By: Luke Jones, Published on November 29, 2017 04:01 PM, Last Update on November 29, 2017 01:02 PM
Natural disasters caused by climate change have increased in Canada over recent years. Heavy storms, hurricanes, fires, and earthquakes are expected to continue in frequency in coming decades and this could negatively impact the price of insurance products in Canada.
“Our concern is in the longer run, we’ll see increases in the price of reinsurance, which will increase the price of products in Canada,” said Neville Henderson, assistant superintendent of the insurance supervision sector of the Office of the Superintendent of Financial Institutions (OSFI). “As some of the risks rise, the reinsurers may decide to not cover it and the direct writers won’t be able to recover it, so we may see an increase in the expense [category].”
Henderson was speaking at the KPMG Annual Insurance Conference in Toronto and pointed out catastrophic risk as consistently increased in Canada over the last 10 years. With global warming worsening, it is predicted the number of events will continue to increase and their severity will also spike.
Insurance and financial companies are improving their modelling systems and Henderson expects providers to invest further in creating better models. “As we go along with these catastrophes, we expect companies to take their earnings and appropriate it into their models [and] change their calibration.”
OSFI is actively working with insurance providers to monitor and document the changes they have seen in catastrophic risk and is also aiding them in updating models and improving reinsurance paths.
“We noticed that a lot of companies really don’t understand the reinsurance coverage very well,” Henderson reported. “As a regulator, we don’t want to have any kind of imbalance or inequity in how we treat various marketers of those products. So, we need to correct some of that.”
The regulator is working on a reinsurance discussion paper, which has been in development for more than a year. OSFI says the paper will assess potential changes to the reinsurance market in Canada and how insurance companies can manage their reinsurance business.