Heard about Lloyd’s? Here’s how it impacts your insurance

You may have heard your insurance broker talk about Lloyd’s of London and how they play a critical role in the Canadian property casualty insurance marketplace.

Although Lloyd’s obtains a license to operate as an insurance company in nations across the world, Lloyd’s is actually a market, not an insurance company, many companies use Lloyd’s to access or distribute insurance in countries where they don’t have a exceptionally huge presence or don’t have their own license. Lloyd’s license is used like a franchise and Lloyd’s will ensure the money is there to pay out insurance claim.

Why is the importance of Lloyd’s in Canada?

Lloyd’s has been supporting the Canadian industry for nearly 200 years, providing insurance and reinsurance for a variety of Canadian risks – in particular larger complex, hard-to-place risks and specialty insurance products. “The world – and Canada – relies upon Lloyd’s for its expert perspective.

As a market, Lloyd’s writes about £35 billion in premiums globally. In Canada, it writes about CA$4 billion in premiums – that is about a third of our complicated business, which is why they play such an significant role in Canada.

Over the past five years, Lloyd’s financial performance had taken a hit, which contributed to the hard market cycle the Canadian insurance industry currently finds itself in given its large underwriting business. If Lloyd’s is writing a third of our complex business and they are uncompetitive, that has a direct impact on our entire market.

In a hard market cycle, insurance companies implement increased underwriting scrutiny, apply new coverage limitations and higher deductibles to every policy renewal to stay profitable. You may have found it harder to renew your policy, even for best-in-class risks, or, depending on where your property is located or what industry your business is in, you might have found it difficult to get coverage at all.

The impact on your insurance?

However, things are evolving. Lloyd’s, and most insurance companies in Canada, reported very positive financial results last year. Things are already becoming more competitive, and relief is in sight for insurance customers.

There are some exceptions where the hard market will not mellow – this includes cyber insurance, management liability and few classes of business, like hospitality and long-term care which were seriously impacted by the pandemic. Other areas of concern is property insurance, which is impacted by severe weather conditions like floods, earthquakes and wildfires, which will continue to drive premiums up.

The good news: while capacity comes back into the marketplace, the limits that weren’t available will become available again and harder risks will become easier to write. While increasing premiums will be relative to inflation, more capacity in the marketplace means more competition – those companies who are trying to grow will create opportunities for more attractive packages for insurance customers and it will become simpler to get to get the coverage you really need.

Talk to our expert broker about your insurance needs today!.