Extreme Weather is Becoming the Norm

09 Jun 2014


Extreme weather demands big data and predictive analysis, mixed with a healthy dose of client education, to ensure already tight margins don’t evaporate altogether.

And if memories of the winter Polar Vortex have already begun to fade, brokers should be ready to spoon out some harsh medicine to educate commercial clients on the need for greater risk control and loss prevention, says Julie Pingree, the commercial insurance vice president for RSA Canada.

“The commercial property line of business is under stress as a result of depressed rates from the prolonged soft market and increased claims frequency due to the extreme weather conditions this past winter,” says Pingree. “Large fires have also been a factor in the poor-performance.”

According to Q4 2013 fourth quarter numbers from Towers Watson, price increases were reported for all commercial lines with the exception of professional liability – the largest increase reported in the commercial property line, followed by commercial auto and general / products liability.

“We are seeing more rate activity in the market in the property segment than in the recent past, but the degree is very much dependent upon the geography, segment and size of account,” says Pingree. “Generally rates are increasing in the 5 per cent – 7 per cent range on property business. In addition, underwriting terms — such as increased deductibles — are being rolled out by most carriers.”

Price changes for all lines fell in the low single digits, while rates varied across jurisdictions.

Historical claim costs reported by the survey respondents showed a deterioration of 17 per cent in loss ratios in the 2013 accident year compared to the same period in 2012.

According to the survey, carrier estimates of claim cost inflation underlying the loss ratio movement came in at 7 per cent for accident year 2012 and 19 per cent for 2013 for the aggregate commercial industry.

This comes as insurers and brokers are facing earnings challenges, Pingree points out.

“Low investment returns and plentiful capacity continue to impact the ability to generate a profit,” she says. “However, more recently the changing and unpredictable weather patterns have emerged as the most significant challenge for the property segment.”

How can customer expectations be met?

“Investment at both industry and company levels is needed to better understand changing weather patterns and geographic exposures to large events,” she says. “Combined with these insights, greater sophistication in pricing that reflects individual customer exposure to major perils would drive improved margins.”

And that comes down to educating the client, says Pingree.

“Greater risk control and loss prevention education for customers related to weather and other catastrophe events is necessary,” she says. “Improved insights into individual customer behaviour — through the use of ‘big data’ and predictive analysis will also facilitate improved performance.”

Meeting customer expectations is a challenge for both brokers and insurers, says Pingree, citing a gap between what the industry is delivering and what customers expect in terms of technology-based solutions that provide quick service in purchasing and claims transactions.

As an industry, we need to better understand changing weather, geographic exposures and rethink catastrophe modelling. Only then will pricing correlate more efficiently to our end customers’ risk exposures.


Greg Kruk