Decoding Skyrocketing Insurance Premiums: A Deep Dive into the Canadian P&C Market

The landscape of real estate and property ownership in Canada has been significantly reshaped by a factor often overlooked until it hits home: insurance premiums. Whether you’re a seasoned Realtor guiding clients through transactions, a diligent property owner managing investments, or simply a homeowner navigating personal finances, the relentless ascent of insurance costs has become an undeniable and often frustrating reality. This pervasive issue affects everyone, directly or indirectly, raising critical questions about fairness, transparency, and market practices within the Canadian insurance sector.

The Unwelcome Surge in Property Insurance Costs

My own recent experience serves as a stark illustration of this industry-wide trend. In early March, I was confronted with a staggering 30 percent increase in the insurance premium for my small multi-residential rental property. While I had heard numerous anecdotes from fellow residential landlords expressing their dismay over what felt like arbitrary and massive premium hikes, the actual impact on my own finances was still profoundly unsettling. The initial shock quickly gave way to a deep sense of frustration and indignation.

My Unexpected Premium Shock: A Landlord’s Frustration

This property, I believed, represented an ideal client for any insurer. It boasted a well-established track record of meticulous management and responsible operation. Even during the unprecedented challenges posed by the COVID-19 pandemic, which many forecasters predicted would lead to widespread financial instability, my property remained resilient. There were no non-payments of rent, no evictions, and crucially, no claims or losses whatsoever over the past five years. Furthermore, the property benefits from electric heating, eliminating the risks associated with gas perils, and is considerably newer than many comparable properties in Oshawa. All units were consistently fully occupied, and there was no student occupancy, which often carries a higher risk profile. From every objective standpoint, this property appeared to be an extremely low-risk asset for any insurance provider, making the premium hike even more perplexing.

The Elusive Search for Fair Quotes

Naturally, my immediate reaction was to seek comparative quotes, hoping to find a more reasonable rate that reflected my property’s low-risk status. However, the responses I received were anything but reassuring. The alternative quotes ranged from approximately $250 above my current inflated premium to an astonishing near-double of the amount. This experience mirrored a frustrating ordeal I had faced in June 2020 when attempting to secure property insurance for my Seniors Affordable Housing pilot project. At that time, the most competitive quote I could find was literally double the existing premium, with several other quotes reaching triple the amount. This consistent pattern of excessively high alternative quotes strongly suggested a deeper systemic issue rather than isolated pricing discrepancies.

Unpacking the Insurer’s Justification: A Closer Look

When I pressed my insurance agent for an explanation, her reply was telling: “Our apartment rates took a hit and it is affecting all of our business, but good business should be rewarded and I will try my best to get you the best rate.” Her eventual “counteroffer” was to double my deductible, raising it from $5,000 to $10,000 – the amount I would be personally responsible for in the event of a claim. This substantial increase in my personal risk only yielded a paltry savings of $139.32 on a renewal fee of $3,548.80. In essence, the agent’s explanation implicitly conveyed a disheartening message: that responsible, claim-free operators like myself, who consistently pay significant premiums, are effectively subsidizing the costs incurred by less fortunate or poorly managed properties, and potentially even absorbing losses from fraudulent claims. This collective burden-sharing mechanism, while ostensibly part of the insurance model, felt disproportionately punitive given my property’s impeccable record and low-risk profile. It left me wondering if individual diligence was truly being rewarded.

Beyond the Broker’s Narrative: Investigating Industry Profitability

The agent’s explanation, though likely a regurgitation of corporate talking points, felt more akin to a work of fiction than a transparent account of market realities. This sentiment was fueled by my conscious decision a decade ago to invest in residential rental properties, an asset class I firmly believe to be among the most stable and recession-resistant in real estate. The fundamental human need for shelter ensures consistent demand, a stark contrast to commercial properties, whose viability was severely tested by the “work from home” phenomenon during COVID-19. Driven by a desire for objective truth, I embarked on an extensive research journey, spending countless hours fruitlessly searching online for summary information on the actual profitability of Canadian insurance companies. My efforts to dissect individual insurance company annual reports also proved largely unilluminating, often mired in complex financial jargon that obscured the true picture.

Startling Figures: What MSA Research Revealed

My breakthrough came when I stumbled upon MSA Research, a reputable Canadian insurance industry research firm. MSA Research publishes an invaluable annual report detailing the performance of every property and casualty (P&C) insurance company in Canada. Their Q4 2020 report was particularly insightful, identifying 183 distinct insurance companies operating within the Canadian market. It’s important to note that many of these companies are subsidiaries of larger conglomerates. For instance, while Intact operates under its own brand, it also owns significant entities such as Belair, Novex, Guarantee, Jevco, Trafalgar, and Nordic. Similar large groups include Desjardins, RSA, Northbridge, Economical, CAA, and The Cooperators, indicating a significant consolidation of power and market share within the industry.

I meticulously parsed MSA’s comprehensive report into a spreadsheet, eager to corroborate or challenge my agent’s claims of industry-wide hardship. The findings were quite revealing. My agent’s insurance company, far from struggling, reported a combined net income (profit) of $362 million. Even its poorest-performing subsidiary still generated a robust $10 million in net income. While the report did indicate that 32 out of the 183 companies registered a negative net income, this still left a staggering 151 companies—representing a formidable 82 percent of the entire industry—operating at a profit. The smallest profit recorded among these profitable entities was an impressive $51 million, while the largest soared to approximately $606 million. These figures painted a picture of an industry that, contrary to popular perception and broker narratives, was largely thriving and generating substantial returns.

The Dual Engines of Insurance Profit: Premiums and Investments

Insurance companies primarily generate revenue through two powerful mechanisms: the premiums they collect from policyholders, a process known as underwriting, and the strategic reinvestment of these substantial funds. Unlike most other business models, however, the insurance sector possesses a unique advantage. Should their investment portfolios falter or their underwriting performance decline, these companies often have the prerogative to simply adjust their premium rates upwards, effectively passing any losses directly onto their customers in the form of higher policy costs. This mechanism creates a remarkably resilient and often self-correcting business model, insulating insurers from the full brunt of market volatility that other industries must contend with. This ability to continuously replenish their coffers through premium adjustments is a cornerstone of their financial stability and growth.

Lessons from the Oracle: Warren Buffett’s Insurance Empire

It comes as no surprise, then, why legendary investor Warren Buffett, often hailed as the “Sage of Omaha” and one of the world’s wealthiest individuals, has consistently invested so heavily in the insurance sector. His strategic acquisitions, such as GEICO, and the establishment of his own formidable insurance firm, Berkshire Hathaway Reinsurance Group (BHRG), underscore the inherent profitability and stability of this industry. A report dated November 5, 2020, on Statistia.com, highlighted BHRG’s dominance, identifying it as the most profitable property and casualty (stock) insurance company worldwide in 2019, with revenues an astounding USD $254.62 billion. To put this into perspective, BHRG’s revenue alone was 3.5 times greater than the entire Canadian P&C industry combined, illustrating the immense scale and financial power concentrated within the global insurance landscape, and the strategic value Buffett sees in this sector.

The Buffet Strategy: Underwriting, Investment, and Reinvestment

Buffett’s enduring success in the insurance domain can be distilled into three fundamental strategic pillars. Firstly, premiums paid to BHRG’s insurance companies are not merely held as static reserves; they remain on hand or are shrewdly invested as the company’s astute managers deem fit, providing a vast pool of “float” capital that can be deployed for investment. Secondly, BHRG meticulously invests this capital in companies with a proven, long-standing history of consistently paying dividends, ensuring a steady stream of passive income that further bolsters its financial strength. Finally, and crucially, Buffett himself adheres to a strict policy of reinvesting these dividends back into the company, rather than distributing them to investors, thereby compounding returns and fueling continuous growth. This virtuous cycle allows BHRG to generate substantial returns not just from underwriting but also from its highly diversified and carefully managed investment portfolio, creating a self-sustaining financial powerhouse.

The Pandemic Paradox: Canadian Insurers Thrive Amidst Crisis

Further insights from Joel Baker, CEO of MSA Research, as reported by Canadian Underwriter magazine’s coverage of MSA Research’s Q4-2020 Outlook Report, paint an even clearer picture of the Canadian P&C industry’s robust health. “Canada’s P&C insurance industry survived the pandemic year of 2020 in good financial health… The Canadian P&C industry emerged from 2020, an extraordinary year in all respects, with strong results and strengthened balance sheets,” Baker stated. His observations indicate that, “generally speaking all boats were lifted,” defying initial predictions of pandemic-induced economic distress for the sector and suggesting a period of unexpected resilience and growth.

Strong Balance Sheets and Soaring Profits in 2020

The industry’s financial performance was truly remarkable. The return on equity (ROE) for the P&C sector in 2020 soared to an impressive 11.03 percent, representing a significant jump from the 7.1 percent ROE recorded in 2019. Even more striking was the industry’s net income, which experienced a colossal growth of 54.73 percent in just one year, expanding from approximately $3.9 billion in 2019 to a staggering $6 billion in 2020. These figures unequivocally demonstrate that the Canadian insurance industry, far from being crippled by the pandemic, experienced a period of unprecedented financial growth and stability, reinforcing the notion that it’s a highly profitable sector.

Declining Claims, Rising Revenue: A Favorable Landscape

On the claims side, the industry’s net loss ratio—a key indicator of profitability—dropped by a notable 2.42 percentage points over the previous year, falling from 66.57 percent in 2019 to 64.15 percent in 2020. This reduction in the loss ratio suggests that insurers were paying out proportionally less in claims relative to the premiums they collected. While Baker acknowledged that the claims experience in 2020 was not uniform across all carriers, the overall trend was highly favorable. Personal and multi-line carriers, for example, performed exceptionally well. Despite offsetting lower auto losses with COVID relief in the form of premium rebates, they still managed to absorb significant “Cats” (catastrophe events), further solidifying their strong financial position. Commercial insurers and reinsurers also exhibited powerful top-line growth of 18 percent in 2020, “outrunning the bear” of claims inflation due to firming rates, even with claims increasing by over 17 percent in that segment. My comprehensive research unequivocally indicates that the Canadian insurance industry, and a substantial 82 percent of its member companies, were not adversely affected by the COVID-19 pandemic. On the contrary, the data strongly suggests a period of significant prosperity, making the dramatic premium hikes even more puzzling.

The Elephant in the Room: Profiteering or Market Dynamics?

Given the overwhelming evidence of robust profitability, strengthened balance sheets, and declining loss ratios within the Canadian P&C insurance industry, a critical question emerges: Why are consumers and property owners experiencing such dramatic and sustained increases in their insurance premiums? Is it possible that there exists an unwritten, perhaps unspoken, understanding among insurers to quote extraordinarily high premiums on their competitors’ business? This practice could serve a dual purpose: discouraging customers from switching providers and, by comparison, making their own exorbitant renewal premiums appear “reasonable” or even attractive. The fact that only one out of approximately 20 attempts to secure competitive quotes came anywhere near my existing supplier’s renewal premium lends considerable credence to this unsettling hypothesis, suggesting a potential lack of genuine competition in the market.

A Call for Scrutiny: Canada’s Competition Bureau Must Act

Every English dictionary offers a clear term for such practices when they exploit market conditions or times of crisis for excessive gain: “profiteering.” Preventing this kind of unconscionable behavior is precisely the raison d’être of Canada’s Competition Bureau. If there was ever a compelling case for the Competition Bureau to launch a thorough investigation into an alleged cabal of company executives—potentially operating under loosely communicated “verbal understandings”—who are profiting universally and unreasonably from the misfortunes of consumers and commercial businesses, especially during a global crisis like a worldwide pandemic, it is undeniably the Canadian insurance companies. The current market dynamics, characterized by steep premium hikes despite robust industry health, demand immediate and rigorous scrutiny to ensure fair competition and consumer protection, safeguarding the interests of all Canadians.

Empowering Consumers with Knowledge

Understanding the financial health of your insurance provider is a crucial step towards informed decision-making. To examine your own insurance company’s financial performance and challenge any supposed “loss” claims, you can access the comprehensive MSA Research Report directly:

Access the MSA Research Report here: MSA Research Report Q4 2020 (PDF)