4 minute read
Insurance The Trouble’s Only Getting Worse
from CAM October 2022
by MediaEdge
The Trouble’s Only Getting Worse
As weather and economic uncertainties persist, expect your insurance rates to reflect it
by Andy Schwartze
It is becoming increasingly difficult to maintain a positive outlook on national and global developments, which doesn’t bode well for insurance rates. As all property owners are aware, the insurance world prefers to embrace stability and steady economic conditions as a backdrop for being competitive. Actively willing competition for our business evaporated around the time of COVID, but COVID wasn’t the reason. It was the decision by experienced underwriting managers to pull in their horns and become more protective of their balance sheets that buttressed growing statistical alarms. In every direction we look, we cannot miss seeing the slow, steady deterioration that seems to be nibbling away at our civilized world, and this throws huge obstacles in the way of predicting claims against which premiums can be properly assessed.
Whenever a new form of insurance enters the picture, there isn’t much in the way of reviewable evidence on which sensible underwriting and policy decisions can be founded. This was the case years ago when “pollution insurance” was introduced in the wake of environmental protection acts. Reviews of certain newly enacted provincial acts (specifically in B.C. and Ontario) made for the quick realization that government ministers, empowered to enforce the provisions of such legislation, were enormously powerful, as they were able to impose clean-up orders on almost anyone directly or even remotely associated with an event. The determination of legal responsibility was no longer a guideline; it came down to the right to empty the pockets of all those tied to the event that had the resources to pay. The only “excluded” parties were mortgage lenders who were spared exposure to this new authority, albeit at the last minute.
When a development like this comes into play, there is generally an inclination to turn to the insurance world and demand that it “do something.” The pressure built as the topic became an added conversation in commercial dealings, and before too long, demands began to surface requiring one party to a contract to procure and provide evidence of pollution insurance. In the early stages, the definition of this new form of coverage was not very clear. But in time, the first players in this space began to develop and offer coverage. Policy wordings were quite limited, and premiums were, by today’s standards, high. Inevitably over time, statistical information grew and today we have a well-informed underwriting community from which reasonably priced liability and clean-up insurance can be had. Interestingly, the early demands for this type of insurance has since receded. As in every new insurance area, time ultimately settles the industry into a manageable equilibrium of coverages and premiums.
Lately, this equilibrium has been adjusted in the area of weather and natural disasters. Since September, there have been several horrific hurricanes—including Fiona, which pummelled the Maritimes, and Ian, which devasted Florida. These events are significant, and the reinsurance folks have been seriously impacted. We have seen the reinsurer costs imposed on insurance companies rise significantly for three years in a row. Loudly claiming an exceptional “no claims” history falls on deaf ears. Everyone is required to contribute to the world’s problems.
We are also in the throes of developing cyber-related insurance, and like what we saw with the pollution insurance, some of the early entrants to this niche area haven’t been a success. A couple of years ago, one major entrant suffered $4 of losses for every $1 of claims taken in; this doesn’t offer much job security for the corporate decision-makers behind that call. The surprising wild card in cyber claims turned out to be ransomware—that’s where the bad guys seize control of your computer and request you send a lot of bitcoins to a mysterious destination. While many buyers of this type of insurance (and their insurance brokers, too) are still learning about the complex world of cyber criminality, we are beginning to see the industry mature in its approach to underwriting and pricing this complex coverage. There are still some who are losing their enthusiasm and backing out, but by and large the market is stabilizing with legitimate underwriters whose knowledge and understanding of this niche have grown a great deal over the past few years.
The next big hurdle for insurers will be both upsetting and impactful on pricing. Societal developments in North America are contributing to growing instability in our communities. It is not necessary for us to engage in any political commentary here, just to point out that new imbalances in the rule of law, the changed manner in applying legal standards and precedents, inevitably result in a deterioration of our lives. That is, without question, being noticed by insurance and reinsurance underwriting managers. As they struggle to understand and manage the future relationship between claims and premiums, one cannot easily imagine that they are positively inclined to envision a brighter future. Where that will take us is hard to predict, but as has been said in the past, insurance reflects our society, it does not ignore it.
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