Commercial insurance represents a vital sector for the Canadian economy, according to a recent analysis published by the Insurance Bureau of Canada (IBC). The industry contributes $8.5 billion to the country's gross domestic product (GDP), including $4.7 billion in employment income paid to approximately 56,000 people.
The report, titled Commercial insurance in Canada: a socio-economic analysis of a vital industry, aims to demonstrate that transferring risks to insurers allows businesses to avoid the risk of closure due to a loss.
This buffering role played by commercial insurance is even more crucial in the context of 2023. Canadians are feeling the impacts of inflation, economic slowdown, and rising living costs.
Nationwide, using a multiplier of $0.75 for every dollar spent by the industry, the economic contribution of commercial insurance to the GDP is estimated at $14.8 billion, with approximately $8.2 billion in employment income. Concerning employment, there is a multiplier of 105 indirect and induced jobs created for every 100 direct jobs, so the sector represents around 115,000 jobs.
Nearly half of this contribution to GDP and employment income benefits Ontario (see chart below). Quebec comes in second for the economic impact associated with commercial insurance.
The entire property and casualty insurance industry represents approximately 297,000 jobs in the country, including direct jobs, full-time and part-time, as well as self-employed workers. This estimate is based on Statistics Canada figures, as specified by the IBC.
End of the hard market?
The most recent indicators show that the hardening period in commercial insurance, which has been ongoing since 2018, may soon come to an end. Inflationary pressure on premiums is decreasing both in Canada and worldwide, according to the report's authors.
However, as challenges persist for some segments of commercial insurance, it becomes more challenging to predict when underwriting conditions will become more lenient. Several macroeconomic factors remain uncertain, including elevated inflation, rising interest rates, increasing reinsurance costs and persistent supply chain delays, as noted by the IBC in its analysis.
Even though stakeholders in some of the most affected sectors of the hard market report improved accessibility and affordability of insurance, frictions persist for other segments. Among the challenges mentioned in the report are the impact of climate change affecting the entire real estate market, including commercial buildings.
The lack of profitability in insurance activities related to trucking and cybersecurity is also discussed. In both cases, claims costs still exceed premium income.
The IBC's analysis lists the intangible benefits associated with commercial insurance. Insurance helps limit financial losses. Insurers act as the first financial responders when a major and unlikely loss occurs, facilitating recovery and economic re-start.
Insurers also play an important role in the financial markets ecosystem. They generally hold a diversified portfolio of long-term stable investments, such as corporate and government bonds. This contributes to the overall fiscal and socio-economic health of the country.
Insurance also contributes to international trade. “For example, cargo insurance allows businesses to import goods from overseas, bolstering supply of goods in Canada,” says IBC.
Insurers also contribute to the innovation ecosystem. Managing the financial risk associated with the pre-commercialization process would be extremely difficult without the various guarantees associated with liability insurance.
When companies insure their assets, it facilitates their access to securing a business loan. This, in turn, facilitates the production, distribution, and use of goods or services produced by the company.
Insurance can help companies save money in the long term. By actively managing its risks, a business is less likely to experience significant and frequent claims on its policy, reducing its overall costs.
In conclusion, the IBC states that modern economic activity would not be possible without insurance, especially the guarantees that protect businesses.