Insurance Brokers Association of Alberta

Insurance Brokers Association of Alberta

October 01, 2013 11:09 ET

Consensus at IBAA's Property Insurance Forum: Property Insurance Needs Overhaul

EDMONTON, ALBERTA--(Marketwired - Oct. 1, 2013) - On September 12, 2013, Insurance Brokers Association of Alberta hosted a Property Insurance Forum in Edmonton, bringing many stakeholders from Alberta and across Canada together. This historic event germinated at the IBAA convention in May 2013, with concerns about hail, wind, fire, flood, and sewer backup property risks. The forum featured 13 participants and 70 invited observers from every facet of the property and casualty insurance industry and beyond. The event achieved its primary goal of starting a discussion and voiced a general consensus that property coverage needs an overhaul, that it should remain within the private market, that it may provide consumers with flood protection, and that all stakeholders must take responsibility so that property coverage remain viable.

Participants represented insurance companies (Aviva, Economical, Intact, Peace Hills, SGI, The Dominion, and Wawanesa), Insurance Brokers Association of Alberta, Canadian Independent Adjusters' Association, Alberta Insurance Council, Insurance Bureau of Canada, Institute for Catastrophic Loss Reduction, and Alberta Finance. Following keynote presentations, participants launched into open discussion of affordability, availability, and sustainability of property insurance.

Most agreed that property insurance needs to be changed for it to be sustainable. Government coffers are increasingly stressed by disaster relief for property damage not covered by insurance. While Alberta Superintendent of Insurance Mark Prefontaine admitted government concern, he affirmed that government has no intention to increase its regulatory stance regarding property insurance. Property coverage is also increasing in risk for the insurance companies. Insurance Bureau of Canada Vice President (Western and Pacific Region) William Adams noted the 5%-20% increase in capital charge on insurers' personal and commercial property exposure (proposed by the Office of the Superintendent of Financial Institutions Canada, the federal solvency regulator) will inflate required capital reserves or reinsurance and thus inflate product cost. Further, he argued, actuaries are struggling to forecast cost accurately due to the gap between past, present, and probable future conditions. Concern was voiced that property insurance premiums and deductibles have been underpriced for years while the product has incurred minimal change. Opinion on consumer response to price increases ranged from the need for consumer insurance education to mitigate sticker shock to fear that some consumers will find the product unaffordable or that revamping the product to maintain affordability would restrict availability, either in type of coverage or to high-risk property areas. IBAA Past President Dean Bailey cautioned that a perils-based underwriting approach, using postal code territories and other forms of risk mapping, is increasing and changing the original concept of insurance whereby the premiums of the many pay for the claims of the few.

The changing risk environment affects availability and sustainability. The number of weather-related claims has surpassed other claim types in Canada, and extremely so in Alberta. Drawing on a study from the Institute for Catastrophic Loss Reduction, Adams noted that "in 2012 insured property losses in Alberta from severe weather represented 62% of the Canadian total. Over the 29-year period beginning in 1983, Alberta accounted for over 1/3 for the country's insured losses from catastrophic weather events." A mixture of increasing natural catastrophes, increasing residential home improvements leading to more costly claims, and increasing urban development that stresses current infrastructure has tipped the scale in frequency and cost of perils. Executive Director Paul Kovacs, from the Institute for Catastrophic Loss Reduction, argued that the risk environment has changed: 35 years ago the three biggest costs were auto damage, fire damage, and property theft. These risks have declined while "Sewer back up, wildfire, wind, hail, and other natural disasters have risen." However, as IBAA President Gord Enders pointed out, "Canada is one of the three industrialized nations that does not include flood coverage."

Where do we go from here? Many noted the importance of all stakeholders-consumers, government, industry (including insurers, brokers, direct writers, adjusters)-working together to reduce risk and develop affordable, sustainable products that address current gaps and limitations. Competitive forces will likely lead insurance companies to develop new products. Many stressed the importance of consumer education about insurance, its relationship to disaster relief, its long- and short-term costs (for individuals and for the economy), and current and future risk-reduction measures to keep property products equitable, available, affordable, sustainable, transparent, and private, with minimal government regulation. Risk reduction measures included government management of woodland underbrush, maintaining distance between buildings and wooded areas, consumer use of risk-reducing building materials, covering vehicles, disconnecting eaves trough drainage from sewers, proper lot grading, the Alberta Severe Weather Management Society's Cloud Seeding Program to reduce hail size, restricting future disaster assistance for at-risk properties to encourage relocation elsewhere, and use of the Municipal Risk Assessment Tool (MRAT) to help municipalities detect infrastructure risks. An urgent need was felt to act now.

Insurance Brokers Association of Alberta (www.ibaa.ca) is dedicated to preserving and strengthening the insurance broker.

Contact Information