In­sur­ers push com­pen­sa­tion cap

In­sur­ance bureau out­lines ben­e­fits of limit on mi­nor-in­jury claims, but there’s no guar­an­tee of lower in­sur­ance rates for driv­ers


It’s likely a hard sell to the driv­ing pub­lic in New­found­land and Labrador — a mi­nor­in­jury com­pen­sa­tion cap for auto in­sur­ance that will not any time soon drive down painfully high in­sur­ance pre­mi­ums.

Yet the In­sur­ance Bureau of Canada ( IBC) main­tains the im­po­si­tion of a $5,000 cap — plus other re­forms that will give ac­ci­dent vic­tims faster ac­cess to health care and thus a quicker re­cov­ery — is the best op­tion to sta­bi­lize in­sur­ance pre­mi­ums and one day, hope­fully, see a re­duc­tion in rates.

It has worked in other prov­inces such as Nova Sco­tia and New Brunswick, the IBC says.

Fol­low­ing pub­lic hear­ings at the Pub­lic Util­i­ties Board (PUB) dur­ing seven days over the past two weeks, the IBC held a news con­fer­ence Thursday to once again ex­plain why it sees a cap as the best op­tion to con­trol costs in the prov­ince’s in­sur- ance in­dus­try.

“What we de­fine as the prob­lem (in New­found­land and Labrador) is that there is no cap at this point,” said Amanda Dean, IBC’s vice-pres­i­dent At­lantic.

“So, cost con­trols are needed with claims, and claims drive pre­mi­ums, and that’s where we are hear­ing from the driv­ing pop­u­la­tion of this prov­ince that pre­mi­ums are too high.”

Dean said that be­cause in­sur­ance com­pa­nies in the prov­ince have lost money for a num­ber of years, it would take time af­ter a com­pen­sa­tion cap is im­ple­mented to make up the losses.

She noted that a re­port pre­pared for the PUB by con­sul­tant Oliver Wy­man stated that even though higher costs have led to higher pre­mi­ums in the prov­ince, in­sur­ance com­pa­nies still needed to charge an­other 17 per cent on top of 2017 pre­mi­ums just to be vi­able.

“A cap would hope­fully pro­duce a sta­ble in­sur­ance mar­ket, an en­vi­ron­ment, at this point in time,” she said. “Once claims lower, com­pa­nies can cer­tainly lower their pre­mi­ums, as well. But, again, there’s been years and years of losses, so our best hope is for a sus­tain­able prod­uct, some­thing that is sta­ble in terms of pric­ing be­cause the way things are at the mo­ment, in­sur­ers are in the po­si­tion where they would need to charge more — they don’t nec­es­sar­ily want to do that — so let’s try to fix the prob­lem, which is es­ca­lat­ing costs on the bod­ily in­jury side.”

The IBC made a pre­sen­ta­tion to the PUB dur­ing the hear­ings where lawyers rep­re­sent­ing var­i­ous groups chal­lenged its rec­om­men­da­tions and pro­jected out­comes if a com­pen­sa­tion cap was im­posed, and chal­lenged whether the in­sur­ance com­pa­nies were ac­tu­ally los­ing money.

Some pre­sen­ters at the hear- ings ques­tioned how the in­sur­ance com­pa­nies could re­main in busi­ness if suf­fer­ing suc­ces­sive yearly losses.

Dean said the num­bers show that in 2015, the prov­ince’s in­sur­ance in­dus­try’s re­turn on eq­uity (ROE) was neg­a­tive 28 per cent. In 2016, it did a lit­tle bet­ter at three per cent — that in­cludes in­come from both pre­mi­ums and in­vest­ment in­come. She said that af­ter pre­mi­ums are col­lected, claims costs have to be taken out, plus op­er­at­ing ex­penses, taxes and levies. Af­ter all the costs are taken out, she said, in­sur­ers have not seen any profit over the past num­ber of years.

“If in­sur­ers are los­ing money in a ju­ris­dic­tion — tak­ing in less than they are pay­ing out — they need to col­lect more money and that is putting pres­sure on the pocket books of the peo­ple of this prov­ince,” Dean said. “There’s two pieces — pre­mi­ums and in­vest­ment in­come.

“I took a look at the GISA (Gen­eral In­sur­ance Sta­tis­ti­cal Agency) re­port on prof­itabil­ity which was re­leased last Au­gust. I looked at what the un­der­writ­ing in­come was. The un­der­writ­ing in 2016 was neg­a­tive $3 mil­lion, so in­sur­ers paid out in claims $3 mil­lion more than what they took in in pre­mi­ums. Also in that GISA re­port is in­vest­ment in­come. So, the in­vest­ment in­come pro­por­tioned to New­found­land and Labrador that year was $13 mil­lion. So that helped pay some of that claims short­fall, but that money also had to go to­ward pay­ing taxes and op­er­at­ing costs, which in­cludes salaries of peo­ple within the in­dus­try. And that’s how there was a three per cent rate of re­turn for 2016 in New­found­land and Labrador.”

Dean also noted that in­sur­ance com­pa­nies — par­tic­u­larly the larger na­tional com­pa­nies — can bor­row from a prof­itable ju­ris­dic­tion to help cover the losses in New­found­land and Labrador. She said, how­ever, that can only go on for so long be­fore the rea­sons for the losses have to be ad­dressed.

Lawyers rep­re­sent­ing ac­ci­dent vic­tim groups at the hear­ing said ac­ci­dent vic­tims will lose their right to sue for fair com­pen­sa­tion should a com­pen­sa­tion cap be im­posed.

Con­sumer Ad­vo­cate Den­nis Browne sug­gested that if a com­pen­sa­tion cap is im­posed on mi­nor in­juries, maybe a cap should also be im­posed on the prof­its of the in­sur­ance com­pa­nies.

In any event, Browne said, in­sur­ance rates are con­tin­u­ing to in­crease for con­sumers in New­found­land and Labrador and change is greatly needed.


Amanda Dean, the In­sur­ance Bureau of Canada’s vice-pres­i­dent At­lantic, speaks to re­porters Thursday about why the IBC be­lieves a $5,000 com­pen­sa­tion cap on mi­nor in­juries is the best op­tion for the prov­ince’s in­sur­ance in­dus­try.

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