Commercial lines are growing. Will this affect profitability?

Tighter underwriting control, client safeguards and softening of certain lines have helped some business segments start growing again, experts told a Canadian Underwriter webinar.

But the industry is wary of growth at the expense of profitability.

“We’ve got a lot of carriers that are changing their philosophy from status quo to growth mode. I think that’s going to create opportunity,” said Russ Quilley, head of commercial risk and chief broking officer at Aon Canada, during Outlook 2023: What to expect in commercial insurance.

“There’s opportunities in D&O, there’s opportunity in casualty, even the cyber market — which has probably been the toughest market for the last number of years. We’ve seen drops in regard to the type of increases that we were seeing last year,” he said.

Such growth, Quilley said, comes back to the performance of the underwriters who’ve been implementing more defenses, as well as changes in client philosophies, “especially around paying ransomware, so that’s changing the loss ratios of the [cyber] market.”

Sill, frequency and severity of losses haven’t yet swung back to pre-pandemic levels, said Mike Lardis, chief operating officer of StoneRidge Insurance Brokers.

That means the industry hasn’t seen all that is to come in terms of potential exposures for certain lines.

“[We’re] coming out of a global pandemic, seeing results in the past few years being driven by probably pandemic environments with exposures being lower, and businesses not operating like they were,” he said. “My hope is that we don’t get complacent around those results, because I think you could see results go right back to pre-pandemic frequency and severity.

“We’re already at the top of the market so it’s very easy to start to just chase business, and I get afraid of that, because I think that slope could be a lot steeper into a soft market around profitability.”

But after a few years of hard markets, the industry’s profitability is beginning to rebound.

And while many have the ambition to grow their books, insurers don’t want to do so at the expense of profitability, said Colette Taylor, chief operating officer at Sovereign Insurance.

“I have not seen commentary from any insurer saying ‘we are not looking to grow, we are looking to contract our business,’” she said. However; “I do not believe that insurers want growth at the expense of profitability. Yet.”

An economy in flux means insurers can’t get too comfortable with their profits.

“I think the external environment in which we find ourselves is still feeling too volatile for insurers to back right off and say, ‘Okay, we’ve made this profit, we’re good,’” Taylor said.

For years before the hard market, the industry’s investment returns, as well as a strong Canadian dollar, meant insurers, “despite not making any kind of underwriting profit, could continue to funnel money into their businesses,” she said. “That’s certainly not the environment we’re operating in today.

“Money is not cheap or free anymore and investment returns are not a guarantee, and on top of that…the cost of labour [is] much more expensive.”

While there’s undoubtedly potential for growth in the market, it’s going to be insurer dependent, panellists concluded.

Companies that want to grow will do so “in their chosen segments where they feel that they’re very strong, they’ve got the expertise, they’ve got the predictive insights that support their decision-making,” Taylor added.

Feature image by iStock.com//MicroStockHub