Canada’s soft commercial insurance market is likely to give way to selective firming this year and a broader rate correction by 2027 as loss ratios continue to rise, according to HSB Canada vice president of strategy and product innovation, Lasith Lansakara (pictured centre).
Speaking at an Insurance Bureau of Canada event, Lansakara said current pricing does not fully reflect the impact of cost inflation, longer business interruption timelines, higher liability costs and growing cyber aggregation risk.
He pointed to a basic contradiction in current conditions.
“Costs are going up, yet there’s that price decline that we are seeing across the board,” he said.
Industry data presented by MSA Research alongside his remarks showed relatively flat or negative premium growth in key commercial lines over the last two years, even as exposure measures continue to rise. For commercial liability, premium growth that had been running ahead of income-based nominal GDP since 2021 has now fallen below it, slipping into negative territory while the exposure proxy remains positive. Commercial property shows a similar pattern when premiums are compared with non-residential construction investment.
In other words, exposure is still growing, but premium growth has dropped away.
At the same time, management service ratios are moving higher across major commercial lines. Lansakara said claims costs are being pushed up on several fronts.
On the property side, he highlighted both higher input costs and longer repair and replacement times. Construction cost indices and industrial materials price indices are running above headline inflation, and labour shortages are contributing to higher wage costs. That is raising the base cost of many claims.
In addition, supply chain and manufacturing delays are extending the time required to bring equipment back online. As an example, Lansakara pointed to aviation and said a turbine replacement that previously might have taken about 30 days is now closer to 45 days to two months.
“What that does is it drives up your business interruption costs and it further complicates that replace–repair equation that our claims colleagues deal with on an ongoing basis,” he said.
Casualty lines are also under pressure. Lansakara noted that liability costs have been rising sharply, supported by a significant increase in the scale and frequency of class action activity in Canada. Directors’ and officers’ liability and other casualty covers are feeling that impact in their loss experience.
Cyber risk adds another layer. Lansakara described cyber incidents linked to geopolitical tensions, including an attack by Iran-based actors on a US medical manufacturer that forced shutdowns not only in the United States, but also in Canada and Ireland. Such incidents demonstrate how quickly a single event can trigger losses across multiple geographies and operations, with direct implications for business interruptions and specialty lines.
“You’re seeing a cascading impact because of a conflict that’s happening halfway across the globe,” he said. “That’s also having a significant impact on business interruption.”
Despite this combination of higher claim costs, longer durations and more complex events, Lansakara said competitive dynamics and capital flows are still holding rates down.
“There has been a surplus of capital in the market,” he said. “There’s been a lot of alternative capital coming into the market… so there’s a lot of capital coming into the market that’s still keeping the rates and prices somewhat flat and stable.”
He pointed to the growth of insurance-linked securities, catastrophe bonds and sidecars as important contributors. In cyber alone, he said, roughly $1 billion of insurance-linked securities capital is now deployed. Alternative capital has also grown from a small fraction of global reinsurance capacity to a meaningful share over the past two decades.
These structures were originally designed for relatively uncorrelated natural catastrophe risks. Applying them to highly correlated exposures such as cyber and other specialty lines increases aggregation risk. Lansakara said that risk is not always being fully recognised or priced in by all alternative capital providers.
He described this as a clear disconnect between technical results and market pricing. More conservative carriers are already trying to reflect rising costs in their underwriting; others are still focused on winning business on price in a “buyer’s market” environment.
Lansakara said that disconnect will narrow as the impact of higher costs and longer business interruption timelines works through into reported results and reinsurance negotiations.
Asked how macroeconomic developments and ongoing uncertainty would affect the currently softening commercial market, he said he expects loss ratios to continue to trend higher in the near term.
“I would expect so through the rest of 2026,” he said. “I would expect to see those NISR numbers continuing to creep up as we see cost inflation, as we see business interruption timelines going up.”
He also expects reinsurers to begin responding at upcoming renewals.
“I don’t expect by July renewals to have some of the reinsurance start pricing that in,” he said, indicating that selective line-by-line tightening is likely to emerge as reinsurers adjust.
That firming will not be uniform. Lansakara said he anticipates selective hardening in stressed segments first, including aviation and certain marine and specialty lines where loss histories have been volatile and pricing has varied widely. Over time, he expects broader market conditions to follow as more of the additional cost burden remains on insurers’ own balance sheets rather than being transferred into alternative structures.
Looking ahead, he was clear that the current phase of soft commercial pricing is unlikely to persist if current loss trends continue.
“I do expect we’ll see the market turn around,” he said. “I’d expect a broad-based correction in 2027 with selective hardening through 2026.”
