Why there will be more insurance regulations in the upcoming year
A ratings agency cautioned that since Canadians will find it more difficult to pay their insurance bills, a predicted economic slowdown in 2024 may lead to more insurance regulation as the hard market in the country’s P&C insurance sector continues at a rapid pace.
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According to DBRS Morning star’s report, Canadian P&C Insurance Outlook 2024: Market Conditions, which was released on Monday, “growing climate-related exposures, robust population growth, and macroeconomic conditions are supportive of premium rate increases, but they may prove to be more and more difficult to execute over time.”
“Consumers are finding it harder to absorb additional costs, including insurance, as a result of years of rapidly rising prices on a variety of goods and services, given their growing concerns regarding the
living expenses. Meanwhile, authorities are concentrating more and more on making sure insurance is accessible and reasonably priced.
Major industrialised and developing nations’ insurance regulators, including those in Canada, are represented by the International Association of Insurance Supervisors (IAIS).
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In November, it released a call to action to close protection gaps against natural disasters.
The affordability, accessibility, and uptake of insurance against natural disasters can all be enhanced by insurance regulation, according to a recent IRIS report.
However, DB RS Morning star pointed out that some regulatory measures, like imposing price caps or calling for more capital, may work against the Iris’s declared objectives.
According to the ratings agency, addressing concerns about insurance availability and affordability will be difficult in the absence of a significant decrease in insured exposures. However, there is a price associated with this.
“If everything else is equal, a meaningful reduction in risk exposures (such as through adaptation and resiliency measures) would be one potential way to simultaneously address inscrutability, affordability, and solvency concerns,” the report said.
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“Without such a decrease and considering the increasing risks associated with climate change, we might have an issue with insurance availability that has wider negative effects on the economy and credit evaluation.”
Inflation, increased reinsurance costs, and more extreme weather events are all expected by DBRS to contribute to continuous premium rate increases in 2024.
Specifically, inflation has driven up the costs of repairs and claims for insurers.
According to DBRS, “the cost of renting a car is about 67% higher compared with per-pandemic rates” in the auto industry as of 2023 Q3. And that cost only pertains to one [claim]. The costs
prices for both new and used cars are significantly higher, and the cost of auto maintenance and repairs is significantly higher than the rate of general inflation.
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In terms of property lines, the report noted that “inflation has also significantly impacted the building construction price index (related to property claims costs), peaking at 22% in 2022 Q1.”
2023 will see several quarters of lower inflation, but construction costs will still be roughly 56% higher than they were prior to the pandemic.
The general inflation rate, as a point of reference, indicates costs that are approximately 16% higher.
We surmise that because premium increases in 2022 and 2023 have been in the low single digits, premiums have not accurately reflected relevant [claims] cost increases.
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Investment returns for insurers are increasing, according to DBRS Morning star, as insurers swap out maturing bond portfolios for assets with higher yields. ”
Improving investment returns will reduce the magnitude of premium rate increases but will not be sufficient to offset them,” the agency cautioned.
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