Loss trends and emerging risks: Property/Liability

As part of a year-end Q&A series, Sovereign’s Ray Larkey, Senior Underwriting Specialist, Property & Casualty, shares his thoughts on some of the popular property and liability loss trends from 2021, and what to watch out for in 2022. 

What are the loss trends/key exposures you saw in the past year? 
As many of us have experienced personally with spending more money for groceries and gas, there is an increased inflation trend that we haven’t seen in many years. This higher inflation trend to insurance claim costs is an increased exposure for both property and liability lines of business. With the effect of increased rebuilding costs as a result of inflation, along with the market pressure of supply shortages, we can expect the average value of a claim to continue to increase. In some cases, the problem is exacerbated as long backlogs in building supplies results in a longer downtime for clients and longer business interruption periods. A key exposure for underwriters is this increased inflation effect on claims within a book of business and the challenge to adequately price the business in a changing economic market.

See: Cost of Construction Materials: Is your building adequately insured?

What are some of the emerging risks to keep an eye out for next year? 
As all Canadians saw in British Columbia in the fall of 2021 with flooding along with the wildfires in the summer, the effect of weather is increasingly on everyone’s mind and continues to emerge as an insurance risk. With more extremes in heat temperatures and rainfalls, we are seeing unprecedented weather and real change in weather patterns. Given the increased severe storms, the old weather patterns would seem to no longer apply, making it more difficult to predict/model future catastrophic events and costs. It will be interesting to see how the industry responds to this emerging risk and reconsiders past weather assumptions such as historical flood 50- to 100-year event designations.

See: Top 3 climate change risks your business should prepare for

How can organizations mitigate these risks? 
Organizations need to review and understand what their current insurance policy covers and also what’s available in the insurance market with respect to catastrophic perils including wildfires, floods and water damage. With the increased potential of larger losses and total losses, businesses also need to reevaluate their property policy limits and ensure limits are updated to reflect current replacement costs. In addition, they need to consider ‘what if’ large loss scenarios and the resulting potential effects of long downtimes both from an insurance and business perspective, through an increased attention to catastrophic event planning.