Almost three decades ago, I started my insurance career as a junior auto adjuster for a large personal auto insurer. From my very first day on the job, I was taught that our policyholders were members of the company, and although they had the option of buying insurance elsewhere, chose to be insured with us. Long before the phrase "membership has its rewards" was used to promote a credit company, this insurance company exemplified this motto.
Today, this no longer holds true for most of the insurance industry. Adjusters are now told that it is the shareholder who is important. No matter what profit level an insurer posts one year, it is the shareholder's expectation that must be met or exceeded the following year. For the insurer this can mean: increase premiums, reduce expenses, or achieve a higher return on investments. Unfortunately, the easiest option is to increase premiums.
There is however a problem with this approach. The number of claims has decreased over the years. Insurance companies now suggest that while there are fewer claims, they are more severe. Yet the numbers don't lie. While at one time auto insurers spent about 80 cents or more from every dollar collected on claim, this number is now below 60 cents. While the insurance industry predicts that this can change at any time, it is difficult to fathom why, when loss experience is better than it has ever been, insurance companies increased premium. Yet, even before the loss experience actually becomes worse, they are already warning drivers that their insurance costs will go up yet again.
This is why when the insurance industry states that competition and choice are best for consumers, these same consumers should decide if they agree. What about affordability, availability, value for money spent, ease of purchase, and basic overall protection for the greatest number of drivers. Are these not equally important?
Although not advocating public insurance, I cannot discount the benefits as easily as such organizations as the Insurance Bureau of Canada or the Fraser Institute. The best auto insurance product for consumers would actually include the best of both systems, private and public.
Consider some of the following truths about public auto insurance which are on the positive side.
- Sufficient premiums are collected to meet the requirements of policyholders and not shareholders.
- Insurance and vehicle registration are tied together. The benefit of a monopoly is that it can create a single system that identifies who has or has not purchased insurance. The private insurers have talked about such a system but have yet to implement one.
- There is a further benefit from this approach. Apparently as many as 25% of drivers in Ontario have no auto insurance, some because they can't afford the cost. With government-run insurance it is far easier to identify an uninsured vehicle than to seek out uninsured drivers. Consequently, there are fewer uninsured vehicles in those provinces that have government-run insurance systems.
- A driver who has an at-fault accident can choose to repay a claim paid by the insurer. If they do so, the accident is expunged from their record, as if it never happened. This is not available from private insurers.
Finally, in government-run auto insurance provinces, drivers only have to buy their minimum limits from the public entity; for anything above this amount, drivers are free to purchase from private insurers. For example in B.C., private insurers actively compete with the Insurance Corporation of British Columbia at the secondary level. Sometimes they win, other times they lose. Surely this can be considered a form of competition and choice?
Next week: What is Good Claim's Service?
Susan Saksida, CIP is an Insurance Consultant. Questions or comments can be emailed to insurance compliancematters@rogers.com
Feeds