Should the hard market run its course through COVID-19?

As the economic fallout from the COVID-19 pandemic continues during a hard market cycle, the solution to consumers’ woes may not be as simple as providing premium relief, one Quebec broker says.

“We’re not seeing premium relief from insurers to date, but I don’t think it’s that simple,” said Curtis Killen, president of brokerage KBD Insurance in Montreal. He was responding to questions from Canadian Underwriter about what a pandemic means for brokers on top of a hard market, concerns any clients may have, and what premium relief he has seen from insurers thus far.

Killen’s comments did not relate to Insurance Bureau of Canada (IBC)’s announcement on Apr. 8, when the association of auto, home and business insurers said its member companies would offer reductions in auto insurance premiums for consumers whose driving habits have changed significantly. These reductions, which would continue for three months, could result in $600 million in savings. Insurers have also honoured requests to defer premiums for “thousands” of customers and businesses.

Killen suggested Friday that, over the long-term, consumers may be best-served by simply letting the economy and the industry’s hard-market cycle run their course.

“Insurance markets function like any other business market, therefore it’s natural to go through cycles,” Killen told Canadian Underwriter. “It’s tough for the P&C industry to just turn on the dime and drop rates; there’s a lot of moving parts in a functioning market.

“I’m in the camp who believes we should let the market take its course. This applies to both the insurance market as well as the economy. [In the long run], it’s what’s best for the country. There is too much debt in our economic system and it needs to reset.”

In a recent Canadian Underwriter poll of nearly 300 P&C industry professionals, 45.9% of respondents found that the “impact of layering a pandemic on top of hardening market conditions” was their third-biggest concern. This placed behind managing the needs of clients who may not have the means to pay premiums (or who may want to cut their contracts short) at 51%, what a global recession will mean for P&C businesses (at 51%). The numbers don’t add up to 100% as multiple responses could be chosen.

Commenting on one absurd outcome for a client, one broker in the survey raised the challenge of a hard market cycle mixed with a shrinking economy. This respondent wanted to see stories from Canadian Underwriter on “how to handle commercial renewals, where clients are currently closed with no income, [facing premium] renewals up 20% (or 50% for hard-to-place).”

Related: Brokers seek four relief measures for hard-hit commercial clients

Short-term, yes, the current situation is more painful, Killen agreed. But a hard market is okay, as long as your brokerage is on the offence. “If anything, it’s easier to get your foot in the door when a prospect receives a 50% increase on their insurance premium.”

Kent Rowe, president of the Insurance Brokers Association of Canada, told Canadian Underwriter recently that brokers are seeking four things from insurers. One of them is a premium cap or freeze on renewals for businesses in terms of rating for a specified period of time (perhaps matching renewal terms from last year’s rating).

“Whatever that may look like, I don’t know, but we are in the midst of a hard market on top of all of this,” Rowe said in early April. “Of course, with hard markets typically come rate increases. Again, in order to provide some assistance and much-needed relief to business owners across the country, we’d love to see something like that happen, whether it be a cap of some sort on renewals or a freeze if at all possible.”

Where possible, IBAC would like to see insurers avoid non-renewals and work with brokers to “really try to find solutions to offer renewals to clients during this pandemic,” Rowe said.