Buying auto insurance is different than let's say, a discretionary purchase of a cell phone or cable television. There are few industries with the luxury of having a captive market of customers who are legally required to have the basic product, but who frequently purchase the additional available options as well. While policyholders acknowledge that the insurance industry must make a reasonable profit, they are concerned about the price they pay.
The Insurance Bureau of Canada (IBC) states that a competitive auto insurance industry provides the best products and services for consumers. While they admit that government-run auto insurance schemes charge lower premiums, they suggest that this is because their policies provide inferior coverage. What then is a reasonable level of profit for the superior product provided by private insurers?
Another consideration is how premium dollars are allocated. Simply, government-run insurance corporations have to collect enough to meet the present and future financial demands of their policyholders and their own operational costs. Private insurers have to meet these same demands, but in addition they have to meet shareholder expectations. It can be difficult to manage the interests of both fairly.
The following are summaries of some articles that have appeared in various insurance publications. In a manner of speaking, these stories say quite a lot about private insurer's objectives for the future. This raises the question: Should drivers be preparing for the worst?
New Brunswick:
New Brunswick's newly elected Liberal government is giving insurance companies until December 3rd to negotiate lower auto rates. Despite reforms agreed to by the previous conservative government, such as introducing a $2,500 cap on soft tissue injuries, New Brunswick drivers continue to pay the highest premiums in Atlantic Canada. The Insurance Bureau of Canada is confident that they will be able to stave off a threat of public auto insurance in New Brunswick.
Ontario:
Recently, an Ontario broker proposed that a base rate be created for auto premium that would regulate prices and reduce premium fluctuation cycles. The Insurance Bureau of Canada responded that such an idea is simply unacceptable, as it is essentially a form of public auto insurance being delivered by private insurers . It is their position that the insurance industry is already doing its part for consumers.
An associate professor at Wilfred Laurier concurred with this view. She believes that the problem isn't necessarily insurance costs, but policy provisions. At this time, insurers have a pretty good idea that prices are going to increase within the next year. They know when things are getting bad or going from a soft market to a hard market, but they don't know how to let consumers know that this will happen.
Alberta:
Alberta's Consumer Representative for auto insurance states that insurer ROE (return on investment) at 20.2 percent in 2005 and 18.6 percent in the first six months of 2006, is simply unacceptable. She discounted insurer threats that they may be forced to leave the province if shareholder demands for higher returns aren't met. She noted that ROE from 1975 to 2004, ranged from 8.3 percent to 11.2 percent and insurers still remained in business.
One insurer claimed that the industry faces risks similar to those in the oil exploration business and should be rewarded accordingly. Some companies suggested that ROE up to 18 percent, while others felt that this should be whatever the market can bear.
On a happier note:
Manitoba:
Manitoba Public Insurance proposed a 2.6 percent premium reduction for auto policies renewing in 2006/2007. In addition, all drivers who purchased auto insurance in 2005/2006 will be receiving a 10 percent rebate.
Saskatchewan:
Saskatchewan Government Insurance (SGI) has not raised auto insurance rates since 2000. Drivers received an 8 percent rebate in 2005.
Next Week: A sample of what your premium dollars buy across Canada.
Susan Saksida, CIP is an Insurance Consultant. Questions or comments can be emailed to insurance compliancematters@rogers.com
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