Ottawa, March 6, 2017—Slower consumer spending on big-ticket insurable items, as well as an aging population, will weigh on the outlook for Canadian insurance firms, according to The Conference Board of Canada’s first outlook for the insurance industry.
“Canadian insurance providers are facing a number of headwinds,” said Michael Burt, Director, Industrial Trends, The Conference Board of Canada. “Discretionary spending on items that require insurance, such as recreational vehicles and vacation properties, is expected to slow amid rising household debt, and weak employment and wage increases. In addition, Canadian life insurance companies face challenges associated with an aging population, including an increase in death benefit claims and shrinking premium collections.”
Overall, Canada’s insurance industry is forecast to grow by an average of 1.3 per cent annually through 2021.
- Growth in Canada’s insurance industry will be limited by weaker consumer spending and an aging population.
- The Alberta wildfires resulted in a spike in property and casualty insurance claims and led to two consecutive quarters of losses for the industry.
- Pre-tax profits are expected to return to more normal levels this year, rising to $14.5 billion.
The Fort McMurray wildfires led to claims reaching a historic high of more than $14 billion in the second quarter of 2016, a 27 per cent increase from the same period in 2015. This resulted in two consecutive quarterly losses for the industry in 2016. Once the claims from the Fort McMurray fires are settled, pre-tax profits are expected to recover to more traditional levels of $14.5 billion this year. Low interest rates will, however, continue to limit the return on investment for insurers, resulting in margins hovering just under 10 per cent after the recovery.
The insurance industry is also going through significant transformations due to new technological tools. The emergence of big data and improved software are allowing for better risk assessment and pricing models. In addition, tasks such as claims processing are being automated and simple risks are now being calculated automatically reducing the demand for live agents and allowing firms to reduce labour costs. As a result, employment gains in the industry will be limited. However, technological change is also increasing competition by opening the door for more insurtech start-ups. This should keep price growth below inflation and limit industry profitability.
The Canadian Industrial Outlook: Canada’s Insurance Industry will be published two times per year and is available from the Conference Board’s e-Library.