December, 2008
Insurance in Uncertain Times
The ongoing turmoil in the financial world is causing concern among insurance consumers.
Insurance companies are not immune to changes in economic conditions. As major investors, they have seen the value of their investment portfolio drop significantly in recent times. It is also important to note that insurance is a cyclical business. In the last few years we have experienced a soft market which is normally caused by a glut of capital in the marketplace. The majority of the companies are all chasing the same premium dollar, and prices have been decreasing in many business classes because of this.
This has now resulted in financial performance on their core business of insurance to deteriorate. We anticipate that the drop in their investment portfolio will cause the cycle to change. This change is referred to as a “hard†market.
A hard market results when insurers limit new business writings and increase premiums as a result of insurance losses suffered, or investment income lost. This will result in higher prices, and more restrictive terms for many classes of business. We anticipate this hard market will start to surface in the early part of 2009.
So how will this impact the insurance consumer? More importantly, how does Macdonald Chisholm Trask (MCT), as your broker, react to this situation on your behalf?
There has been much media attention paid to the bailouts of a number of high profile corporations. A few world class insurance companies have been on that list. In Canada we have the benefit of careful monitoring by a federal regulator. This provides a significant safeguard for Canadian consumers. In addition MCT monitors, on an ongoing basis, the financial strength of all of the insurers that we represent. The Canadian insurance industry is financially strong and we do not anticipate any need for concern. (See A.M. Best Rating)
However, we have seen a number of foreign companies enter into the marketplace over the last few years. They are not subject to the same government regulation. We have chosen not to work with these insurers because of this and we caution anyone that may be.
As your broker, the most important part of our role is to provide you with the appropriate protection for your assets and valuables. In doing so, we need to be confident in the insurer we entrust your business with and that they are financially capable of meeting their obligations when called upon, especially in the event of a claim.
Another part of our role is to place your insurance with companies that we feel will behave consistently in both soft and hard markets. In soft markets, it is very common to see insurers try to write certain classes of business which fall outside their normal guidelines, only to exit that class when the market starts to harden. As a consumer, you may see lower pricing in the soft cycle but be challenged to find coverage when the market turns. As your broker, we try to monitor such behavior and advise you accordingly to ensure coverage on a consistent basis. In other words, we try to prevent and eliminate these surprises. We are confident that our broad range of insurance companies enables us to find the best fit for your business; competitive terms combined with reliability. Our size and reputation also provides us with negotiating strength to obtain the best terms available in the market for you.
Your business is extremely important to us and very much appreciated. Should you have any questions or concerns about your current coverage, your insurer, or any other insurance issue, please do not hesitate to contact me directly or any of our team to discuss further.
We are here for you.
Mike Brien - President & CEO
(902) 832-9340
mike.brien@mcti.ca
