Strong physical protection is no longer enough to make a commercial property a good risk, as even well-protected sites suffer major and total losses, according to Nicolas Basile (pictured), assistant vice-president, risk control at CNA Canada.
Insurers have traditionally judged a risk on its construction, the quality of the facility, its maintenance and safety programs and its protection systems, Basile told Insurance Business. Those fundamentals still matter, but the industry’s view is shifting.
“We’re entering a market where the definition of a good risk is evolving and is becoming more sophisticated,” said Basile.
A recent review of CNA’s claims showed that “even HPR (highly protected risk) have suffered major or total losses due to unforeseen events,” Basile shared. That puts the focus on whether a business can recover.
“If you were to lose an entire warehouse, how are you going to recover?”
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The answer often has little to do with how well a site is protected.
Basile noted that “a company can do exceptionally well on the facility side and be very vulnerable because they have single-source suppliers, or they have specialized equipment that has long lead replacement time.”
Dependence on critical technology with few alternatives adds to that vulnerability, he said. The shift toward resilience is happening across the board, though it varies with the size of the company.
Basile said he is watching claims severity most closely heading into 2027, with cost inflation, tariffs, longer lead times, and labour shortages all pushing it higher.
According to Basile, demand linked to artificial intelligence is already affecting some insureds. Equipment such as a transformer that once took about 24 months to replace can now take 36 to 48 months, which can significantly lengthen a shutdown for a business such as a power generation organization.
“We traditionally spend a lot of time asking how bad an event could be,” Basile said.
In his view, the more important questions now are how quickly an exposure develops, how far it spreads across the organization, and whether management already has the procedures in place to respond.
“How quickly can they react?” Basile said.
That applies to any event, he stressed, not just natural catastrophes. He pointed to the recent cyberattack on supermarket refrigeration systems in France, which began as a cyber incident but ended in millions of dollars of spoiled goods.
Basile sees no sign that market conditions will change in the near term, though he leaves forecasts “to underwriters and brokers.”
What concerns him are the decisions insureds could make while conditions favour buyers. When insurance becomes easier to buy, companies can be tempted to simply accept their risks because they know they are covered.
An insurance policy works like a parachute, he illustrated, but that doesn’t remove the need to avoid a loss in the first place.
“If you can avoid a loss or you can put all the measures in place to put you in a better position, you should do it,” Basile urged.
Strong risk management organizations use the flexibility of a soft market to reallocate capital and fund projects that improve their controls and address vulnerabilities, including CNA’s risk control recommendations, which can sometimes require significant capital investment, he said.
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“As a risk manager, let’s say my premium is going down 15%. Maybe I’m going to take advantage of that on my balance sheet, but maybe I can allocate a portion of that 15% saving to some investment that I know, in the long term, it’s going to help me be better positioned,” Basile explained.
Companies that take shortcuts on the back of a good renewal will be in a weaker position when the market hardens and premiums rise, he said. The ones that benefit most over time will be those playing the long game.
Basile noted that technology, data and AI tools are already helping CNA have faster, more in-depth conversations with insureds about their risks.
Insurers have never had so much data, analytics and connected systems at their disposal, Basile said, and the task for 2027 is to use them “to be able to identify the vulnerabilities early and react quickly to those vulnerabilities.”
The biggest danger he sees for next year is natural catastrophe losses on the property side.
“If we’re looking at 2026 so far, natural catastrophe trends are below long-term loss averages worldwide, whereas Canada has been hit by several severe weather events testing aging municipal infrastructure. Climate and weather-event risks remain high. On the liability side, tort inflation remains a big concern for US-exposed organizations.” Basile said.
