Call it what you will—a challenging market, a disciplined market, or, as industry jargon would have it, a “hard market”—the insurance landscape is changing in Canada, and consumers are paying more for insurance.

As always, the extent will vary, depending on the nature of the business, prior loss history, its risk profile and its strategy for risk management, but the story that emerges is clear: insurance underwriters here in Canada and around the world are demonstrating unprecedented discipline. That means higher premiums and more restricted coverage for all insurance consumers.

For years, during “soft” market conditions, we all recognized that the rate reductions couldn't last forever. It was just a matter of time until the losses exceeded the premiums, and the model needed to change. In 2018, the Canadian overall insurance market paid out $1.04 in costs and claims for every dollar it collected. After accounting for investment income, that led to an R.O.I. of roughly 1 percent, which is not a sustainable business model. Since the market did not fare much better in 2019, it is highly likely that rate increases and capacity constrictions will continue throughout 2020.

No class of construction is immune to the hardening market, but some are worse than others. Builders risk capacity has declined significantly, with Lloyd’s all but pulling out of the market entirely. In addition, liability coverage for certain contractors is particularly difficult, such as plumbers (because of water losses), industrial roofers (water and fire losses) and contractors with winter maintenance operations (because of a growing trend of costly slips and falls).

Insurers will continue to apply rate increases to their business, shed poor risks, and more diligently underwrite risks until they return to profitability. We expect that the action the insurers have made to date, and are making now, will improve their overall performance, and by the time 2021 comes around they’ll realize they’ve fixed the structural problems and be open for business once again.

In the short to medium terms however, insurers will look for any reason possible to shed poor accounts and increase pricing materially. Contractors should therefore continue to invest in risk-control measures—to avoid claims and their indirect effects.

The cheapest loss is the one avoided.

This article was written by Gregory Petrela, President of Petrela, Winter & Associates (PWA). PWA are bond and insurance brokers specializing exclusively in the construction industry. Greg can be reached at 416 488-2522 and gpetrela@petrela.com.