2023 Insurance Market Outlook

The Canadian insurance market is expected to remain complex as we begin a new year. Increased competition and positive underwriting results put insurers on the path to profitable growth. However, macroeconomic risks such as international relations uncertainty, residual supply chain issues, inflation, and climate change are expected to continue influencing the market. This Canadian insurance market outlook will look closely at the key areas expected to shape the Canadian insurance market in 2023.

General Pricing and Performance

The Canadian insurance market has been in a hardened state for more than two years, with restricted capacity and more challenging pricing. However, due to improved profitability and increased growth expectations, the market is expected to start softening in the second half of 2023. Generally, insurers have reached a point where they feel that their rates have reached adequate levels and they can appropriately manage their exposures. Insurers will continue to monitor their portfolios and maintain disciplined underwriting approaches closely. We expect to see a demand for growth which should result in a flattening of the rate increases we’ve seen over the past three years. The Canadian insurance outlook for 2023 currently ranks as stable.

The P&C insurance industry in Canada is facing challenges due to supply chain disruptions, labour shortages, and inflation affecting policyholders’ claims experience. Insurance industry executives have said that the industry needs to improve communication during the claims process. The key for insurers and brokers is to focus on things within the industry’s control, such as open, honest, and transparent communication with customers about the status of their claims. This transparency is essential in the current economic climate, where trust is crucial.?

Commercial Property Outlook

The commercial property market will likely remain challenging in 2023, with ongoing capacity and pricing issues expected to continue. On average, rates are expected to stay relatively high. However, insurers may still need inflationary pricing increases to combat rising costs. Increasing natural catastrophe losses will drive the ongoing hard market, which will drive up claims costs and negatively affect insurers’ profitability. Rising reinsurance rates due to catastrophes such as Hurricane Fiona and the Spring 2022 derecho event in Ontario and Quebec, along with North American losses for Hurricane Ian, are expected to squeeze primary insurers further.?

While demands for rate increases have softened, insurers have shifted their focus to appropriate property valuations. Driven by inflation, insurers scrutinize insured property values to ensure adequate replacement costs. Anyone insuring property should expect this to be a focal point of their conversations with their brokers.

Liability Claim Amounts

Liability claims in Canada have been increasing in recent years, focusing on areas such as slip and fall accidents, home safety, construction defects, and product liability. Several factors contribute to this increase, including; a greater awareness of personal rights among Canadians, the growing use of social media to share information about accidents, and a proliferation of contingency lawyers seeking high “American Style” demands. Additionally, settlements are becoming more costly due to the high legal fees of defending these claims.?

As a result of increasing costs, it continues to be essential to take the appropriate steps to protect yourself. Businesses should focus on loss prevention (product quality control, snow removal, contractual protection, etc.) to mitigate the risk of an incident occurring in the first. Furthermore, businesses should make sure to review liability limits with their broker to make sure that appropriate coverage is in place.

Cyber Insurance Market Forecast

Cyber insurance?is expected to be a continued growth area for the Canadian insurance market in 2023, with more companies and organizations realizing the importance of protecting themselves against cyber threats. The increasing adoption of remote work, digital transformation, and the growing sophistication of cyber-attacks are expected to drive demand for cyber insurance products. Furthermore, the evolving regulatory landscapes, such as the Personal Information Protection and Electronic Documents Act (PIPEDA) and the General Data Protection Regulation (GDPR), are also expected to drive demand for cyber insurance.

According to the annual?Allianz Risk Barometer, the average cost from data breach incidents reached an all-time high of $4.35 million in 2022 and is expected to surpass $5 million in 2023. In a 2022 poll, cyber risk was the biggest concern for all global respondents, according to a survey of over 2,712 respondents in 94 countries.

Auto Insurance and Driver Hiring Challenges

The auto insurance market is expected to face challenges in 2023, with the ongoing driver shortage and rising claims costs driven by increased accident frequency. The driver shortage is expected to continue to be a significant challenge for most commercial auto insurance consumers. Insurers have tightened minimum experience requirements for many commercial vehicle classifications, and enforcement is at an all-time high. Customers with auto-driven exposures are encouraged to vet driver experience and loss history before hiring. Magnes experts can help you navigate the steps if you are still getting familiar with this process.

The rising cost of claims is also expected to impact the market. While enhanced safety features have helped to mitigate catastrophic losses, inflation and increasingly sophisticated vehicle components continue to increase the cost of frequency-driven auto claims. Furthermore, with vehicle usage increasing to pre-pandemic norms, we expect the frequency of auto claims to continue.??

Directors & Officers Insurance Update

Experts are warning publicly traded companies to be careful about any disclosures and public statements in light of the wide-ranging global economic risks that include supply chain disruptions and labour shortages. Companies with directors and officers liability (D&O) insurance coverage may run into claims if they don’t address these issues in their disclosures adequately. D&O availability and affordability can remain challenging depending on the performance of any individual business. Due to the potential risk of increased bankruptcies, clients are encouraged to revisit their limits in the private and public spaces as the threshold for a significant liability tower has changed dramatically.

Private D&O is expected to remain widely available with competitive pricing with the exceptions of certain classes of business (e.g., cannabis).

Conclusion

While rates may be reduced in certain areas, the need for increased limits in others will likely result in slight increases to overall pricing for the majority of 2023. In general, the Canadian insurance landscape is expected to remain complex in 2023, and customers should work hand in hand with their insurance broker to navigate the market effectively.?

Please get in touch with anyone on the Magnes team to discuss these or other topics further.?

Expert Advice from The Magnes Group

At the?Magnes Group, we do things differently. We deliver the best-personalized insurance coverage and risk management advice with effort and care. We serve businesses and individuals who appreciate quality, precision, and value in a way that many other insurance brokerages can’t or won’t.

As an independent insurance broker, we pride ourselves on providing straightforward, uncomplicated, and honest advice. We treat others as we would like to be treated ourselves. Not to increase market share but because it’s the right thing to do.