In what has been a very challenging year for the Canadian insurance industry, RSA Canada has managed to keep its head above water. The Canadian unit of the London-headquartered group recently reported making a profit of approximately $148.3 million in 2018 and achieving an annual combined ratio of 97.6% – both difficult feats amid the challenges Canadian insurers face around adverse weather and auto costs.
“Against such a challenging back drop, we’re very pleased with our 2018 results,” commented Martin Thompson (pictured), president and CEO of RSA Canada. “It’s good to keep the business growing, and we managed to drive a lot of that growth through the achievement of rate, which is going to be a continued focus for the business moving forward.
“On the financial side, our top line was good. We made some good progress on expenses, which we believe is very important in the mature business industry we’re competing in. We also proved that our business has some resilience around it to absorb adverse weather costs and still produce a sub-100% combined ratio – that was very pleasing.”
RSA Insurance Group as a whole reported a higher net attributable profit last year – around $570.5 million, up from 2017’s $470.8 million. However, the group saw its underwriting profits drop to $437.5 million, down from $689.4 million in 2017, prompting Group CEO Stephen Hester to describe 2018 as “a disappointing year.”
Hester blamed the decline in underwriting profits on “higher weather costs and a range of loss challenges” in RSA’s commercial lines businesses, particularly through its London Market business. He added: “In personal lines, the primary challenge was weather volatility which is hard to specifically manage. Canada was our worst affected territory. Auto lines claims inflation also remains a market challenge. Extensive rate increases are going through in affected portfolios, together with selected broker cancellation where rate alone is unlikely to have the required result.”
The challenging commercial auto market is a consistent narrative for Canadian insurers. Thompson explained that when you have inflation like Canada is seeing in the auto claims space, the response primarily becomes a pricing and rating issue. However, RSA Canada is making a concerted effort to improve its claims handling process to make it more efficient for customers, as well as improving and expediting its processes around total losses and vehicle repairs in order to drive down costs.
When it comes to something as uncontrollable as the weather, RSA Canada is focused on “becoming smarter in risk selection and pricing,” said Thompson. The firm is hoping to achieve that by advancing its sophistication in mapping and other risk-related technologies. RSA Canada has also purchased new a reinsurance coverage for 2019, which Thompson hopes will “dampen the impact of weather volatility” on its books.
RSA Group boss Hester said that in portfolios where rate improvements alone cannot achieve the desired effect, the insurer has carried out some select broker cancellations. A small number of broker cancellations have been undertaken in Canada, but Thompson was keen to stress this is not a routine practice.
“To set the context, we’re in a very constrained pricing environment, particularly in auto, where regulatory systems are not allowing us to price for the levels of claims inflation that we’re seeing. In an unusual situation like that, we have to pull whatever levers we can to help manage our loss ratio and ultimately protect our customers. We have to make sure we have a strong, financially-sound business, and we can only do that by having good loss ratios,” he told Insurance Business.
“Against that background, we’ve reviewed and cancelled a small number of brokers who have been long-term underperformers. Before doing that, we always ask ourselves whether we can improve that performance. If we cannot, then we might take the decision to part with that broker as a distributor. It has been a small number of brokers that have been impacted and we’ve done that after a very considered approach. It’s part of our reaction to the volatile market and our effort to pull the levers that are sensible to help us manage our overall financial performance.”
Despite making the difficult decision to part with a few brokers, RSA Canada continues to invest heavily in the broker channel, which Thompson sees as “a key distribution channel” moving forward. In 2018, RSA Canada launched Claims Point, a tool that enables brokers and insureds to lodge claims online instead of having to contact RSA directly. The firm also launched RSA Pro, a tool built in partnership with brokers, to streamline online quotes and binds with access to competitive and discounted pricing for SME clients.
“One of our priorities for 2019 is to continue building our offering to brokers and customers,” Thompson added. “We realize that in an evolving landscape, our ability to do a great job for brokers and help them deliver for their customers is really key. We want to scale out Claims Point, expand RSA Pro, and bring some additional tools to our brokers to help them do business with us.”