The Insurance Bureau of Canada (IBC) is recommending governments address the tax burden applied to insurance sales, focus on enabling businesses in the face of climate change and reform tort laws to help stabilize commercial insurance premiums for businesses and reduce cost pressures within the commercial insurance market.
In addition, the new report from the IBC, entitled Fuelling business prosperity: Government’s role in fostering a sustainable commercial insurance market, also looks at commercial trucking, cyber risk and risk management.
“A thriving commercial insurance market is crucial for the economy,” they write. “Recent challenges in the commercial insurance landscape have led to difficult market conditions, but governments can play a role in enhancing the market.”
Taxes
The IBC states that taxes charged on top of commercial insurance policy premiums emerged as one of the top concerns for Canadian business organizations represented by the Canadian Federation of Independent Business (CFIB), one of the organizations the IBC sought input from.
“Depending on the province or territory, insurance premium taxes and retail sales taxes can be up to 20 per cent of the premium; this can result from an overlaying of taxes, otherwise known as ‘a tax on a tax.’ The significant cost of taxes may deter businesses from securing adequate coverage,” they state. “Provinces and territories should abolish specific taxes on insurance products, which increase the total cost of insurance and discourage adequate levels of insurance coverage.”
Climate
The report further recommends governments support flood mitigation and adaptation efforts, amend building codes and focus on land-use planning. The report points out that insured losses related to severe weather in Canada now routinely exceed $2-billion annually.
Tort law reform
Using an example where a landscaping business is pursued for the entire amount of damages awarded, despite being found only one per cent liable when a poorly constructed retaining wall collapses, the report calls for governments to introduce joint and several liability (JSL) frameworks that distribute damages based on full proportionate liability, balancing responsibilities among defendants.
“The existing JSL frameworks in many jurisdictions across Canada (namely in British Columbia, Alberta, Manitoba, Ontario and Nova Scotia) place an inequitable burden on certain defendants, such as liquor-serving hospitality establishments, even when found minimally liable,” they write. “The system introduces pricing uncertainty and ties up funds in case reserves for insurers. Costly litigation persists for insurers, even when policyholders are deemed not liable,” they add. “This situation creates uncertainty for businesses and insurers.” The report also recommends governments provide incentives to all businesses to develop and implement comprehensive risk-management strategies.
The IBC estimates that the commercial insurance industry in Canada overall contributes nearly $15-billion to the country’s gross domestic product (GDP), provides 115,000 jobs and generates $8-billion annually in labour income.