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.
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.
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.
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.
Hardening insurance markets are now a fact of life in Canada and the world, according to a report from Swiss Re. Even before the COVID-19 crisis, low interest rates were severely undermining the profitability of the insurance industry. Further rate cuts to help shore up the economic recovery are only going to exacerbate the challenges. Without significant price increases the insurance industry will not be well positioned to meet the need for insurance protection.
Premium growth has been negatively impacted by reduction in policies due to reduced business activity from the pandemic. However, commercial insurance prices have been increasing due to lack of availability and increased claims costs. Some insurers have hiked prices dramatically or withdrawn completely for Covid19 threatened businesses.
As a result, we’re seeing less competition among carriers, reduced capacity and lower limits, more stringent underwriting criteria and, most important to the end customer, higher insurance premiums.
Preparing your customers for the hard market
It’s no surprise that customers are often taken aback by drastic premium increases that aren’t in line with inflation. Brokers and agents need to do their best to explain to customers why exactly premiums are going up, describe market conditions, and quell any concerns they may have. More time should be spending more time on renewals and new business and increased efforts to find the most competitive rates for customers.
Many brokers and agents have never seen a hard market and they need to be prepared to manage it better. Brokers, agents and underwriters must invest the time necessary to become as familiar as possible with market conditions and be as informed as possible to really show their value.
Opportunity exists for growth
With rising prices and reduced availability, some insurers see this as an opportunity to selectively write new commercial lines business. Proper risk assessment and higher rating can provide selective profitable accounts when competitors are not able to offer renewals due to wholesale elimination of classes of business or overall enforced price increases not due to claims. Lloyds and other insurance wholesalers are growing new business taken from regular markets who are over selecting and dumping accounts. By applying higher pricing and some stronger underwriting terms, wholesale markets are growing business that could have stayed within the regular market.
There is an opportunity for small local insurers to cherry pick commercial business from the larger national insurers who don’t have the time or desire to review pricing and risk on an individual basis. Brokers are supporting those insurers more than they did in the past and will continue as the pandemic eventually subsides.
Aviva Canada recently commissioned a survey to gauge awareness and sentiment around the impact of COVID-19 on consumers. The research, which targeted 1,500 Canadians aged 18 and older, delivered a number of key findings around employment status, transportation habits, and insurance purchasing behaviours. According to the June survey:
This survey points to an opportunity 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 and agents, have a big role to play in helping consumers be absolutely clear about what they’re buying and what they’re covered for.
Many Canadians still prefer human interactions, despite the growing presence of online insurance shopping channels. Most respondents are seeking omni-channel communication with their brokers, with the option of face-to-face, phone, email and self-serve platforms.
Coming out of this pandemic, insurers could change as a result - more agile, secure, connected and digitally-enabled Insurers and brokers that innovate and keep up the pace with this transformation will be the winners – whereas those who stick to the old ways are likely to lose market appeal. COVID-19 was the digital wake-up call the industry needed.
Some insurers are offering a paperless solution for commercial insurance brokers with a high adoption rate. With this encouraging response, some insurers are now transitioning to paperless in personal insurance. Brokers must move quickly to react to customers’ demands for omni-channel options for quoting, binding, billing and paperless policy options.
Due to income reductions as a result of COVID19, many customers feel price is the top consideration when it comes to buying insurance, but providing customers with excellent service, is also a key differentiator. Many customers experienced long wait times and delays in receiving premium reductions, which has placed a greater emphasis on higher service levels.
The brokers who are particularly tech-focused are going to see enormous value, not only in terms of their operational efficiencies, but also in their ability to deliver true value-added services to their customers.
Routine, low value-add transactions – like getting insurance cards, getting certificates of insurance, updating policyholder information, and things like that – should all be fully automated and fully digital because there’s no value delivered to the customer by making them call you to sort that out. It’s a waste of time for the broker, and it’s a waste of time for the customer.
If brokers can automate and digitize the lower value interactions that they have with policyholders, then they can focus on delivering more value in the higher impact interactions. Many are starting to tap into the full capabilities of the electronic trading platforms in the market, and they’re using data analytics to become better partners in risk.
One of the factors that continues to drive the consolidation of the broker market, particularly the middle market broker segment, is the benefit of scale when it comes to digital capabilities and investment in technology. There are benefits of scale in terms of capabilities around digital automated transactions, claims analytics and value-added loss related services. There are additional benefits around turning data into an asset and monetizing that data in terms of how you interact with the carriers as well as how you interact with the customers. With all of those things, brokers derive great benefit from scale. Brokers haven’t typically been significant investors in technology, but that’s definitely changing.
Covid19 business interruption claim lawsuits against insurers have exceeded one thousand around the world with more on the way due to the continuing damage to retail, tourism and hospitality businesses.
From those BI insurance cases that have been adjudicated, nearly all have been in favour of the insurers who have persuaded judges to throw out the cases by making the court agree that a property insurance policy cannot be invoked if there is no property damage.
However, there are some court cases that were settled in favour of the insured. In France, a notable BI case has already been resolved, as AXA agreed to cover losses sustained by several hundred restaurants after losing a court case brought by one owner. Recently the Financial Conduct Authority (FCA) in the UK organized a business interruption test case against several major insurance firms. The High Court ruled that the majority of businesses who held business interruption insurance and were forced to close due to the COVID-19 pandemic, are entitled to be compensated by the insurers subject to the limits of the policy.
This test case is considered a landmark victory for up to 370,000 businesses across the UK who were forced to close their premises during the pandemic should now receive an insurance pay out from Hiscox Insurance. The FCA hopes that the insurers accept this ruling and start to pay out rather than embark on a fruitless appeals process that will just cause more suffering for the very policyholders they were meant to protect.
No matter the outcomes of BI lawsuits, the insurance industry faces a broader risk to its reputation and has a strong need to repair customer loyalty following the pandemic’s outbreak. There are growing concerns around the industry’s reputation for providing fair claims payment. In the spotlight for broadly denying BI claims, the industry has been fighting against the image of insurers as companies that take clients’ money, but don’t pay out when it really matters.
With reduction in premiums and increased claims due to the pandemic, the losses to the industry will be significant. To avoid further injury to bottom lines and ensure its image remains intact, the insurance industry may need to change. It may need to increase its efforts with stakeholders, governments and the industries it serves that have been especially hard-hit by the pandemic and to come up with responsible coverage solutions that offer coverage for future pandemic-related losses, as well as risk mitigation guidance that adequately prepares commercial clients for this threat.
Without a show of cooperation and a willingness to offer protection to businesses for this ongoing risk, insurers may have trouble winning back the customer loyalty that has already been frayed by this global crisis.
As if 2020 hasn't caused enough hardship and headaches for employers already, the FBI and U.S. Cybersecurity Infrastructure Security Agency ("CISA") recently issued a joint Cybersecurity Advisory Alert warning employers about the rise in voice phishing, or "vishing," scams targeting remote workers.
With the mass shift to large-scale work-from-home environments, cybercriminals and hacker groups are employing increasingly creative tactics to take advantage of weakened security protocols and overly trusting employees. Before the pandemic and the sudden increase in remote workforces, vishing scams were not uncommon. However, they were largely targeted at vulnerable individuals and/or via personal attacks, such as a phone call seeking bank or credit card account information for a "compromised" account, calls from the "IRS" to verify an individual's Social Security number, or targeted Medicare and Social Security scams.
Since July 2020, vishing scams have evolved into coordinated and sophisticated campaigns aimed at obtaining a company's confidential, proprietary and trade secret information through the company's virtual private network ("VPN") with the help of the company's own employees. VPNs are widely used in the current telework environment and intended to be a secure platform for remote employees to log into their company's network from home. Many companies use VPNs because it not only provides a secure remote connection, but also allows the company to monitor employees' activity on the network and supposedly detect security breaches.
But, it is difficult to detect a security breach when it comes through your employees' own keystrokes. According to the FBI and CISA, these vishing scams follow a common course of action. To start, the cybercrime group identifies a company target and exhaustively researches its workforce. The attackers compile "dossiers" on employee victims based on a "scrape" of their virtual social media presence. From an individual's various social media profiles, the attackers are able to learn the employee's name, location, place of work, position, duration at the company, and sometimes even the employee's home address.
Next, the cybercrime group or hackers register a domain and create phishing webpages duplicating a company's internal VPN login page. These phishing webpages also have the capability to capture two-factor authentication or one-time passwords, mirroring the company's own security protocols.
Then, an attacker contacts an employee on his or her personal cell phone and poses as an internal IT professional or help desk employee with a security concern. The "visher" gains the trust of the employee by leveraging the information compiled on that employee in the research phase and convinces the employee that he or she needs to login into a new VPN link to address a security issue or other IT need.
The attacker sends the unsuspecting employee a link to the fake VPN page, which looks just like the company's own VPN login site. The employee inputs his or her username and password into the domain and clicks the login link. If applicable, the employee also completes the two-factor authentication or one-time password request. Thus, with a single click on the VPN link, the attacker has the employee's entire suite of credentials.
Attackers use this access to mine the company's databases, records and files to obtain information to leverage against the company for ransom or even in other cyberattacks. As a result, the company's confidential, proprietary and trade secret information is up for grabs, leading to substantial ransom costs, forensic fees and costs, employee and customer notice obligations, and potentially significant liability for security breaches.
With teleworking continuing into the foreseeable future, employers must think critically about their security protocols and take steps to prevent employees from unwittingly walking into a vishing (or other phishing) trap. The agencies' Advisory provides organizations with "tips" to protect against these intricate attacks, including:
• Restricting VPN connections to managed devices only, using mechanisms like hardware checks or installed certificates, so user input alone is not enough to access the corporate VPN
• Restricting VPN access hours, where applicable, to mitigate access outside of allowed times
• Employing domain monitoring to track the creation of, or changes to, corporate, brand-name domains
• Actively scanning and monitoring web applications for unauthorized access, modification, and activities
• Employing the principle of least privilege and implementing software restriction policies or other controls; monitoring authorized user accesses and usage
• Potentially deploying a formalized authentication process for employee-to-employee communications made over the public telephone network where a second factor is used to authenticate the phone call before sensitive information can be discussed
Depending on the organization, not all of the Advisory's tips are feasible. But all companies should heed the agencies' warning and continue to critically assess security protocols, VPNs, and network access to protect their confidential, proprietary and trade secret information.
Separately, companies should continue to engage and train employees on proper network usage, security concerns, and when to call a secure IT number. Cybercriminals will continue to take advantage of remote employees. Companies should regularly remind employees to be suspicious of any request for their logins and credentials (or other personal information) and remind employees where to go and whom to contact if they have any security concerns.
As damages mount from business closures as a result of COVID-19 in Canada, there is a growing desire to look to insurers for some form of coverage. With flattening of the pandemic curve in Canada, there is slow movement to reopen business in Canada. With many small businesses already closed and only now tentatively reopening, there are significant business income losses across the country. There is a growing expectation that insurance may be available to cover some of these losses. Where does your insurance company stand? Are you prepared to communicate your position to your clients?
COVID19 Claims denied result in Class Action Lawsuits in Canada
A national class action lawsuit has been proposed, which targets Canadian insurance companies for allegedly breaching their contracts with business owners by denying business interruption claims related to the COVID-19 pandemic.
Law firm Koskie Minsky LLP said that it has commenced the class action, together with the Merchant Law Group. The plaintiffs have also alleged that the insurance industry “conspired to deny coverage before claims are even made,” and that insurers are negligent and have breached the duty of good faith. Business interruption insurance is designed for circumstances such as the current pandemic and insurers appear to be failing small business when needed most, according to a Koskie Minsky spokesperson.
Aviva Canada face lawsuits by hotel owners
Aviva Canada is facing yet another lawsuit over denied business interruption claims, this time filed by hotels looking to claim on losses sustained due to the COVID-19 pandemic.
In a statement by Lerners LLP, it is alleged Aviva Canada was in breach of contract when the insurer denied the hotels’ loss of business income coverage. The hotels had filed for claims after suffering losses following the declaration of states of emergency and closure orders by both the federal and provincial governments.
Lerners stated that the hotel chains denied by Aviva Canada include Best Western, Home 2 by Hilton and Hampton Inn. The law firm filed the lawsuit on behalf of the owners of Home 2 by Hilton and Hampton Inn. Lerners has also invited other hotel owners denied coverage by Aviva Canada to join the class action.
According to the complaint, Aviva is interpreting the coverage as only applying to outbreaks that happened “at or within the applicable area of the insured premises.” The lawsuit further alleges that Aviva said that “there is no coverage under the policy for business income losses resulting from the closure orders made in response to the current worldwide COVID-19 pandemic.”
The lawsuit is seeking $150 million, which includes loss of business income and accountants’ fees. The complaint also noted that each hotel has up to $500,000 of coverage through Aviva’s Hotel Program.
Brokers are seeing a surge of questions from both personal and commercial clients about what to do if they’ve been accused of facilitating the spread of COVID-19. There are increasing questions from clients about liability and umbrella policy coverage for COVID-19.
If someone files a lawsuit against somebody else alleging that they gave them COVID-19, that could easily become a protracted case in court. Consumers do get some personal liability insurance on their homeowners’ policy or condominium policy, but if they have a personal umbrella policy over that, then they have more layers of protection. As long as they didn’t intentionally give COVID-19 to somebody else, their insurer has a duty to defend them and cover defense costs.
Broker advising clients to make claims
Hub International is advising clients to submit claims related to the COVID-19 pandemic, even if there isn’t a physical damage loss. Business interruption has been the most-inquired-about coverage area over the last few months and although most general commercial policies contain BI exclusions for pandemic, each policy is different, and there may be something in a particular policy that allows a business interruption claim to go through. There is the challenge of triggering a BI claim that would normally happen following a physical loss or damage.
COVID-19 losses are not viewed as a physical loss such as a hurricane or fire and most commercial policies have a virus exclusion. But Hub still advises clients to file claims anyways. They encourage everyone to report it from the beginning and let the coverage play out. This way the insurer will acknowledge that a claim has been reported and if denied, it is on record. Insurance companies are taking extra time to review claims.
Of the many claims that have been reported, less than 50% have been denied with the rest not yet determined. Insurers are taking their time and giving their policyholders the ability to gather all that information about the loss, so they can make a proper decision. Included in the information that a client may need to gather would be a loss of income statement and any costs associated with getting the business ready to re-open in order to meet local health requirements.
Our New Normal?