New Brunswick auto insurance brokers and consumers face a messy situation. Insurance companies have exited the province because of poor returns, and some that remain have put quotas on the number of new policies they will accept. Some brokers are now left with just the insurer-of-last-resort, the Facility Association – which just increased its rates by 42% – to provide coverage for their clients.
In addition, after protests from the industry that the Select Committee on Private Passenger Automobile Insurance’s proposal for regulatory changes was insufficient, the New Brunswick government promised before Christmas to exceed the recommendations. To what extent has not been clarified, nor has a time frame for these changes been established.
Proponents are hopeful that the new regulations will translate into better control of soft-tissue injury and legal costs, possibly as soon as March, and help draw back insurers to the province.
Gilles Carrier, President of the broker and agent organization Northwest Insurance Association (NIA), says that in some areas such as the northeast of the province, the only group accepting new risk is the Facility Association. Elsewhere the choice is only marginally better.
Mr. Carrier, also the owner of Edmundston-based Levesque Insurance Ltd., is down to just two companies, ING and Economical, compared to six in previous years. Economical explained its decision to set a quota on the amount of new business to Mr. Carrier by saying that every new dollar underwritten was costing the insurer $1.25.
Insurers are also limiting the number of new distribution agreements they will sign, says Mr. Carrier. “It is impossible, right now, to be appointed by a company.” That leaves brokers with still fewer options for their clients.
The Facility Association filed a request in September 2002 to raise its rates for private passenger insurance by 61.2% and for commercial vehicles by 17.6%. It was given permission for increases of 45.9% and 10% respectively.
The Public Utilities Board of New Brunswick, regulator for Facility Association rates, noted concerns that low risk drivers in areas left without insurance alternatives would face high-risk rates despite their preferred profiles.
Rates up? Down?
The auto insurance rate trend is just as confusing. Until recently, rates were just going up. But Mr. Carrier notes that Economical just cancelled its decision to increase its rates by 12%. That could be a sign the insurer sees the market turning.
Then again, Dominion of Canada applied for a 14% hike, and it is planning to go through with it.
Elsewhere, bargain basement pricing and perceived indiscriminate underwriting is making group and affinity market insurer The Personal a worry to brokers. That company may be selling far more than it should and for far less, claims Mr. Carrier, and fears it may eventually be forced to withdraw. If that happens, clients will be left with very few insurers to choose from, especially if quotas are full.
Jean-Francois Chalifoux, who is responsible for The Personal’s operations outside Quebec, says the company has no intention of withdrawing from the New Brunswick market. His company’s pricing is a function of the risks it is underwriting, he says. The Personal, a direct underwriter owned by Desjardins Group, identifies itself as the third largest group insurer in Canada.
Mr. Carrier says The Personal has been undercutting industry rates by up to 55%. He cites a comparison for a driver over age 26, six years without an accident, and not using the vehicle to go to work to show that Economical would charge $2,024, ING $1,819, and The Personal $891.
Mr. Chalifoux contends a comparison for a different profile could easily show a different picture, with the other insurers undercutting him instead.
Certainly the insurer’s rates are drawing attention. Michele Poitras, a spokesperson for the city of Edmunston, says the insurer never formally approached the municipality, but several employees made inquiries with the insurer for coverage. She was unable to confirm whether they were able to secure policies.
Employees from some companies did get coverage despite there being no agreement with their employer, affirms Mr. Chalifoux, but that practice has since been ceased by the insurer. Only group participants are now being accepted.
That means consumers face a market with one less provider.
Pressure for no-fault and harmonization
There is optimism that the government’s promise to surpass recommendations will result in a better market for brokers, insurers, and consumers alike. When and how that will happen is unknown, however.
Don Forgeron, the Insurance Bureau of Canada’s (IBC) Atlantic Vice-President, says “to some extent we are waiting for regulators to come back to us with whatever the next stage in the process is. In the meantime our focus is trying to fix the auto insurance system in all four Atlantic provinces, where we feel there are problems.”
Some files, such as the Atlantic province harmonization project, have been under consideration for a long time with no sign of movement. In the absence of any provincial decision, the IBC would like to just move ahead with market repairs.
“If the provinces all want to do that at the same time and come up with a solution, that is fine,” says Mr. Forgeron. “We are taking our message to those provinces that have shown a willingness to try to do something about it. At this point New Brunswick seems to be the most interested.”
Mr. Forgeron notes that even though accident rates have dropped the number of bodily injury claims have continued to rise. In his view regulations must be enacted to limit the extent of awards for soft-tissue awards, namely for pain and suffering. “That’s why we were disappointed with the Select Committee report because it did not identify that as being the significant problem.”
Mr. Forgeron says the government’s commitment to dealing with issues of availability and affordability of insurance is a step in the right direction.
The availability aspect will involve a change to the “climate so that more companies will come to more parts of the province,” he says. “You do that by fixing the product itself. We have always said that many of the symptoms are getting people’s attention these days but the ultimate answer is to fix the product itself.”
“We have identified what has caused rates to go up. It is soft tissue injuries, mainly pain and suffering awards, so fix that. You could do away with it altogether; you don’t have to just limit it. There are many ways that you could fix that. There are some provinces where there are no pain and suffering awards,” he concludes.