Insurance Market Outlook - 2023

Insurance Market Outlook - 2023


Business owners’ top three risks in Canada are cyber incidents (35%), the skilled workforce shortage (33%) and climate change (29%) – differing from last year when business interruption, cyber incidents, and climate change were deemed the top 3.

We’ve been talking about the current “Hard Insurance Market” environment for the longest running cycle in industry history. Normally lasting 18-24 months, we’ve now seen more than 17 quarters of increasingly tighter prices. This is unprecedented.

The current market environment is unique because of the confluence of so many challenges. Recessionary concerns are top of mind as governments work to tame inflation and equity markets reside in bare territory.

There is ongoing uncertainty around loss trends due to entrenched inflation, supply chain issues, climate change, and social inflation (read: legal costs).

As a result, most insurers are suggesting 10% to 15% increases on property replacement costs across all sectors in order to reflect inflationary prices.

As indicated, when looking at your property insurance limits please be sure to take into consideration that inflation has caused coverage gaps resulting in many claims that don’t fully cover rebuilding or replacement costs. There is a bit more detail here on that if you are interested but insurance companies are finding that traditional inflationary increases of 4-7% are more like 11-15% these days to keep pace with inflation.

While market conditions remain complex, there are signs of improvement showing across commercial property, general liability, commercial auto, and directors & officers (D&O); however, insurers remain worried about cyber and technology errors & omissions (E&O).

The market has changed significantly over the last two years – with insurers maintaining strict underwriting guidelines and risk selection. Rate increases are continuing; albeit less severely compared to 2021 and 2022.

Real estate, transportation, mining, roofing, and food manufacturing are all challenging industry sectors. Insurers are concerned about Canadian companies with U.S. operational exposures and, as U.S. litigation costs continue to drive up rates, we are seeing signs of restricted capacity for this coverage.

Cyber and technology E&O remains challenging for capacity, especially in higher risk sectors including cannabis, cryptocurrency, payment processors, public sector, municipalities, and educational institutions.

CYBER Spotlight

Canada’s ongoing hard market in cyber has seen most insurers capping their coverage at somewhere between $3-million and $5-million. The average cost from data breach incidents reached an all-time high of $4.35 million in 2022 and is expected to surpass $5 million in 2023.

Several insurers have stopped underwriting Canadian cyber risk outright due to the extremely difficult landscape right now.

Exclusions for known software vulnerabilities and capacity restrictions continue to be prevalent as claims continue. 

Premium increases can be expected at around 40-100% increase for above average (i.e. low risk) clients and between 100-400% for below average (i.e. high risk) clients, according to industry experts.

Healthcare breach costs were around $10 million in 2022; for cyber insurers, this has been the most expensive industry segment for 12 years running.

Financial services are also a high hazard, averaging $5.97 million in cyber claims costs, followed closely by pharmaceuticals, technology, and energy sectors.

We continue to encourage clients to add any additional information to applications in an addendum as many questions are Yes/No and without context. In addition, implement insurer recommendations such as multi-factor authentication, employee training, backup procedures etc., as these can go a long way to putting the best foot forward with underwriters. 

Questions? Touch base with one of our advisors or simply email us.

Thank you for your confidence in our office; it is not something we take lightly. We know you have a choice of where to secure insurance.

John Hubbard - President

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