CCIR seeking feedback on property review

CANADA’s provincial insurance overseers are seeking public feedback this summer on a review of property insurance.
As promised after its spring meeting, the Canadian Council of Insurance Regulators has published an issues paper on natural catastrophes and personal property insurance for public consultation.
The umbrella organization for provincial insurance regulators seeks stakeholder input on:
– The impact of natural catastrophe-related events on the Canadian personal property insurance marketplace;
– Personal property insurance coverage currently available for natural catastrophe-related events in Canada, and
– Consumer understanding of the risks associated with catastrophes, and their degree of coverage.
At the same time the CCIR also released an issues paper on travel health insurance products. Both focus on consumer protection and confidence.
Council is seeking public comment on the papers by Sept. 30.
The property insurance paper set out the CCIR’s general understanding of the impact of natural catastrophes — floods, windstorms, wildfires, hail, ice storms and earthquakes — on the personal property insurance marketplace in Canada. These events have led to changes in the coverage and pricing of personal property insurance — with some gaps in availability, coverage options and exclusions, the paper notes.
“As a result, the (CCIR) is concerned that consumers may not be aware of the risks posed by natural catastrophe-related events and the consequences of limited insurance coverage for some of those events,” the executive summary said.
To address this, the council established a personal property insurance working group (PWG) to review personal property insurance policy language, exclusions and endorsements.
“It has also examined insurer outreach to consumers relating to natural catastrophes, conducted jurisdictional reviews of relevant legislation, statutory provisions and consumer complaints, and a review of insurance industry publications and articles.”
While recognizing that natural catastrophes pose earnings and management risks for insurers, the PWG paper focused on “the customer relationship risk or the fair treatment of consumers.”
The paper noted that the trend toward increasing insurance coverage for natural catastrophes, particularly flood/water events, is in response to factors including:
– Recent natural catastrophes and reports of climate change;
– The need to avoid ‘goodwill payments’ outside of policy coverage (such as those some companies made following the 2013 flooding in southern Alberta) that can jeopardize reinsurance coverage;
– Reputational risks associated with unexplainable differences in the settlement of claims between affected neighbours with similar coverage from different companies, and
– Insurers seeking product differentiation in a highly competitive marketplace.
Leading the list of natural catastrophes are flood and other water- related claims, which cost the insurance industry an estimated $1.7bn a year. The PWG recognized the industry’s efforts to provide more coverage, especially for overland flooding, but acknowledged this has prompted calls for better flood mapping and more efforts from cities and provinces to adjust zoning bylaws and building codes to prevent and mitigate flood damage.
“Efforts have been made over the last year by the insurance industry and independent risk modelling organizations to improve and update Canada’s flood maps,” the paper said.
It singled out the Insurance Bureau of Canada’s leadership in a national initiative to develop new flood hazard maps and property-level exposure data.
“As a result of this program, IBC has identified that 1.8 million Canadian households are at a high risk of flooding,” the PWG said.
“While there appears to be coverage for sewer backup, and some partial coverage for overland water, advanced tools and models for flood/water events should assist in the development of suitable insurance products for high-risk areas, and raise consumer awareness about the nature of flood/water-related events.”
Turning to wildfires, the CCIR paper said climate change has already increased risks and will continue to do so.
“Climatologists predict that Canada will see an overall increase in fire occurrence of 25% by 2030 and 75% by the end of the century.”
Again, the paper underlined the need for modelling tools and data to identify areas of greater risk, thus helping insurers and reinsurers to cover their expected risks.
Climate change is also expected to increase destruction from wind, hail and ice storms. Atlantic Canada, in particular, is likely to see more hurricanes. The PWG concluded that the industry has adequate access to risk models to deal with this.
Earthquakes are potentially the most severe and costliest natural catastrophes, but the paper found that modelling has made great strides recently. It noted that the federal Office of the Superintendent of Financial Institutions has developed the Earthquake Exposure and Best Practices Guideline and in Quebec, the Autorité des marchés financiers published the Earthquake Exposure Risk Management Guideline.
“With . . . predictions of potential earthquakes in BC, Ontario and Quebec, it is particularly important for insurers and reinsurers to have access to earthquake risk models in order to continue to make insurance products available to consumers in higher risk locations, while still managing to keep such insurance products reasonably accessible.”
The working group noted that earthquake endorsements tend to carry high deductibles, often expressed as a percentage of total losses.
“Policyholders may not fully appreciate the dollar amount that the deductible actually represents and what consequences that may have in the event of a loss,” the paper said.
The working group challenged stakeholders to challenge the issues paper by asking:
– What are current natural catastrophe risk-sharing practices? How are catastrophe risks currently being grouped/classified/segmented?
– What are the potential implications not addressed by the paper with respect to risk-sharing/pooling for natural catastrophe coverage across Canada?
The paper noted that the industry has been able to roll out new products covering natural catastrophes with no major market failure.
“In fact, the growing trend of product development for overland water, using updated flood mapping, illustrates that there is a market for such insurance coverage and a means for insurers to develop products that minimize their risk and to provide consumer protection.”