When Market Dominance Becomes a Double-Edged Sword: Lessons from NatCat Exposure
In the evolving climate crisis landscape, property and casualty (P&C) insurers are navigating increasingly turbulent waters. From the relentless wildfires of northern Manitoba to escalating heatwaves, insurers are on the front lines of climate-fueled natural catastrophes (NatCats). But as these extreme events mount, another crisis looms quietly in the background—insolvency risk driven by unchecked exposure to NatCat losses.
At Canadian Underwriter’s Economic Outlook 2025 webinar, industry leaders sounded the alarm: NatCat exposure is the predominant cause behind global insurer failures. Alister Campbell, President and CEO of the Property and Casualty Insurance Compensation Corporation (PACICC), underscored this troubling trend with stark numbers. Between 2000 and 2023, 568 insurers failed across 57 jurisdictions. That number has surged by nearly 35% in the brief time since PACICC’s last report. Today, over 900 insurers have succumbed to failure, with nearly one-third attributed to NatCat-related losses.
Why does this matter to Canadian insurers?
Because Canada isn’t immune. While the last domestic insurer insolvency occurred in 2003, the severity and frequency of natural disasters on Canadian soil are intensifying. 2024 is already pegged as one of the most challenging years for NatCat losses, placing tremendous pressure on insurers’ capital adequacy and underwriting practices.
Too Much Market Share, Too Little Diversification?
The very strength of an insurer—market share—can become its Achilles' heel. As Campbell cautioned, insurers must rethink the conventional pursuit of market dominance. Accumulating large books of business in high-risk regions without adequate diversification or reinsurance can amplify exposure exponentially. The risk isn’t just financial; it’s existential.
Forward-thinking insurers are now retooling their approach, leaning on proactive risk engineering and smarter underwriting.
From Reactive to Proactive: The Industry’s Strategic Shift
Denise Hall of Aon points out a noticeable shift among underwriters who are actively managing exposure concentrations. Whether through strategic underwriting restrictions in high-risk zones, applying sublimits, or reassessing deductibles, insurers are no longer content to merely react post-loss.
Simultaneously, catastrophe modeling is becoming more sophisticated—and more time-consuming. The intricate modeling processes now demand accuracy in real-time valuation and risk location data, making timely quote issuance more complex.
Yet, this challenge brings opportunity.
Colette Taylor of Sovereign Insurance highlights how insurers are investing in early warning tools, enabling brokers and clients to anticipate and mitigate exposure. Risk engineers are becoming crucial partners, helping clients uncover vulnerabilities they didn’t even know existed—like flood risks in areas historically untouched by such events.
Takeaways for Insurers and Risk Managers
Diversification is not optional: Concentrated NatCat risk, even if profitable short-term, is a path to financial fragility.
Proactive modeling and mitigation: Utilize risk engineering and updated catastrophe models to inform underwriting.
Client education is essential: Empower clients with knowledge and tools to prepare for events they may have never experienced but are now increasingly likely.
As insurers face mounting external pressure from the environment and evolving regulatory expectations, integrating strategic risk management into core operations is not just prudent—it is essential for survival.
At Why Worry Risk Management, we help organizations assess their exposure, build resilient portfolios, and embed sustainable risk strategies. Don’t wait for the next wildfire to assess your vulnerabilities. Let’s talk about building resilience—today.