The Driver’s Seat

Change is unfolding quickly for primary property and casualty insurers in Canada, much the same as for their counterparts around the world. While all manner of influences – the economy, low interest rates, mergers and acquisitions, focus on underwriting performance, climate change, community resilience, changing technology, new and innovative entrants, the sharing economy and pricing of existing and emerging risks – will be part of the ever-transforming mix in the coming year, one consideration has more clearly come to the fore: the customer.

The customer is demanding more, more quickly – and p&c insurers are not currently the measuring sticks for rapidly changing client expectations. Customer “service” is being measured against everything from search engine companies to online shopping providers and coffee retailers.

All that demands p&c insurers develop appropriate infrastructure, and adjust their approaches and attitudes accordingly, to foster greater flexibility, enhanced speed and improved understanding of the seemingly endless supply of data. Combined, the resulting systems and knowledge will advance customer service and promote ongoing and sustainable relationships.

Waiting for much longer, expecting to hitch a ride, will unlikely get insurers where they want to go. If insurers opt not to move forward and perform, new entrants or existing forward-thinking competitors will, no doubt, fill that space.

Canadian Underwriter asked senior executives for some of the country’s primary insurance companies the following question: What are the key trends affecting the Canadian p&c market and what sort of responses are needed to meet those challenges and opportunities in 2016?

Here is what executives had to say, presented in alphabetical order by last name.

1 Kathy Bardswick President & Chief Executive Officer The Co-operators Group Limited

These are certainly interesting times for the Canadian property and casualty industry. By its very nature, the industry is in a constant state of evolution as it adapts to all nature of change – environmental, social, technological, economic and political. Still, this is an exceptionally exciting time of profound change.

Not long ago, the standard industry position on overland flooding in this country was that it was an uninsurable risk, one to which private insurance just could not respond. Recently, that has changed dramatically.

There are now products in the market, and more are expected to be introduced soon. There are products currently available that show overland flood can be priced, even in the most at-risk areas.

As the industry steps up to fill this gap and make communities more resilient, it is critically important that insurers clearly and effectively price all risk, avoiding subsidization to ensure appropriate public policy associated with urban planning and investment.

There is a great deal of work to be done with a wide variety of stakeholders in order to make communities more resilient to flood, but recent developments are certainly encouraging.

A second area of change worth noting is the nature and pace of technological advancement. Omni, Uber, driverless vehicles and big data were not a part of p&c insurers’ vocabulary that long ago. Today, these developments are causing all insurers to rethink business models, innovation core competencies and overall approach to the market.

Insurers’ ability to adapt and willingness to value the future more than the past will dictate the winners.

2 Jean-François Blais President Intact Insurance

The insurance industry, like other industries, is quickly evolving, which will present a number of opportunities over the next 12 months. The industry needs to be agile and keep customers at the center of all it does if it wants to leverage these opportunities.

Atop the traditional risks associated with the physical environment and severe weather events, such as flooding, insurers have to be prepared to manage emerging risks and opportunities, and assess how technology, telematics and big data could revolutionize underwriting, pricing and claims. Insurers also need to be more customer-driven.

Technology will continue to drive the industry and how insurers connect with customers. Technology is at the heart of the customer experience, and is transforming insurance and broker channels. Improving customer connectivity and the customer experience will be integral to success.

As well, it is important that the industry develop simple, personalized and innovative products to meet customers’ changing needs.

A good example of this is the sharing economy. It is clear these services are growing in popularity, which will likely see insurance companies participating at an increasing rate. Partnering with companies like Uber is just a first step.

Insurers should also challenge themselves to design and develop new products that customers can easily understand and access. This demands transforming systems to improve the customer experience, including streamlining the claims process to provide a more customer-focused claims experience.

Insurer and broker success will continue to depend on their strong fundamentals, which include acting as trusted advisors and advocates. It will also require the ability to innovate and deliver a simple and seamless experience based on the evolving needs and expectations of consumers.

3 Alister Campbell Chief Executive Officer The Guarantee Company of North America

Drones, driverless cars, 3D printers in homes, 4D printing in hospitals, hacktivism, social engineering, cyber risk and customers tweeting their claims.

It would appear that the evolution in technology is about to force Canada’s property and casualty industry to change at almost revolutionary speed.

Underwriters are in the middle of an “IT transformation.” As an industry generally content to manage COBOL-based legacy systems, these transformations are challenging insurers to upgrade IT management skills.

To execute well in these new areas of endeavour, however, is not easy. Big IT projects have a habit of taking longer and costing more than projected. And to fund the embedded costs of these IT investments within already-constrained expense ratios will be a real test for every insurer.

For brokers managing accelerating customer expectations for speed and accuracy of service interactions, the pace of their underwriting partners’ IT progress may prove frustrating. The good news is it is actually happening and will make things better.

Most significant is that the changing of systems will require a review of who does what. Insurance Brokers Association of Canada is doing important work on developing principles that should help guide Canada’s p&c industry thinking on this.

The best news in all this is increased customer expectations will force all insurers to become better. And the improvement in available tools will make it possible for some insurers to become a lot better!

With all these evolving risks – driven by new technology – will come new complexity in risk management and increased needs for advice on effective risk transfer. Lots of room for trusted advisors and specialized insurers to prosper.

Should be another fun year!

4 Karen Gavan President & Chief Executive OfficerEconomical Insurance

There are numerous key trends/developments expected to affect Canada’s property and casualty insurance industry in 2016.

Consumer education: As the industry is becoming more and more sophisticated in pricing and underwriting, insurers need to communicate better with consumers about the risks to which they are exposed, such as fire and theft, hail, flood and earthquake, and the actions they can take to reduce those risks.

This will give them a much better understanding of the risks they may want to insure against.

To do that, insurers need to be more transparent, like looking at a plain-language menu in a restaurant, so consumers can make educated decisions on the limits and deductibles they can factor into their insurance purchase decisions. This creates a customized insurance plan for each consumer that optimizes the spend.

Climate change: The p&c insurance industry must continue to forge ahead and make Canadian communities more resilient to the impact of climate change.

Collectively, the industry needs to support Insurance Bureau of Canada in its efforts to increase government understanding of the simple, low-cost solutions that would help prevent property losses in the first place, including making backflow valves part of national and provincial building codes for new builds and basement renovations, and preventing new construction on floodplains.

The industry also needs to keep pressing for infrastructure improvements to reduce the impact flooding hasin communities.

Flood: Insurers need to have a unified approach to flood coverage. The recently announced initiatives on flood coverage are not good for the industry.

Charging for flood in areas without significant exposure beyond that covered by sewer back-up is gouging consumers. Ultra-high premiums for flood endorsement in flood-prone areas will deter purchase. Offering coverage no one can afford is not a solution.

A big marketing splash and subsequent industry failure in the next flood could push the industry towards regulation.

Working collaboratively in open dialogue in a committee of industry, regulatory and government stakeholders is the key to making the product sustainable, available and affordable.

5 John HennessyPresident & Chief Operating OfficerCNA Canada

In 2016, the pace of change across commercial insurance will continue to accelerate, given the pressure on profitable growth in a suppressed interest rate environment.

Competitive edges are sharpening as carriers and brokers jockey for position, focused on optimal financial performance and market expansion.

Carriers are seeking the right mix of business in their portfolios to ensure long-term value and sustainability throughout the market cycle.

Data, analytics and metrics have become increasingly important to effectively compete in today’s environment. These powerful tools help shape and direct underwriting strategy and execution.

In today’s dynamic business climate, preferred customers are better-informed and, rightly, demanding authentic industry expertise from their broker and carrier partners. As customer-driven requirements and insurance-based solutions evolve, the fundamental truth of deep understanding endures. Deep understanding of a customer’s needs and ambitions, across both underwriting and claim, and the capability to consistently deliver on them, has become the key differentiator required to win and retain customers.

The days of competing successfully as a generalist are long over.

Clearly, customer-level specialization is a skill-based game and the best talent usually wins. As a result, the race to attain and retain the right talent across all disciplines has become the hallmark of the competitive landscape for brokers and carriers alike.

While the changes within the property and casualty insurance industry are oftentimes astonishing, when it is all boiled down, a strong broker and carrier relationship resides at the core of every successful deal. This bond must be refreshed and renewed on a regular basis to ensure mutual strategic success.

As proven throughout many different cycles and territories, nothing can replace the value of a fully optimized broker/carrier offering.

6 Ulrich Kadow Chief Agent of CanadaAllianz Global Corporate & Specialty Americas

There continues to be steady over-capacity in the market in most areas, putting pressure on rates. This is partly offset by consolidation in the insurance industry, as seen currently by mergers and acquisitions activity.

With pressure on rates, there is an increased need for more efficiency and brokers are seeking effective online and/or program solutions in response. Insurers are focusing on differentiating customer experiences. A fully customer-centric solution, providing an individualized experience, is a competitive advantage and hard to replicate by new entrants.

Cyber protection is top of mind for most Canadian companies. The need for cyber insurance coverage is increasing along with the frequency of cyber attacks, changing regulation and general awareness of risk.

With so many unknowns, this risk is underestimated in many cases, partly driven by a lack of understanding and knowledge around exposure.

Companies should be looking for policies that address many likely exposures, such as first- and third-party claims, crime losses and the cost of a PR consultant to manage reputational risk.

Globalization is another top industry trend. Managing the impacts of global change must include consideration of economic, social, geopolitical, legal, technology, environmental, market and customer needs issues.

Although companies are able to smooth out regional adverse impacts on their businesses, they are also affected by global trends and occurrences that have a negative effect on their bottom line. Political instability, terrorism, economic and trade sanctions can affect their flow of capital and operations.

In addition, Canadian companies are increasing cross-border sales to increase market share and require expertise in cross-border solutions to help cover their emerging insurance needs.

7 Patrick Lundy President & Chief Executive Officer Zurich Canada

Some of the issues highlighted in last year’s Primary Insurance Market Outlook have taken a more central place in discussions with customers this year.

A brave new world is coming into existence with some of these new and changing risks starting to compete with traditional perils, such as fire and flood, for the devastating impact they can have on a business.

The carriers that will win the battle for the customer in these changing times will be the ones that can capitalize on their longevity, show patience and take a long-term approach to the market, like any good investment strategy.

With so many high-profile hacks in the news, businesses of all sizes are beginning to fully grasp how serious a security or privacy breach can be for the viability of a company.

The 2015 Advisen Cyber Survey of risk managers shows that customers have moved past mere interest in cyber security products. Insurers are now seeing double-digit year-over-year growth in demand for cyber liability coverage and higher limits.

But dealing with cyber risk is a societal problem that goes far beyond the coverage choices and insurability of individual customers.

Insurers will need to collaborate, with government policymakers and with each other, sharing data to better understand how cyber losses develop and the totality of the exposures. Industry collaboration and analytics based on this shared data will be necessary to build the right predictive models and benchmark pricing and limits appropriately.

Just like these fast-evolving techno risks that begin changing just as insurers come to grips with the previous iteration, the Canadian insurance market continues to evolve, through perpetual mergers and acquisitions activity and changes to distributor models. Far less likely to change is the value of a steady approach to the market and the ability to add value beyond the insurance product.

8 Sean Murphy President Lloyd’s Canada

The risk landscape is changing fast, with new and emerging risks impacting governments, businesses and individuals across the world with increasing severity and frequency.

Business activity is becoming more interconnected and global. More economic output is exposed to potential systemic shocks than ever before.

Now is the time to highlight this fact and stimulate a discussion on steps for governments, businesses and the insurance industry.

The recently released City Risk Index, research for which was completed by Cambridge University Centre for Risk Studies, measures the financial impact in dollars of 18 major threats on 301 of the world’s leading cities, including six Canadian cities.

Emerging economies, for example, will shoulder an increasing proportion of risk-related financial loss as a result of their accelerating economic growth. These cities, the study found, are often highly exposed to single natural catastrophes.

Here in Canada, and elsewhere in the world, man-made threats – market crash, cyber attack and power outage – are becoming increasingly significant. Likewise, emerging threats – human pandemic, plant epidemic and solar storm – are set to have greater impact in terms of their potential economic disruption.

Insurance is just one piece of the jigsaw, however. Governments and businesses must also play their parts in building resilience and robust infrastructure.

In an age when financial institutions are viewed with skepticism, it is time for the insurance sector to show leadership, explain its value and, by innovating, help build a global economy that, in spite of systemic catastrophic shocks, thrives rather than falters.

9 John O’DonnellPresident & Chief Executive OfficerAllstate Canada Group

For the past few years, insurers have met market challenges while driving towards innovation. Insurers have capitalized on opportunities, but also need significant progress to ensure that they keep pace with customer expectations.

Customers’ experience with other industries has been notably enhanced by customization and technology enhancements, and they expect no less from their insurance providers.

In 2016, Canada’s p&c insurance industry must be able to make exponential leaps rather than small increments of change in strategy and execution. Insurers cannot do this alone.

User-based insurance is an example of effective partnership that has enabled innovative, competitive solutions for consumers, who are embracing this where it meets their needs. Customer expectations guarantee that the pace of change will accelerate.

Insurers continue to need their partners – distributors, technology suppliers and regulators – to embrace innovation and move quickly alongside insurers.

Going forward, insurers have the chance to get it right, working together on initiatives such as customized solutions, technology advances and activity focused on ensuring effective, but not prohibitive, oversight on solvency and market conduct. Customers benefit from people of vision, collaborating to drive innovation and change.

Dialogue among regulators, governments and industry is more critical than it has ever been. It means that all stakeholders will be prepared in true emergencies to respond with the timeliness and level of protection and service customers deserve.

For insurers who are involved in shaping reforms, products and services in Canada’s p&c marketplace, a great chance exists to truly invest in change that ensures companies can manage both capital and operations in the long-term interest of the rapidly evolving consumer marketplace.

10 Lynn Oldfield President & Chief Executive Officer AIG Canada

Hoping not to sound like a “broken record,” 2016, nonetheless, will likely feel much like 2015: a low interest rate environment; robust regulatory oversight; consolidations and new market entrants leading to downward pressure on commercial rates; and consumers driving Canada’s p&c industry to more online and hand-held technology solutions.

What is not so easy to predict is the severity and frequency of catastrophic events, the Canadian dollar, the cost of a barrel of oil and the performance of the Canadian economy.

Creating a talent pipeline to replace a generation poised to retire over the next five years will continue to be a high industry priority. Fundamental to this pursuit is appealing to graduates by effectively promoting the intellectual diversity the industry provides – and offering an engaging workplace and career path progression planning.

In mature, competitive markets like Canada’s, insurers are seeking ways to add value for clients. In an inter-connected world, where people are ordering their lattes on their mobile devices, clients are seeking the same kind of enhanced service, be it expedited claims and policy issuance or risk engineering on demand, to cite a few.

In the age of big data, it is anticipated there will be considerable disruption as new industries emerge and old models become obsolete. To mention a few examples, robotics performing end-to-end processes, drones conducting aerial loss control inspections and catastrophic claims data feeds, autonomous vehicles and the re-imagining of the transportation network when traffic signals are no longer needed.

Insurers who are best-positioned to analyze and extract meaning from the 205,000 new gigabytes of data created every second and provide actionable insights to help make clients’ operations safer and more productive will succeed. This demands harnessing data to also meet needs clients have not yet identified.

From cyber breaches to shifting questions of property and products liability, clients will be called upon to consider risks not yet contemplated, where machines replace humans as the decision-makers and sensors are capturing data creating questions about liability, resulting physical damage and privacy.

11 Sylvie Paquette President & Chief Operating Officer Desjardins General Insurance Group

There was no shortage of challenges facing Canada’s insurance industry over the past year.

One of the biggest concerns was, and is, the low-yield environment. Seven years and counting of rock-bottom interest rates are taking their toll on industry profitability. With investment income eroding, the only way to make up the lost income is to improve underwriting results by reducing expenses and adjusting premiums.

Efficiencies, improved segmentation and selection, and better claims management can all help strengthen bottom lines in the short term.

But with record-low interest rates, the “new normal” for the foreseeable future, it is also clear that expense reductions will not be sufficient on their own. Industry premiums will have to be adjusted to reflect the new reality, though this will not happen immediately.

In the meantime, much of the heavy lifting will fall on expense management. This is happening at the same time that many insurers are increasingly adopting multi-line distribution and facing big investments to update legacy systems to build their digital capabilities.

Telematics, mobile applications, self-service claims, advanced analytics, the shift to an omni-channel customer experience – these are all bringing radical change to the way property and casualty insurers do business.

At the same time, the “things” insurers insure – mostly vehicles and homes – are also changing with technology.

Obviously, safer, semi-autonomous vehicles and homes that are connected through the “Internet of things” will have very different insurance needs.

These technologies are not going to radically change the industry in the next 12 months. But despite the current pressure to reduce expenses, the smart companies have already started to prepare for the changes that will, no doubt, come surprisingly fast.

12 Rowan Saunders President & Chief Executive Officer RSA Canada

The property and casualty landscape is changing at a rapid pace. Catastrophic events are becoming the norm, digital capabilities are improving, and the regulatory environment is becoming more robust and complex.

Mergers and acquisitions activity is likely to continue over the next five to 10 years as brokers and insurance companies look to drive greater operational efficiencies to improve their returns. More consolidators are operating both nationally and regionally than ever before.

Broker consolidation is changing the relationship with insurers. It is important that brokers and insurers work together to maintain a cost-effective channel.

An important strategy in 2016 will be for insurers and brokers to choose the right partners who want to strategically invest in their businesses in order to evolve and stay relevant through an increasingly dynamic market.

The implications of new and disruptive technologies to the insurance industry are also significant. The p&c industry must be prepared for this reality within the next decade.

A risk facing the insurance industry is the potential for distribution by non-insurance companies such as Google and Amazon, which are fuelled by digital and technology. It is clear that a decision to distribute insurance this way is price-driven, not relationship-driven.

However, while the direct channel will continue to grow as some consumer preferences change, it is believed that the broker channel will continue to remain the largest and most dominate distribution channel in the next 10 years. Brokers must continue to focus on their trusted advisor role to customers by acting as independent insurance experts.

In order to stay relevant in the face of changing environmental, regulatory, technological and digital pressures, insurers’ and brokers’ entire proposition has to evolve.

It will be exceedingly important for both insurers and brokers to clearly define their market, and products and service delivery will need to become more innovative to anticipate customer needs and exceed their expectations.

13 Greg Somerville Chief Executive Officer Aviva Canada Inc.

Continued development of solutions to respond to customer needs remains the top priority for 2016.

Customers will continue to seek a solution aligned to their preferences around product distribution. While a simple digital experience is the top choice, some also rely on the Internet for research before making a non-digital purchase.

As the industry continues to evolve to meet these needs, brokers and insurers that increase their digital capabilities will lead the pack. Not only will the industry see more business purchased through digital means, but adopting new technologies will also position everyone in the industry to further adapt to evolving customer needs in the years ahead.

Working with all levels of government on flood mitigation and community resiliency is critical to protecting homes and businesses. Discussions need to continue to focus on improving residential developments and incentivizing residents to mitigate the risk of damage to their properties. Products must also evolve to become easier to understand so customers know what is covered.

The Ontario auto system, inclusive of both the regulatory environment and the product, must be overhauled as it simply does not work for customers. A new product, one that is more stable, affordable and offers consumers more choice, is required.

As well, Ontario drivers will be best-served by a regulator that is proactive and strongly committed to promoting innovation and competition in the marketplace. The expert panel reviewing the Financial Services Commission of Ontario’s mandate is carrying out thoughtful work and the industry will continue to work with the panel to advance customer interest and protection.

The shared economy will continue to grow in 2016. Everyone has seen the rise of Uber and AirBNB – and now the topic of insurance related to these ventures has come to light.

Product development needs to keep pace with a rapidly evolving economy that continues to create opportunities to develop exciting customer solutions.

Whether it is disruption from within the industry or created from the outside, engaging with customers on their needs and preferences is the best way for brokers and insurers to stay ahead as they move into 2016 and beyond.

14 John Taylor President & Chief Executive Officer Ontario Mutual Insurance Association

2015 was another year of “lightning round” developments and 2016 promises more of the same.

After years of grappling with what to do about overland water or flood insurance, the industry is seeing a rush of residential insurers making some form of additional water coverage available on most homeowners policies, with each insurer taking a somewhat unique approach.

The prediction is that by the end of 2016, virtually every insurer will be providing some form of enhanced water coverage.

As a caveat to that prediction, there will remain a portion of the residential market, including those most in need, whose exposure to flood or overland water damage is such that coverage will simply be unavailable. Insurers can expect further governmental activity on this gap and can hope for some type of viable public private solution.

In the longer term, with increasingly volatile and severe weather, the next few years could generate some interesting results and analytical approaches that will re-set the ultimate market price of water coverage for the consumer.

Technology continues to march on and the hunger for data on consumer habits and preferences grow. With what appears to be an infinite supply of data, the greatest constraint will be insurer’s ability to collect and analyze it in a meaningful way.

In 2016, the Ontario auto market will continue to provide affordability and profitability challenges. Some of the most important of the 2010 product reforms should be coming on line, and there appears to be a political commitment to align the Ontario product more closely with those in other provinces to get to the same affordability benchmarks.

Adding “excitement” is the prospect of autonomous car technology that is predicted in the next 10 to 15 years to drastically reduce exposures.

Finally, the state of the Canadian economy will continue to cast a shadow over the strategic plans and risk management of insurers. Operating decisions and investments in operations have a lot less room for error.

15 Silvy Wright President & Chief Executive Officer Northbridge Financial Corporation

The insurance industry is undergoing an intensive period of rebirth. A series of disruptive trends will have an unprecedented impact on what the industry will look like in the next five to 10 years. Insurers’ traditional way of doing business is changing, and it is changing fast.

Looking back, the industry has enjoyed a long history of stability when it comes to customer service models. With so few customer touchpoints, insurers have been somewhat sheltered from providing a great customer experience. That is no longer the case.

Insurers often like to do an apples-to-apples comparison and benchmark themselves against other insurance providers. But what insurers should be doing is comparing apples to oranges, because that is what customers are doing.

Their expectations of insurers are based on high-engagement industries like retail and even other financial service providers. Industries that have a much better understanding of what customers want, when they want it and how they want it, are setting the new standard.

Closing the gap between customer expectations of insurers and their current experience elsewhere is one of the industry’s biggest challenges. New entrants are coming in with big capital, big ideas and big data, and they know more about customers than insurers currently do.

So what needs to happen in order to survive and thrive as insurers enter this period of unprecedented change?

For starters, they need to do a better job of prioritizing the customer experience. Providing “good” customer service is no longer good enough. “Exceptional” is what insurers need to be aiming for.

This will require brokers and insurers to innovate and collaborate more effectively to create the best customer experience possible.

Disruption does not happen for the sake of disruption. It happens because customers are asking for it.