Like the industries and businesses it serves, the business insurance market is diversified and specialized. Property and casualty insurers insure many of the risks faced by businesses so that they can operate and continue their activities with confidence.
In recent years, however, the market has seen a hardening of the underwriting criteria in some sectors of activity where there has been a significant increase in risk as well as in the number and cost of claims.
To deal with these challenges, risk management is a winning approach that any company, regardless of size, should consider.
Role of insurance
Business insurance plays a major role in protecting businesses and industries from potential risks that can disrupt their activities. It helps avoid or minimize significant financial stakes in the event of costly claims or lawsuits, for example.
It works on a simple but often misunderstood principle: the premiums received from all companies insured are used to pay the indemnities of those that suffer losses. If the losses increase, the premiums may be insufficient to cover their cost, leading to an adjustment and hardening of the insurance conditions.
Cost of insurance
In Québec and Canada, the cost of business insurance remained stable for nearly a decade, which benefited businesses. In recent years, the trend has reversed: claims costs have increased significantly, especially for liability (Directors & Officers, Errors & Omissions, etc.) insurance claims. The pandemic has not improved the situation and has exacerbated the difficulties already observed in some sectors.
In this context, an increase in premiums and adjustments in insurance conditions can be expected: the underwriting and pricing criteria are reviewed, and the premiums and deductibles adjusted accordingly.
Several factors can, to varying degrees, impact rates and access to certain coverage. They serve as indicators to assess the risks to which a company may be exposed.
In addition to the main factors, such as the property’s value, the type of activities and the company's claims history, here are others that influence the insurance offering:
- Condition of the buildings, equipment and inventories;
- Level of qualification and experience of the workforce;
- Prevention and safety measures in place;
- Technologies used (cost of equipment, specialized labour, etc.);
- Level of vulnerability to fraud, etc.
And even if it has insurance, every company should be well aware of its risks and manage them.
Given the important obligations they must meet, some companies are more exposed to, for example, legal proceedings, cyberattacks or health and safety issues.
Risk management is arguably the most appropriate management practice that any company should incorporate into its business conduct, especially during a hardening market. We see that one company’s difficulties are often experienced by its entire industry and that many losses could be avoided with this approach.
The company’s insurer or broker or a risk manager can help the company establish a plan adapted to its needs and activities.
With risk management, a clear, structured approach is used to assess and manage potential business risks and typically includes the following steps:
- Clearly determine what risks the business is exposed to;
- Measure all known risks and prioritize them;
- Develop appropriate preventive measures and remedies;
- Establish an action plan and continuously monitor it.
While it is impossible to eliminate all risks, undertaking such an approach demonstrates a company's commitment to loss reduction and prevention.
About Insurance Bureau of Canada in Québec
Insurance Bureau of Canada (IBC) is the national association representing property and casualty insurers in Canada. Accounting for 90% of the market for home, car and business insurance in Canada, IBC’s Québec regional office is the voice of P&C insurers and works with consumers, the media, interest groups and governments to inform and raise awareness on various topics and issues related to insurance.