Canadian property and casualty insurance outlook 2014
The 2014 property and casualty insurance market will continue to see many of the same challenges that we saw in 2013, with the added impact of regulatory changes.
The consolidation activity of larger insurers that began in 2013 is expected to continue in 2014, creating an even greater need for all companies to improve the bottom line through internal investments in technology and operations in order to compete.
Insurers and reinsurers, in the midst of trying to enhance their underwriting capabilities and manage costs to improve bottom-line growth, were hit hard by catastrophes in 2013, including flooding in Alberta and Ontario, a massive train derailment and explosion in Quebec, and ice storms from Ontario to the Maritimes. Such events made 2013 a record claim year — which posed challenges for some but opportunities for others.
Insurers are still seeking growth opportunities via mergers and acquisitions, and we’ve seen significant changes in the largest insurers in the last couple of years. Insurers are looking to develop new products that target ever-evolving insurable risks. These products range from cyber insurance, driven by the increase in social media, to sensor technology, which could potentially change the landscape of auto insurance. Vehicle telematics, which we discussed in our 2013 outlook, has seen a surge in interest, with many insurers beginning to pilot their telematics products. Even the broker community is looking at telematics very closely, as it could change the way they approach their customers.
Big data is here to stay, along with the need to better understand information, and many insurers have been making significant strides in creating better predictive models to aid in pricing. Insurers’ investments in replacing legacy systems with state-of-the-art integrated platforms have enhanced product pricing and improved customer experience.
At the same time, however, insurers have been lagging other sectors such as banking and retail in the implementation of a digital strategy, as we reported in our survey of global insurance executives, Insurance in a digital world: The time is now.
Flood insurance received ample focus in 2013, and insurers need to continue to work with governments to define areas of higher risk and determine how these can be insured. Many insurers already use state-of-the-art technology to understand areas at risk of flooding and factor these into policy decisions. Insurers also need to draw policyholders’ attention to exclusions to make sure they understand their coverage.
Ontario auto insurance has been a hot topic for insurers over the years, with its high costs and high premiums. As the fight against fraud continues to reduce costs, it is yet to be seen how insurers will follow through with the provincial government-mandated 15% reduction in insurance rates. To date, the reduction in rates has been slow, and policyholders may be confused at renewal times as their rates increase instead of decrease.
Some insurers have had their proposed rate filing decreases reviewed by the Financial Services Commission of Ontario, and policyholders may see double-digit rate decreases from some, but not all, insurers in 2014. Rate decreases will not be equivalent across the industry, challenging some insurers to retain market share and stay profitable. Having an appropriate strategy and policyholder communications during this time will be key to retaining market share.
Regulatory and accounting changes continue to bring about new challenges. Insurers will need to invest in people, processes, methodologies and technology to meet the new requirements for risk analysis, distribution oversight and information transparency. With some of these changes happening at the same time as others — as seen with the requirements of the Own Risk and Solvency Assessment (ORSA) and the new Minimum Capital Test (MCT) guideline — insurers should make sure they use all the time available in 2014 to get ready. Successful companies will stay in front of these changes and build both management and information capabilities to minimize the regulatory impact and maximize the opportunity to differentiate to all stakeholders.
To successfully position for growth, insurers will need to understand and focus on the following in 2014:
- Product development and innovation, with an eye on expenses
- Digital technology and big data
- Unpredictable weather and catastrophes
- Regulatory and accounting changes