COMMERCIAL RATE INCREASES
The
“PERFECT STORM”
Conditions For Commercial Rate Increases
BY: JASON CONTANT OF CANADA UNDERWRITERS
T
he past few years have created
a perfect storm leading to
an increase in commercial
insurance rates, Signature
Risk Partners Inc. says in a
white paper, entitled Hard Commercial
Insurance Market on the Way.
One factor is that global catastrophe
losses hit US$160 billion in 2018,
according to Munich Re. Out of this total,
US$80 billion were insured losses.
“Approximately 50 percent of the global
losses were insured, compared to the
long-term historical average of only 28
percent,” said Ashley Chinner, senior vice
president and director of golf at Signature
Risk (which creates and markets custom
insurance programs). These additional
claims have hit the insurance market,
which has to take in the losses.
The frequency of severe weather has
also “definitely increased” over the last
30
15 years, added James Grant, president
and CEO of Signature Risk. “Even if a
global insurer diversified its property
exposure around the globe, it still got hit
everywhere. It takes time for those events
to get absorbed through the marketplace,
but eventually it gets passed down to
the policyholder in the form of higher
premiums.”
Meanwhile, insurers have been
aggressively expanding and seeking
growth opportunities through mergers
and acquisitions and capital expenditure.
But due to the strong global economy,
which has led to rising interest rates in
many regions, operating expenses have
gone up and now the cost of capital is
also putting pressure on insurer earnings.
“Carrying the debt for past acquisitions
while running an office in a big centre
like the U.K. or Toronto means that
expenses are up everywhere, and that’s
a major factor that goes into rate
calculation,” Grant said.
Technology also plays a larger role,
providing underwriters with more
information on flood exposure and
risk forecasting. This has resulted in
better actuarial models, often leading to
increased rates. “Each of these factors on
its own might be manageable,” the white
paper said. “With all of them combined,
it means one thing for insureds:
commercial rates are going to rise and the
days of insureds being able to shop for
better terms may be coming to an end.”
Grant calls the culmination “a wake-up
call. They may not be able to get a lower
price. They may not be able to get terms,
period, which is really scary.” +