How has the pandemic impacted Commercial Insurance?

Changing appetite

The COVID-19 crisis has disrupted countless aspects of the Canadian economy and in turn the insurance industry, affecting insurers, intermediaries, and clients alike. Commercial clients across the country have encountered unprecedented obstacles, driving them to reconfigure operations and alter cost structure. For commercial insurers, these changing business landscapes signify a shift in customer preferences and an appetite for products that protect against current and developing risks. It is vital for insurers to foster new solutions that echo consumers’ priorities and assist them in attaining financial security.

Carrier response

In order to reflect a changing risk environment, insurers have begun adapting their underwriting strategy through various approaches including decreased capacity in certain lines, strengthened terms and conditions and augmented premiums. Insurers must consider the varying liability the pandemic imposes on their clients when making these changes. While COVID-19 has certainly affected the economy on a global scale, it has been felt disproportionately by certain industries, with a significant negative impact hitting aviation, shipping and marine, commercial real estate, and hospitality. Consequently, these clients present greater financial challenges for insurers as their risk profiles change, and business closures reduce premium capacities. Although some changes may be provisional for the duration of the pandemic, it is possible they will be considered in renewal negotiations and result in differing coverages long term.

The effect on claims

The perils imposed by the pandemic have led to an influx of claims, requiring insurers to evaluate coverage obligation under novel circumstances. Commercial insurance has seen a significant rise in claims concerning professional liability (D&O, employment practices, etc.), workers’ compensation, and other liability related insurance products.

Business Interruption (BI) coverage has become a particularly noteworthy matter of concern in the claims department, signifying the importance of policy wordings and proving causation. BI coverage is typically only activated if the loss of income is due to physical damage to the assets. During the pandemic, the definition of “physical damage” has demonstrated an ambiguity in relation to the losses experienced from lockdowns or contamination. Carriers are facing an ongoing battle in determining whether coverage is applicable under COVID-19 conditions given the specific language of each policy.

Moving forward

Overall, insurers are evolving the way they manage their operations with strategies that will most likely withstand the pandemic. Many insurance companies have taken on a remote working approach, with the digitization of the workforce becoming increasingly efficient. During these unprecedented times, it is imperative for insurance companies to be adaptable, preserve liquidity, and deliver customer-centric products modified to fit the developing needs and budgets of the client.