Signs of softening in Canada’s commercial lines

As personal lines pricing in Canada firms up, signs of market softening are emerging in the country’s commercial lines of business.

Commercial insurance rate increases in the most commonly-placed lines of business are trending downward, Applied Systems and Aon Canada both report.

“Overall, rates saw an increase of 6.14% in 2024 Q1, which is depressed relative to the rate increase of 7.39% in 2023 Q1,” says the 2024 Spring edition of the Applied Commercial Lines Premium Rate Index Findings. The analysis is based on almost 22,000 data transactions per quarter.

The business and professional services insurance line, as well as construction, hospitality services, real estate, and retail services all saw decreases in 2024 Q1 compared to the same quarter last year, Applied Systems reports.

“Overall, average rate increases were still up year-over-year, but the pace of increase is slowing relative to 2023,” said Steve Whitelaw, senior vice president and general manager of Applied Systems in Canada. “Our index shows that the magnitude of renewal increases are lessening in some segments of the market, which will be insightful for brokers in renewals conversations with customers and where to target business growth opportunities.”

Aon’s report notes there will be some winners and losers in each of these business categories, as insurers are using advanced analytics to separate the wheat from the chaff. That said, Aon is noticing opportunities for growth in the directors and officers (D&O), cyber, construction and manufacturing segments.

“Overall, there is an expansion in capacity and appetite signaling that the market is transitioning into a more competitive space,” Aon Canada’s Spring 2024—Insurance Market Update Canada reports. “However, the focus on risk selection continues to prevail as insurers strive to maintain profitability.

“Underwriting remains disciplined and risk differentiation continues to be a top priority as underwriters increasingly rely on data, insights and analytical tools such as modelling to support decision making.”

Applied reports that in the Canadian business and professional services line, which includes D&O, premium renewal increases averaged 5.54% in 2024 Q1, which is down from 6.99% during the same period last year.

“Capacity in the D&O space is ample on the primary and excess spaces for the vast majority of industries and clients,” Aon Canada reports. “Underwriters are getting more creative and comfortable with emerging industries…

Rate increases are flattening, and single-digit decreases on most primary policies with more significant reductions on excess programs can be expected. High-risk industries, significant growth, M&A activity or adverse-loss-history-impacted accounts should expect renewals to require more advanced lead time for negotiations…”

More specifically, commercial underwriters in business and professional lines are paying particular attention to shareholder disputes; Environmental Social and Governance (ESG) issues, including Diversity Equity and Inclusion (DEI) initiatives; M&A activity; and bankruptcy and financial distress.

In construction lines, premium increases averaged 6.04% in 2024 Q1, down from 7.42% in 2023 Q11.

But not all construction accounts are created equally, as Aon observes.

“Retentions and deductibles remain flat on well-performing accounts, though loss-impacted accounts and certain high-risk exposures, such as [catastrophe]-exposed risks, may expect larger increases,” Aon’s report states. “Insurers maintain a limited appetite for wood frame construction and hot roofing exposures, and mechanical/plumbing risk profiles with significant wet exposures can expect increased underwriting scrutiny around water mitigation details.”

In cyber, more competition and capacity entered the Canadian market. Ransomware attacks continue to be the largest exposure for commercial accounts, and particularly in business professional services; public entities, manufacturing; health care, real estate/construction and education industries.

Even in the highly challenged hospitality services sector, which received much press last year about rate hardening despite the end of the pandemic, the price increases are starting to turn a corner, Applied Systems reports.

Whereas last year, during 2023 Q1, rate increases approached the double-digit mark (8.9%), this year’s first quarter saw rate increases slow down to 6.81%.

Feature image courtesy of iStock.com/creacart