In Canada’s complex economic landscape, commercial insurance plays a pivotal role by supporting the stability and expansion of businesses in numerous industries. Governments also play a key role, by enabling the market and ensuring a sustainable operating environment despite the complex challenges that may arise. A new report from Insurance Bureau of Canada (IBC) highlights areas in which governments can foster a robust, prosperous commercial insurance sector that is equipped to support businesses.
Insurance: The backbone of the economy
The commercial insurance sector is a crucial financial tool that ensures a business has the necessary safety nets to take risks, innovate, grow and meaningfully contribute to the economy. IBC’s Commercial Insurance in Canada: A Socio-Economic Analysis of a Vital Industry report notes that in 2022, the commercial insurance sector contributed nearly $15 billion to the GDP and provided about 115,000 full-time jobs.
Governments’ catalytic role
Governments hold the keys that unlock a more sustainable commercial insurance market. By implementing well-considered policies and reforms, governments can help alleviate pressures on the commercial insurance industry and foster a conducive environment for business prosperity.
Some of the strategic recommendations outlined in IBC’s new report, Fuelling business prosperity – government’s role in fostering a sustainable commercial insurance market, emphasize how government actions can catalyze positive changes. These recommendations include the following:
1. Reforming taxes. Insurance premium taxes and retail sales taxes significantly inflate the cost of insurance, deterring businesses from securing adequate coverage. The report advocates for eliminating or reducing these taxes. Such a move would lower insurance costs, thereby encouraging businesses to invest in comprehensive insurance and risk management plans to ensure their resilience against unforeseen events.
2. Mitigating climate risks. As climate-related risks intensify, the need for a proactive approach to increasing resilience is paramount. Governments can play a pivotal role by enhancing flood mitigation efforts, amending building codes and steering land-use planning to mitigate the impacts of severe weather. These actions would not only protect the physical assets of a business, they would safeguard the broader community, contributing to a more stable insurance market.
3. Reforming tort law. The current joint and several liability frameworks can place a disproportionate burden on certain defendants, which has negative effects on the commercial liability insurance market overall. By reforming these laws to distribute damages more equitably, governments can inject a greater degree of predictability and fairness into the market, which would benefit all stakeholders.
4. Stabilizing commercial trucking. The trucking industry, which is vital for the economy’s logistics, faces its own set of challenges, from high claims costs to driver turnover. Sensible policy interventions, such as enhancing driver training and combating fraud through a centralized database, can help stabilize this sector and would reflect positively on the broader commercial insurance market.
5. Managing cyber risk. In an era in which digital threats loom large, establishing a robust cyber-security framework is essential. Governments can lead by example by fostering cyber resilience through offering better certification programs and setting standards for cyber hygiene. This would not only protect businesses, it would create a more predictable landscape for cyber insurance providers.
6. Promoting risk management. Finally, encouraging businesses to regularly review and adopt comprehensive risk-management strategies can have a dual benefit. Such strategies reduce the likelihood of losses, and lead to lower insurance costs. Government incentives for businesses can be a game-changer.
The interplay between government actions and the commercial insurance market is one example of the way policy decisions ripple through the economy, affecting the stability and growth of businesses. The recommendations in the report give governments a road map for not only enhancing the sustainability of the commercial insurance market, but for bolstering the larger economy. The success of businesses is integral to Canada’s economic health. Through thoughtful, targeted policies, governments can lay the groundwork for a thriving, resilient commercial insurance eco-system.
