Property insurance needs an overhaul says IBAA

Industry stakeholders discuss challenges facing property insurance industry at forum

At the Insurance Brokers Association of Alberta (IBAA) Property Insurance Forum in Edmonton on September 12, industry stakeholders came together to discuss the issues facing the industry–and many agreed that, as it is today, property insurance is unsustainable.

The forum featured 13 participants and 70 invited observers all areas of the P&C industry. The event achieved its primary goal of starting a discussion on these topics and voiced a general consensus that property coverage needs an overhaul, that it should remain within the private market, that it may provide consumers with flood protection, and that all stakeholders must take responsibility so that property coverage remain viable.

Read: Seeking property profitability in Alberta

Participants represented insurance companies (Aviva, Economical, Intact, Peace Hills, SGI, The Dominion, and Wawanesa), Insurance Brokers Association of Alberta, Canadian Independent Adjusters’ Association, Alberta Insurance Council, Insurance Bureau of Canada, Institute for Catastrophic Loss Reduction, and Alberta Finance.

Following some industry presentations, delegates launched into open discussion of affordability, availability, and sustainability of property insurance. Most agreed that property insurance needs to be changed for it to be sustainable. Disaster relief for property damage not covered by insurance increasingly stresses government coffers. While Alberta superintendent of insurance Mark Prefontaine admitted, “the government is concerned about what its seeing and what its hearing,” he emphatically stated, “I have no direction whatsoever, either explicit or implicit, that the government is interested in increasing its regulatory stance regarding property insurance.”

Read: Insurers have mixed opinions on viability of overland flood insurance

Property coverage is also increasing in risk for the insurance companies. Insurance Bureau of Canada vice-president (Western and Pacific Region) Bill Adams noted that the proposal from the Office of the Superintendent of Financial Institutions Canada (OSFI), the federal solvency regulator, for a 5%–20% increase in capital charge on insurers’ personal and commercial property exposure will inflate required capital reserves or reinsurance and thus inflate product cost. Further, he argued, actuaries are struggling to forecast cost accurately due to the gap between past, present, and probable future conditions.

Concern was voiced that property insurance premiums and deductibles have been underpriced for years, while the product has incurred minimal change. IBAA past president Dean Bailey cautioned that a perils-based underwriting approach, using postal code territories and other forms of risk mapping, is becoming more common and changing the original concept of insurance whereby the premiums of the many pay for the claims of the few.

Read: Cities at flood prevention crossroads

The changing risk environment affects availability and sustainability. The number of weather-related claims has surpassed other claim types in Canada, and extremely so in Alberta. Drawing on a study from the Institute for Catastrophic Loss Reduction, Adams noted, “in 2012 insured property losses in Alberta from severe weather represented 62% of the Canadian total. Over the 29-year period beginning in 1983, Alberta accounted for over 1/3 for the country’s insured losses from catastrophic weather events.”A mixture of increasing natural catastrophes, increasing residential home improvements leading to more costly claims, and increasing urban development that stresses current infrastructure has tipped the scale in frequency and cost of perils.

Executive director Paul Kovacs, from the Institute for Catastrophic Loss Reduction, argued that the risk environment has changed: 35 years ago the three biggest costs were auto damage, fire damage, and property theft. These risks have declined. Kovacs statistically illustrated that “Sewer back up, wildfire, wind, hail, and other natural disasters have risen. In the last decade, we paid five times more for weather-related losses than for the other perils.” However, as IBAA President Gord Enders pointed out, “Canada is one of the three industrialized nations that does not include flood coverage.” This global inequity is one reason Albertans were confused and upset about their exclusion from overland flood coverage. Further confusion arises as commercial flood coverage can be purchased in Canada.

Read: Can overland flood ever become insurable in Canada?

Where does the industry go from here? Since these perils are likely to increase, many noted the importance of all stakeholders—consumers, government, industry (including insurers, brokers, direct writers, adjusters)—working together to reduce risk and develop affordable, sustainable products that address the current gaps and limitations.

Many stressed the importance of consumer education about insurance, its relationship to disaster relief, its long- and short-term costs (for individuals and for the economy), and current and future risk reduction measures that government and consumers can undertake to keep property products equitable, available, affordable, sustainable, transparent, and private, with minimal government regulation. Kovacs’ list of risk reduction measures ranged from government management of woodland underbrush to consumer use of risk-reducing building materials.

Many also emphasized the important role of brokers as intermediaries between consumers, insurance companies, and government in educating consumers and representing their views to industry and government. An urgent need was felt to act now, to take advantage of the 24-month window of public interest that follows a disaster.

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