P&C insurance sector evolves to meet challenges of extreme weather, trends

Toronto, ON (Nov. 25, 2013) – As extreme weather events become increasingly common, driverless car technology advances and information-age consumers expect transparent, real-time accessibility, Canada’s property and casualty insurance sector is also evolving.

“The insurance industry is more proactive today than ever before,” says Doug Grant, a partner with Insurance-Canada.ca. “Insurers are working to build greater understanding about risk mitigation at the individual consumer level, but also at the larger level, among community leaders and policy-makers.”

In the last decade, weather-related claims have emerged as the single greatest industry cost, displacing claims associated with fire, says Paul Kovacs, executive director of the Institute for Catastrophic Loss Reduction. As of September 23, southern Albertans had made $1.7 billion in water damage claims, while residents of southern Ontario had made an estimated $850 million in similar claims. Globally, insurance giant Swiss Re reported claims of $8 billion as a result of flooding in the first half of 2013 alone.

Those costs have triggered an urgent examination of the cost-risk ratio of property insurance premiums, as well as investment in research focused on limiting the effect of extreme weather events. “We can’t stop the rain from falling, but it is possible to reduce the damage it causes,” says Mr. Kovacs.

Mitigation requires an informed, broad-based approach, he stresses. The flooding of the Saskatchewan River in Alberta has resulted in important government investments and policy changes aimed at reducing the damage wrought by rising rivers, for example. But the fact that about half of the Alberta damage involved inadequate storm water management systems has largely been overlooked, Mr. Kovacs explains. “Sewers and pipes were overwhelmed and drove water into houses in urban areas – houses that were nowhere near the river. It’s something that is essential to address.”

As insurers work to deal with these complex issues, advanced analytics are helping them to better market their products and serve policyholders, says Catherine Kargas, vice-president of MARCON, a management consulting firm. But the opportunities and challenges related to advanced technology are also much broader, she adds.

“In the short term, we’re seeing the rise of ride-sharing services, which are affecting the number of vehicles on our streets, and therefore the insurance claims relating to vehicles,” says Ms. Kargas, who is also chair of Electric Mobility Canada. Using apps, it’s now easy to use public transportation or car-sharing services. But in the future, she says, “technology will take all of the options, put them together on one platform, and identify the most efficient, cost-effective way to get from point A to point B.”

Combined with the driverless technology that is expected to be commercially available within a decade, there are likely to be major disruptions for many business models, including auto insurance, Ms. Kargas notes.

Technological advances will also allow insurers to engage policyholders in more targeted ways, says Mr. Grant. “It’s now possible for media to let the residents of a region know that there will be a flood, but in future, an insurer will also be able to identify the policyholders in that region most likely to suffer flood damage and engage with them to recommend action, for example.”

In addition, the industry is adopting technology that will enable it to communicate more effectively with policyholders. “Communication will continue to evolve and make a difference, within the insurance environment as well as outside,” says Mr. Grant.