Insurance brokers are warning that the imposition of tariffs and the resulting sudden escalation of insured values are putting some clients at risk of violating the co-insurance clauses in their policies. At the Insurance Brokers Association of B.C.’s AGM and Leaders’ Conference, brokers asked insurers to be ‘flexible’ when enforcing co-insurance terms. However, insurers, while acknowledging the unpredictable impact of tariffs on their business clients, expressed a preference for exploring alternative options rather than being flexible with co-insurance terms.
Darren Godfrey, senior vice president of Western Canada at Intact Insurance, noted that while insurers try to be as dynamic and flexible as possible, the terms and pricing conditions of a policy are set at the time of sale. “If we start to see more of that, and this is the first example I’ve heard myself, I think that’s something that we take back and we look at. What is our response?” Godfrey said during the Q&A portion of the Executive Insurer Panel discussion.
A co-insurance clause in business insurance is similar to a deductible in a personal home insurance policy, where the policyholder agrees to maintain a certain level of insurance coverage relative to the property’s value. Typically, this percentage is set at 80%, 90%, or 100% of the commercial property’s value. If the policyholder insures for less than this agreed-upon percentage, they may face a penalty, and their claim payout will be reduced accordingly.
One broker shared a personal experience where a client’s large piece of equipment was partially damaged, but due to tariffs, the cost to replace it had increased significantly, exceeding the insured amount. Although the insurer initially applied a substantial co-insurance penalty, negotiations resulted in a reasonable settlement for the client. The broker questioned whether insurers would become more flexible with co-insurance terms in similar situations arising from global trade wars.
Randy Dhillon, senior vice president and chief distribution and regional operations officer at Wawanesa, preferred revisiting policy fundamentals rather than being flexible on co-insurance terms. “I think we’d rather identify, adjust and stabilize [the product] than constantly be flexible. I think flexibility often gets you in trouble, and it has gotten us into trouble in certain parts of the country. It’s not a sustainable, long-term solution just to keep doing things the same way but be ‘flexible,'” Dhillon said.
Graham Doerr, vice president of Definity Financial Corp. and chief operating officer of Definity’s Family Insurance, agreed with Dhillon but was open to examining specific cases where co-insurance waiver might be applicable. “We actually were having a conversation internally about co-insurance waiver, and making sure that our underwriters understood where and when that can be used, and encouraging those conversations,” Doerr said. “There are mechanisms within the suite of products available among various insurers that can address some of it, maybe not all of it.”
Industry Response to Tariff Impact
The discussion highlighted the need for insurers and brokers to work together to address the challenges posed by tariffs on insured values and co-insurance clauses. While there is no one-size-fits-all solution, insurers are open to having conversations at the client level to identify potential solutions.
