Insurance The Insurance Market Blues

The Insurance Market Blues

Those suffering aren’t alone…

by Andy Schwartze

Anyone who has been involved in the Canadian insurance market over the past few years is well aware of the rising prices. Since the famous flood July 2013, numerous weather events have fed into this “seller’s market” and the pandemic has only exasperated it further. Here’s a breakdown of why the market has become so challenging for buyers:

1. Weather events in North America have multiplied in number.

Western fires, eastern floods, tornados, and hurricanes have all risen in frequency. As an example, by the end of June, the U.S. Weather Service had already logged close to 1,000 tornados. Fire events out west need not be recounted, as the dry areas are becoming dryer and the wet areas more water sodden. This was predicted 20 years ago and seems to be a new reality. 2. COVID-19 is on its way to becoming the next generation’s asbestos. By the end of June 2021, over 500 class action suits had already commenced south of the border. These actions comprise attempts to force business interruption policies to pay COVID losses. Additionally, there have been actions stemming from allegations of inappropriate care taken by companies and staff to adequately shield customers and

employees from the pandemic. In France, an early case found in favour of a restaurant that sued its insurer (Axa) for business losses. In the UK, regulators studied 19 versions of business interruption insurance policy wordings and concluded that a number of them should be held to pay COVID revenue losses. 3. Insurer “capacity” worldwide was significantly impacted when in January Lloyds of London, the largest p&c insurance provider in the world, announced the intention to withdraw significant “capacity” from the market. This meant that the availability of insurance coverage was being significantly lowered—and we all know what happens when demand remains and supply dwindles. Much higher reinsurance costs have been pushed down to the retail level, thereby raising rates sharply. Reinsurers are in business worldwide and that impact on Canadian insurance buyers is unavoidable.

Meanwhile, significant service infrastructure was built in major Canadian cities from 1920 onward. A good example of this is underground water and sewer systems, of which a good portion remain old and out of date. Increasing levels of rain and flooding have become (as some insurance managers suggest) the “new fire.” Water damage claims have risen extensively, and when coupled with weather events, are now the prime concern in underwriting and claims. Mould remediation has become a huge part of water claims; it never used to be an issue.

In addition, many multi-residential buildings are now between 50 and 70 years old and need significant attention. Repairing problems as they arise is not the equivalent of modernizing to new standards in the eyes of the insurance provider. We are often asked what a 70-year-old private home would be like if it had never received an electrical or plumbing upgrade—hence, over the past couple of years the p&c insurance market has taken a hard look at multi-res buildings and certain attitudes have changed.

The leader in this is Intact Insurance, the largest p&c carrier in Canada with a market share of at least 20 per cent. Intact is a public company and its management team concentrates, not unexpectedly, on shareholder value. It has, therefore, become more like a bank where underwriting standards are strict and enforced. Most underwriters are desk bound, with templated software, and they follow the mandates as underwriting “audits” are routine.

With Intact setting the pace, the few other insurers that will even consider insuring a multi-residential property have set their own limitations. Thus, for now, the fluid and competitive insurance marketplace for this type of risk is pretty much non-existent. Alternatives can be counted on the fingers of one hand.

Before issuing a renewal pricing proposal, Intact’s position is that: 1. Every in suite 60amp pony panel in the building must be replaced within a reasonable time frame, as soon as it can be contracted, with a 100amp breaker panel. They are unwaveringly adamant about this, even though in my long career I have never had a pony panel fire claim. 2. Any roof over 20 years old must be replaced. Patched repairs do not qualify, although a professional opinion may be presented. The problem, of course, is finding a roofer who will certify an older roof, knowing full well that if something happens, he/she may be on the end of a legal claims recovery action by Intact.

And there are more requirements depending on the individual file. But the message is simple: It’s a difficult market—one that typically overreacts when it perceives trouble on the horizon. Accounts with claims problems are having great difficulty getting coverage that even resembles what they may have had in the past.

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

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