet the profitability needs of the insurer.

Profitability of commercial insurance is dependent on the training and experience of the underwriters who are responsible for acceptance and pricing of risks on the books or being offered as new accounts.   

Not all underwriters, agents and brokers are experienced in hardening markets and how to manage pricing effectively in order to retain profitable business while selecting out more problematic risks.

Mutual Insurers may see the need to enhance the training and experience of their underwriters to effectively write and price adequately various commercial risks found in their community.  Commercial training may not have been at the same pace and level as large mutual and stock insurers.  In addition, the underwriting protocols and audit functions required to ensure proper risk acceptance and pricing may have less that adequate strength. 

Most mutual insurers have premium volumes that are largely through the broker channel and brokers can provide better quality of business to those mutuals that also write commercial lines and can compete with the non-mutual carriers.  Consolidation of insurance brokers by several consolidators has reduced the number of brokers available and Mutual insurers that wish to maintain relationships with brokers and the consolidators, need to increase their value added in commercial lines.  For competitive reasons, mutuals may wish to consider a CAT program.
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“Commercial Insurance Management Professionals” provides CAT programs so you can let your CAT out! Check out further info on the CIMP.ca website under the IO App section.

                     
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​The President of Economical Insurance suggests that the commercial insurance marketplace in Canada will likely be firming to a hard market over the next couple of years. The hardening market has been heading this way for several years before the coronavirus pandemic exacerbated economic trends that were already well underway.

The pandemic has caused a huge tide of disruption to the global economy with most countries injecting unprecedented amounts of fiscal stimulus with accommodating monetary policy, resulting in very low interest rates. 

Insurers rely heavily on underwriting returns and investment income to remain in the black. Pricing models now have to account for this, which results in higher pricing for insurance products, reduction in risk appetite/capacity and possible exit from certain lines of insurance.

Moving forward in a pandemic influenced economic downturn, there may be reduction in premium income due to bankruptcies or reduction in coverages.  Insurers need to implement strategic reviews with action plans to address these issues in order to remain financially capable.

Some insurance industry segments may still see these problems difficult to manage and opt for opportunities to merge or sell.  M&A (merger and acquisition) activity is increasing as the Covid19 crisis deepens.  There is increased brokerage consolidation across Canada with brokerages selling to the various brokerage consolidators. 

Insurer consolidation is again gaining interest across the world as larger more profitable insurers look to acquire insurance companies that are in weaker financial situations.  Recently, a purchase offer was made to RSA Insurance Group for its world-wide operations.  A consortium of Intact Financial and Danish Insurer Tryg, presented a premium offer of purchase.  It is widely expected to be accepted by the RSA Group board with expectations of a formal bid at the end of November.  If the bid is accepted and the sale goes through, Intact will take over RSA business in Canada and the UK. 

This will make Intact the largest insurer in Canada and may force similar consolidation with other insurers.  As a result, there may again be reductions in the number of insurers in Canada and less competition causing greater premium increases and reduced options for the insurance buyer. 

This may be an opportunity for mutual insurers, who offer alternative insurance purchase options than the stock insurers, to grow their commercial and personal lines business.  Mutual insurers have less profit requirements than stock insurers and without any shareholders looking for significant investment returns.  
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However, some mutuals may need greater capitalization to manage in this low interest, reduced premium environment.  With the need for additional operational investments and technology, some mutuals may look to amalgamation in order to better handle the difficult times ahead. ​

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​In the face of continuing rate increases and coverage restrictions, commercial insurance buyers are expressing their frustration to the Ontario government.  Some commercial insurance buyers are not able to find insurance coverage, particularly in the hospitality and health sectors.

Premier Ford twice warned insurers that it could fact possible regulation if it did not help commercial insurance buyers. Ford and his finance minister, Rod Phillips reached out to the larger insurance companies in conference calls to get action on these issues. Ford had slammed the insurance companies during a press conference last week when he urged them to take action to stop what he called “gouging” by some in the sector.

A group representing Canadian insurance companies say it is launching a team that will help small businesses find affordable coverage as rates rise because of the pandemic. The Insurance Bureau of Canada says the team will start its work next month by focusing on helping the hard-hit hospitality sector in Ontario and evaluate the needs and attempt to find appropriate coverage.

The general insurance industry is currently regulated in personal lines and is concerned with expansion of this regulation into commercial lines.  Government involvement in commercial risk selection and pricing is of major concern, as it is a profitable line of business for most insurers.

Some feel that the insurance market is over reacting to the claims potential from hospitality and health sector due to the pandemic.  Large premium increases and coverage reductions are not justified considering the exclusions in most policies for pandemic claims.  However domestic insurers continue to seek price increases and coverage reductions in an effort to avoid potential unprofitability from this sector.  
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In opposition to this practice, there remains continued risk appetite and reasonable pricing for this class of business within the international markets such as Lloyds and other insurance syndicates. Brokers who have access to these markets are funneling business to them at the expense of domestic markets.