The small and midsized enterprise (SME) commercial insurance market remains a hotly contested battleground in Canada.
Intense competition between insurers and brokers for business in Canada’s prized small and midsized enterprise (SME) market seems likely to keep this market soft for most of 2013, according to a ‘Market Perspective’ report by Marsh Canada.
Why is the SME market at the centre of attention for insurers and brokers alike?
“Typically, SMEs do not have catastrophic exposure, which limits most insurers’ reliance on reinsurance for this market segment,” Marsh states in its Canada Insurance Market Report 2013. “This partially insulates the SME market from the impact of fluctuating global reinsurance markets and uncertainty due to pending treaty renewals that are driven by larger catastrophic international losses.”
SMEs typically do not contain any U.S. or international exposure, which is typically viewed as a higher risk, Marsh said. This makes them particularly desirable clients, leading to price wars to obtain and retain their business.
Last year, Chubb Insurance Company of Canada CEO Ellen Moore said Canada had an estimated capital “overcapacity” of between $2.5 billion and $3 billion, leading insurers and brokers to undercut competitors’ premium rates by as much as 30% to 40% in a bid for market share.
Marsh’s comprehensive, 31-page analysis looks at a number of other specialty markets in Canada. Here’s a list of some markets that are hot right now for brokers, and others that are not.
WHAT’S HOT
Real Estate E&O Insurance
Demand for E&O insurance in the real estate market continues to grow. Insurers are underwriting asset managers as they would any other investment managers. In other words, asset managers can expect to see higher premiums and deductibles than strictly property managers. Crime insurance is available at competitive rates.
Captives
Captive insurance companies traditionally thrive during hard markets, when insurers increase rates and decrease their coverage options. When insurance rates increase, companies create captives to retain more risk for themselves, thereby keeping their insurance rates low.
But despite Canada’s prolonged soft market, captives have been on the increase, which Marsh attributes to the recent ratification of Tax Information Exchange Agreements (TIEAs) between Canada and Bermuda and the Cayman Islands. The agreements allow tax emptions on dividends paid to the Canadian corporation by their affiliates located in Bermuda and the Caymans. The agreements have essentially resulted in a greater choice of domicile for Canadian corporations, Marsh noted.
Environmental
Canada’s environmental insurance market is growing. More than a dozen insurers are now offering coverage for a variety of risks; in particular, an increasing number of Lloyd’s insurers are offering environmental coverage for Canadian risks.
Facilities coverage is available for virtually all types of sites/operations on either an individual site basis or on a multiple site/portfolio basis. In addition, insurers are offering improved terms and producing some sector-specific forms.
WHAT’S NOT
Energy
“Despite an oversupply of capacity in the property energy segment, losses in the market continue to result in underwriters taking a conservative approach to energy exposures, which is putting upward pressure on rates and deductibles for larger companies,” Marsh says. Canadian insurers have taken a more disciplined approach to underwriting risks that require high-limit policies than their counterparts in the London and European markets.
Credit Insurance
Ongoing economic turbulence in Europe, in addition to slower-than-expected economic growth in emerging markets and the United States, have combined to halt the softening trend in the trade credit market. “In the credit insurance space, a major default in Europe with catastrophic consequential losses for the trade flows is still the primary risk,” Marsh reports. The political risk market may be similarly affected by government austerity measures.
Financial Institutions
Rates in the financial institutions marketplace are expected to continue to trend upward ion 2013. In particular, insurers are trying to hold the line on Financial Institutional Bond (FIB) rates, which are currently showing flat rates to single-digit decreases. “Claims involving dishonest/rogue employees, Ponzi schemes, and investment advisor fraud continue to be challenging,” Marsh reports. In addition, insurers are becoming more selective about professional liability (E&O) coverage.
