Insurers report growing profits as Canadian premiums soar

Desjardins recorded surplus earnings before member dividends of $918 million, up $365 million from the second quarter of 2023, due to fewer claims and higher insurance revenue.

London-based Aviva also reported strong results in the first half of the year, with global operating profit up 14 per cent and Canada general insurance premiums up 10 per cent.

“Sales are up. Operating profit is up. The dividend is up. Our plan to deliver more for customers and shareholders is working really well,” Amanda Blanc, CEO of Aviva, said in a statement on Wednesday. 

Since 2020, the homeowners’ insurance consumer price index has outpaced most other components of inflation, according to a Statistics Canada study, with premiums now costing, on average, $1,913 in Ontario and $2,423 in Alberta per year. 

In recent years, profitability has been a top concern for insurers as climate change-related catastrophes became more frequent and costly to repair. Faced by greater underwriting losses, many decided to boost premiums, shrink their coverage or even cease operations in high-risk areas.

From 1983 to 2008, insurers spent on average $400 million yearly on catastrophic claims, according to Statistics Canada. In 2023 alone, the cost of insured damage for severe weather events reached more than $3.1 billion, according to the Insurance Bureau of Canada. Both 2022 and 2023 were record years for payouts, ranking in the historical top 10, according to the bureau. 

Now, certain damage protections are being offered “à la carte,” with policyholders paying significantly more for additional endorsements, said Erik Knutsen, a professor of insurance law at Queen’s University. 

This shift in the business model raises the question of who should be shouldering most of the ballooning costs of climate change. 

“If (insurers are) earning their income because they shaved coverage here and there or priced people out of that coverage market … Then there is something to be concerned about,” said Knutsen. “Because that’s taking advantage of the very losses that people are actually experiencing and buying insurance for.” 

Intact’s $758-million in profits, realized in the quarter ending in June, marked its second most profitable quarter ever.

In a call with analysts in late July, management attributed part of that success to rising personal auto and property premiums, which grew by 11 per cent and nine per cent, respectively, driven by both rate increases and customer growth. 

Insurers are generally well-diversified to cope with different types of risks. Part of their current success comes from investment management divisions that have performed well due to high interest rates and momentum in the stock market, said Victor Adesanya, vice-president of global insurance ratings at Morningstar DBRS. 

“They are managing the risk very, very well,” he said. “Unfortunately, the rates are going up.” 

The industry maintains that profitability challenges remain. 

“Catastrophic weather is increasing in Canada, and insurers must price for that risk,” said Brett Weltman, spokesperson at the bureau. 

“It’s critical that the industry be able to achieve a modest profit to ensure the continued flow of capital necessary to protect Canadians from increasing risks.” 

Insurers’ rosy performance also doesn’t capture losses from the recent Jasper wildfire and the Toronto flooding in July, which are expected to dent third-quarter results.

In its analyst call, Intact highlighted that both personal property and auto premium growth could reach double digits next year, driven by past catastrophe losses and inflation pressures. 

At some point, Adesanya expects premiums to hit a ceiling because of the affordability issue. 

The federal government’s National Flood Insurance Program is also poised to relieve some of the pressure on 1.5 million Canadians living in high-risk areas by subsidizing premiums. In its 2023 budget, the government committed funding of $31.7 million over three years to Public Safety Canada and the Canada Mortgage and Housing Corporation to work with the Department of Finance to set up the program. 

“If taxpayers are going to shoulder the burden for the insurance industry,” said University of Waterloo flood disaster expert Jason Thistlethwaite, “I want to get a good deal that includes increased investment in risk reduction, banning development in high-risk areas, and innovation that leads to cheap and abundant insurance.”