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SECTOR FOCUS: COMMERCIAL PROPERTY
Perils in commercial property COVID-19, climate change and rising construction costs haven’t made things easy for the commercial property sector this year. IBA talks to experts in the space to find out where it might be headed next
COMMERCIAL PROPERTY insurance protects buildings from threats ranging from fire to theft to natural disasters. As such, premiums and coverage depend on variables such as the location and condition of the building or property, whether it’s occupied, and what kind of fire and security oversight it has. Therefore, it’s important to consider perspectives from different regions when assessing the state of the commercial property sector in Canada. In a word, Rick DeBruyn describes the past year in commercial property insurance as “volatile.” The regional vice-president for the Prairie region at CNA, DeBruyn provides overall management and underwriting resources for Northwestern Ontario, Manitoba and Saskatchewan. As insurers work to improve loss ratios, he says, there have been restrictions in capacity and price increases – thus making it a difficult year for underwriters, brokers and insureds. In the next year, DeBruyn hopes to see underwriting stabilize. Matt Ripley, senior vice-president of commercial insurance for Nova Scotiabased Agile Underwriting Solutions, has also observed increases in premiums and cuts to underwriting capacity. He notes that challenges related to supply and availability have driven up commercial property premiums between 5% and 10% in 2021.
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“With some standard domestic carriers unwilling to write certain property lines, alternative markets are being called upon to provide capacity in areas they haven’t previously participated in,” he says. “When capacity is scarce, it’s reasonable to expect that the cost associated with purchasing capacity will increase as markets look for rating adequacy for given classes.” Ripley says he’s seen the biggest capacity cuts in residential realty, condo/strata and hospitality (property and general liability), as well as for contractors involved in snow removal operations, hot process roofing and plumbing. “Across most lines of business, there is available capacity in the market for excess commercial general liability,” he says. “The challenge for many in the industry has been placing commercial umbrella coverage, which also sits in excess of an auto liability policy. In the past, attachment points for the excess auto were much lower, and this, in effect, created a situation where GL underwriters provided auto liability coverage at a level that is very close to primary. In today’s hard market conditions, GL underwriters are not prepared to provide umbrella liability coverage at low attachment points, and this has created a gap for some insureds.” Ripley says these market pressures
have remained constant over the past year; accounts are now entering their second and third renewal cycles with increased rate and challenges with capacity. And he doesn’t foresee them easing for a while. “In conversations with both domestic insurer partners and the Lloyd’s market, we do not expect any significant changes in the current commercial property market conditions until, at the earliest, Q3 of 2022,” he says.
The biggest issues Going forward, DeBruyn identifies three main challenges for the commercial property sector. First, there’s climate change, which is leading to more catastrophic weather events such as floods, hail and wildfires. Western Canada has seen record-setting temperatures and droughts, along with several 1-in500 or 1-in-1,000-year weather events. In addition, heavy rainstorms have been overwhelming sewer infrastructure and causing flash flooding. DeBruyn foresees a greater focus on underwriting these natural catastrophes, which will be aided by advanced modelling tools that can factor in the evolving risk of climate change. However, he notes that there’s an education component to it as well – many insureds simply don’t believe they will be affected by a catastrophic event.
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10/11/2021 1:07:23 am
