Specialty insurance players face an uphill battle in the times ahead, with macroeconomic uncertainty and market conditions converging to squeeze margins. That’s the view of Cameron Copeland (pictured), president and CEO of SPG Canada, who warned that the combination of weak GDP growth and a soft insurance market is creating a challenging environment for MGAs and carriers alike.
“Everybody is dealing with understanding the economy and how to forecast forward, and there's a very high degree of uncertainty, because there are so many factors at play,” Copeland told Insurance Business.
He pointed to Canada’s sluggish economy as a key concern. “We have low GDP growth and we are very much at risk of falling into a recession,” he said. “At the same time, we have a soft insurance market that's driving a vicious cycle as players chase growth from a shrinking pie.”
Copeland said he does not want to predict the depth or duration of the downturn, given the many unknowns, but he stressed that companies need to prepare for leaner conditions. “I think that we have to prepare for thinner margins and a tougher sales environment, and I don't see it turning around until underwriting losses … refocus carrier priorities,” he said.
The pressure, he explained, comes from insurers pursuing growth despite a flat economy. “The majority of insurance companies have made a lot of money over the last few years, so now they're chasing growth, and they're willing to sacrifice some of their margin for growth, because the overall economy is flat to shrinking and what they want has to be taken from someone else,” he said.
That drive for expansion, combined with aggressive pricing, is eroding the market.
Copeland added that the cycle is unlikely to correct itself until underwriting results force carriers to change course. “Until they start losing money, they're not going to change that growth behavior,” he said. “So when we see industry losses, then we will see a stabilization of the aggressive pricing, new capacity deployment, and competitive activity.”
Looking ahead, Copeland pointed to Canada’s trade relationship with the United States as the single most important variable shaping the specialty market over the next year.
“I think the US trade relationship is the most important factor, because not only does it drive our economic output, but it drives consumer and business confidence,” he said.
At present, uncertainty around that relationship is weighing heavily on Canadian businesses. “Right now, because of the uncertainties, there's very low confidence, so businesses are pulling back. They're not making new investments, and that is affecting the insurance industry,” Copeland said.
He argued that a clearer economic outlook is needed before companies regain the willingness to spend and expand.
“Until there's more confidence, and there will only be confidence when the economic picture is more certain and there's less variables and less risk, then I think that that's what's going to drive the investment cycle, which ultimately drives whether our economy is growing or shrinking,” he said.
Beyond economic and trade pressures, Copeland said the specialty insurance industry is also navigating shifts in the labour market. While much has been said about shortages, he suggested the picture is more complex.
“I think there is a labour market challenge, driven by an aging demographic and competition for knowledge workers, but then we have new technologies on the horizon, like AI, that we haven't really seen the impact of and how they will support the labor force,” he said.
Rather than a simple shortage, Copeland described it as a period of transition. “I just think that the whole labor market is evolving,” he said. For companies, success in this environment will depend on how attractive they are as employers.
“If you're an employer of choice in your industry, no matter what industry that is, you will still accrue the people that … want to work in that industry. And I think that's where we've been fortunate enough to be,” he said.
