2022: A YEAR OF CATASROPHES

Expect your insurance rates to reflect it

by Andy Schwartze

As we head into another year wondering what insurance pricing models will look like, all signs thus far indicate that reinsurance companies will continue to dominate pricing. This means we will have an inverted pricing curve that points to higher average rates for properties that require a lot of dollar coverage. While smaller buildings use less reinsurance capacity, larger ones use a whole lot more. If a typical insurer retains, for example, $2,000,000 of building coverage as a potential exposure to its own balance sheet and only needs another $3,000,000 to issue a $5M policy, then the reinsurance requirement is considerably less than if a much higher amount were needed. The insurer issuing the policy stays with its $2M exposure and must “buy up” additional reinsurance to provide the coverage level needed. We still see very large sites paying rates that are higher than what the small ones are paying. This has turned the entire concept of “buy more and the rate goes down” on its head.

Part of this is related to the Insurance Bureau of Canada’s recent report stating that severe weather claims in Canada in 2022 resulted in $3.1 billion in claims being paid out by the property casualty insurance industry. These claims are heavily reinsured because a huge part of the reinsurance world deals with the burden of protecting insurance companies worldwide from big money catastrophe exposures. This inevitably remains the cause for continually rising reinsurance costs being loaded on to the policies that insurance companies issue to you and I. One senior insurance company manager told us recently that, in some cases, reinsurance costs are up an enormous 25 per cent. It’s almost hard to believe. Reinsurance costs are not shown on insurance contracts, they are built into our premiums. This is a transparency that I have often suggested should show on an insurance contract. It hasn’t happened yet, and I am not holding out any hope as doing so would be complicated.

It turns out that 2022 had the 3rd most natural catastrophe claims in Canadian history. Taking top spot was the year 2016 when Fort McMurray burned. We also need to remember that the reinsurance system is a worldwide one—and in some small measure we also all contribute to what is happening outside of our borders. As additional information trickles out into the public domain we will get a more reliable picture of what the reinsurance cost impact will be this year.

Car theft on the rise

As an interesting sidenote, car theft is rising in Ontario and Quebec in what can only be described as an epidemic. In fact, a few weeks ago my own Acura sedan was lifted from our driveway in the middle of the night, and as of today, it has not been recovered.

There’s a reason this is happening: shipping stolen cars out of the country in containers via the port of Montreal appears to be an easy way to get them overseas to numerous African destinations. Apparently security is rather lax there. If interested, here’s a link to a video on YouTube that delves into the matter: www.youtube.com/ watch?v=gshyozP-GY8. Afterwards, you may want to research “the Club” or other options to secure your car at night.

It is hard to say how many vehicles are being stolen in Ontario and Quebec every day. One hears numerous statistics, but the numbers are certainly high. According to a recent report, the Peel Region alone was seeing 40 cars disappearing from streets and driveways per day. Recently, I went online and looked for used cars in Ghana. There are, of course, numerous used-car sites that one can view, but I found it interesting that many cars for sale were labelled as either “Ghana Used” or (to a much greater extent) “Foreign Used.” You may draw your own conclusion about that.

Clearly, this problem will not be solved overnight. It takes dedicated and tenacious law enforcement to shut this criminal activity down. For now, one gets the impression that there is not a lot of commitment to deal with it. Insurance does, of course, pay the owner or leasing company for the stolen car. But no reminder necessary; car theft does have two effects. It increases car sales for the manufacturers, and their dealers, and it also increases car insurance rates.

For questions regarding multi-residential housing insurance, please visit: www.takecover.ca