Hoping for smooth 2023? While Canada has pulled through the worst of the COVID-19 pandemic, society has reconnected, and businesses are back up and running, thriving in 2023 will require as much creativity, discipline, and resilience as it took to navigate the uncertainties of 2022.
Canadians will be “facing some headwinds in 2023,” according to Debbie Coull-Cicchini (pictured), Executive Vice President, Intact Insurance. Brokers can expect these headwinds – inflation key among them – to continue to impact the insurance market and their business. The good news: challenging times present an opportunity to add value and enhance customer relationships.
Inflation likely to prolong the hard market
Canada’s inflation rate held at 6.9% in October, matching the increase in September, with gas prices up 9.2% and food prices up 10.1% year-over-year. After months of cost increases, individuals and business owners across Canada continue to struggle in the build-up to 2023.
“For insurance specifically, the cost of natural disasters, inflation, and the expected spike in the price of reinsurance will prolong the hard market,” Coull-Cicchini told Insurance Business. “Over the next twelve months, we should expect to see a tighter market in personal auto, home and in commercial lines.”
In the third quarter (Q3) of 2022, Intact Insurance saw 13% inflation in the cost of auto claims, versus 8% in Q2. This increase was largely driven by auto physical damage, where costs went up 22-23%.
Heading into 2023, Coull-Cicchini said brokers should set the following expectations with customers:
- Home insurance will likely remain in an upper single-digit rate increase environment;
- More rate increases in auto, driven by inflation and the return to pre-pandemic driving patterns; and
- Single digit/low teen rates in commercial lines.
“Right now, what’s key is for brokers to talk with customers about inflation at renewals,” she said. “Confirm values with customers, so they can rest assured knowing that their homes or commercial properties are insured at the cost it would take to replace them if disaster strikes.”
Coull-Cicchini stressed that brokers can help customers offset rising insurance costs to a certain extent by advising on the impact of increasing deductibles, managing limits, and evaluating coverage terms and conditions.
Insurers, she explained, will likely maintain “rigorous underwriting discipline” in the coming months as the inflation rate remains high.
“It’s how we make sure that we’re there for you and for customers for the long-term,” she said. “In our current circumstances, the key question isn’t when the market will soften. It’s how can we provide our customers with greater stability, no matter what the future has in store?”
Supply chain disruptions: How are they impacting P&C customers?
The COVID-19 pandemic caused immense disruption to supply chains worldwide. Heading into 2023, most major economies are still searching for balance in supply and demand.
Supply chain disruptions have had a big impact on insurance claims inflation, particularly in auto, where parts are in short supply and on backorder, making vehicle repairs costlier and longer to complete.
“Supply chain issues also mean customers can exhaust their coverage for a rental vehicle as they are waiting longer for materials to arrive and paying more for parts and labour,” Coull-Cicchini added.
The Intact claims team has proactively mitigated some of these challenges by preparing customers for parts delays when booking their repair appointments and working with customers to find solutions to maximize their rental vehicle coverage within their policy limits.
The insurer is also working with its partner repair shops to implement more efficient rental processes, and it is opening more Intact Service Centres, further increasing repair capacity for its policyholders.
Climate change: How can brokers and insurers mitigate climate risks?
Nobody understands the impacts of climate change and severe weather events better than the insurance industry, according to Coull-Cicchini. Extreme weather events are increasing in both frequency and severity – up by a factor of five in the past five decades, adjusted for inflation. That increase impacts the size of insurance claims and losses, which eventually filter through to policyholders.
Severe weather across Canada caused $2.1 billion in insured damage in 2021, according to Catastrophe Indices and Quantification Inc. (CatIQ), and there have been several major events in 2022 that could build up to another $2+ billion loss year.
CatIQ currently pegs the damage of Hurricane Fiona at $660 million, while the Insurance Bureau of Canada (IBC) has reported that the costs of the derecho that hit Ontario and Quebec in Q2 are now at $875 million and climbing.
“All of this shows us that climate conversations are not enough,” said Coull-Cicchini. “Events like Hurricane Fiona, the derecho, the BC floods last year, and the prairie floods this year show us that we need action, now.
“We need to work together to build climate resilience in the communities in which we work – not just through insurance solutions, but through how we build and rebuild, and what sorts of legislation and regulation we put in place.”
Insurance brokers have an important role to play in educating Canadians about climate change, sourcing appropriate risk transfer solutions, and building climate resilience in local communities.
“Brokers are really at the forefront of the effort to help customers mitigate the impacts of climate change. Customers rely on brokers to connect them to the right insurance solutions, and to educate them on prevention measures,” Coull-Cicchini commented.
More risks for brokers to watch in 2023
Cyber: Along with climate change and extreme weather, cyber risk is another potentially catastrophic threat that brokers should pay close attention to in 2023. In the ever-changing cyber risk landscape, mitigating cyber risk is not just about helping customers improve their cybersecurity postures. Brokers have an opportunity here to lead by example while investing in the safety and viability of their own business.
“Across our industry, we’ve seen an increase in cyber breaches impacting brokerages, other insurance carriers, and the vendors we work with,” said Coull-Cicchini. Hackers are increasingly targeting small- and medium-sized businesses who may not be well prepared for attacks.
“While we’ve been investing in security controls and robust processes to protect Intact systems, it’s just as important that we support brokers with their cyber posture to ensure their customer data is protected, and their operations are prepared.”
Digital disruptors: Recent years have brought an explosion of innovation in the insurance industry, and growing competition from digital-first technology disruptors. Coull-Cicchini said that while digital disruptors have “an obvious advantage in terms of agility, growth, analytics capabilities, and digital offerings,” more traditional insurers and brokers should see that as an “opportunity to help shape the future of insurance.”
“I get excited about challenges and problems, because they push us to come up with better and better solutions,” Coull-Cicchini said. “We learned so much as an industry and as individuals over the last two challenging years. We’re going to face headwinds next year, yes, but I see our company and the brokers we work with well-positioned to respond to them and to grow.”