Insurance companies are free to pick and choose the personal property and commercial property and liability markets that they wish to write. This selection process is referred to as underwriting. Insurers tend to select the areas that they wish to service or target, and develop an underwriting and rating expertise in those areas. However, in a hard market, insurers become more selective in terms of what risks they will insure and how much they will charge. As a result, both the non-profit and segments of small business sectors in Nova Scotia experienced significant difficulty in obtaining insurance at affordable prices during the recent hard market, and homeowners were required to upgrade their properties in order to obtain insurance. One presenter criticized this tendency of insurers to “cherry pick” who they insure and recommended legislation requiring companies operating in Nova Scotia to “take all comers,” similar to Ontario legislation in automobile insurance.
Homeowners Insurance
The hard market has also affected homeowners insurance. Rates have generally increased and underwriting has tightened. For example, most, but not all insurers have become reluctant to insure homes where the primary source of heat is coal. The concentration of this type of heating system in industrial Cape Breton causes an area specific problem of accessibility to insurance. So, industrial Cape Breton, where a number of homeowners were encouraged by Federal government subsidies to convert to coal heating systems approximately 25-30 years ago, some may be experiencing an availability problem.
Insurers have also become more selective on risks with underground oil tanks and generally with oil heated homes.
Industrial Cape Breton and other economically depressed areas suffe r from increasingly more stringent home maintenance requirements that are imposed by insurance companies. If oil tank, roof, heating, plumbing or electrical systems are not upgraded to meet insurance company standards, the homeowner is unable to obtain insurance.
Areas where flooding has been a problem have experienced difficulty in obtaining insurance. Truro and parts of Bedford, which have experienced flooding in recent years, are two examples.
Insurers have become more selective in insuring older homes where the market value of properties is often less than replacement value; where partial losses are very costly to repair; where roofs, electrical systems, foundation of homes have worn out or have not been upgraded; where aluminum wiring is a concern; and with cast iron pipes that may or may not, have rotted.
Insurers have become very selective for those risks that have had claims over the past three to five years.
For those individuals who are unable to obtain property insurance on their homes, the repercussions are extreme, as mortgagors will not lend money unless the property is insured. Individuals face the loss of their home, or are unable to sell their home.
Commercial Insurance
With respect to commercial insurance, of the reasons cited above for the recent hard market, the one most often heard by the Board, has been an increase in litigation, particularly having to do with liquor liability. The fear of an increase in the number of liquor liability claims and potentially very large claim awards, has caused companies to either severely restrict, and in several cases withdraw completely, from markets where there is a perceived significant liquor liability exposure. Bars and taverns, wet legions, and volunteer fire departments and other non-profit groups where fundraising activities often involve alcohol, have been affected. It is estimated that 80% of the Nova Scotia liquor liability policies are
written by specialty writers operating outside of the province. The major insurers are reluctant to write this exposure; they no longer have the “appetite” for this risk.
This fear is despite no statistical support, particularly as to Nova Scotia’s experience, and despite no significant change in the law with respect to liquor liability in the commercial sector, in recent years. Apparently, it is more the attitudinal change - the increased propensity to sue that is a concern to insurers.
The tendency of insurance companies to pay claims rather than incur the expense of fighting claims in court, may also be contributing to an increase in the number of nuisance claims.
Concerns over increased litigation, including sexual abuse, have caused insurers to withdraw from other markets as well. Some of the other markets that have been affected include festival and events, sports activities, particularly those involving water sports, trail associations, youth groups, playgrounds and other recreational areas, counseling services, child care services, snow removal, welding, and janitorial services.
Non-Profit Sector
Volunteer organizations are having difficulty attracting and maintaining volunteers because insurance costs have become the focus of their fundraising efforts. Some individuals refrain from volunteering due to fear of being sued.
Volunteer groups have limited budgets and the sudden and unpredictable insurance premium hikes of recent years cannot be absorbed. Organizations are closing and are cutting programs and services.
Volunteerism, in general, is being threatened, as people feel vulnerable without proper liability coverage. Many small community activities such as parades, fairs, and festivals are similarly affected; and fundraisers have become frustrated as they see all their efforts going towards insurance premiums.
Small Business
Similarly, small businesses have suffered. Since closing up is not often an alternative, some businesses are operating without insurance. Others are paying huge premiums for their insurance and some are indeed forced to close. The unavailability of affordable insurance limits the ability of businesses to obtain credit, which in turn hurts their ability to grow and expand.
Specialty Markets
The Board was advised by the insurers, IBC, and IBANS that insurance is generally available to the types of groups in Nova Scotia that are part of the focus of this study, and that it is provided by “specialty markets,” that is, general agents that specialize in markets that have difficulty in finding insurance. These general agents, who for the most part are based outside of Nova Scotia, work with brokers and insurers to develop programs to insure “hard to place” risks. But while insurance may be available, the general agents acknowledged that the premiums may be high, particularly for those groups or associations with few members, where minimum premiums ranging from $750 to $5,000 could be considered to be unaffordable. Those seeking insurance from the specialty markets appear to have difficulty accessing these markets – the process often taking months, and many consider the costs prohibitive. The public interprets this as a lack of availability.