New Brunswick Insurance Board to release auto premium guidance with increased minor injury cap

As the New Brunswick Insurance Board winds up a hearing on a new cap on minor injuries that took effect July 1, the Insurance Bureau of Canada is encouraging the board to let carriers base their private passenger vehicle rate change applications on their own loss experiences.

NBIB this week held a generic hearing, which wrapped up Thursday. It held that hearing in order to consider the impact on auto insurance loss costs to an increase — from $2,500 to $7,500 — to the cap on non-pecuniary awards for auto claimants with minor personal injuries.

“Following this process, the board intends to publish industry-wide conversion factors to act as guidance for companies as they file their first rate application in the new regulatory environment,” said Amanda Dean, IBC’s vice president for the Atlantic region. “That makes sense, because it’s difficult to predict the future and the cost impacts of the reforms will have clearly different effects over time on different companies.”

In New Brunswick, insurance carriers must file proposed rates with NBIB by Sept.15 every year. But this year, NBIB allowed carriers to file a “simplified filing” last month, because the minor injury cap tripled in July but the hearing was not scheduled until this week. So NBIB is letting carriers file amended proposed private passenger vehicle rates Dec. 2.

NBIB said last June it would expect carriers to “incorporate the findings” of the October hearing into their December rate applications.

“The decision is currently being written and will be released as soon as possible,” wrote Kevin Duff, executive director and secretary to the board, in an e-mail Thursday to Canadian Underwriter. “No fixed date to release the decision has been set but, having set the December 2 deadline, the Board is working to provide guidance quickly.”

Dean said in an interview that IBC hopes the board will let carriers use their own loss experience to guide their rate applications in the future.

“After that initial guidance, we encourage the board to return companies bringing forward their own rate applications based on individual cost experiences following that initial guidance,” she said. “Every company has different experiences, especially in a new regulatory environments.”

In its submission to the NBIB generic hearing, IBC noted that the $7,500 cap on minor injuries will be increased at the rate of inflation starting in 2015. The cap will apply to “contusions, lacerations, sprains, strains and whip-lash associated disorders that do not result in a serious impairment or permanent serious disfigurement,” IBC noted.

In its submission, IBC used a report it commissioned to Barb Addie of Toronto-based Addie Insurance Services Inc. Addie’s actuarial report, which included eight major caveats, predicted conversion factors, for different categories of auto claims, to take into account the new cap, for the policy year starting July 1, 2013. The highest conversion factor, of 1.331, was for both third-party liability-bodily injury and for uninsured motorist.

“Following a major reform, holding a generic hearing to examine the cost impact helps guide insurance companies through the rate approval process,” IBC wrote in its submission, adding that among the 63 carriers, “there is considerable variation in underwriting results.”

A separate report, prepared by Oliver Wyman Ltd. for the New Brunswick government, estimated that the increase to $7,500 on the minor injury cap “will increase the bodily coverage average cost per claim by approximately 30%, and the Accident Benefits-medical/rehabilitation average cost per claim by 25%.”

Oliver Wyman also estimated the “required average premiums would increase by $40” based on the new cap. That calculation was based on a target after-tax return on equity of 12%. Oliver Wyman’s report also included numerous caveats.

Dean noted that between 2003 and April of 2013, the average auto premium in the province dropped 40%, from $1,260 to $755.

“If consumer would like to explore other options, based on price, product, … there are certainly a lot of options out there,” she said of New Brunswick’s auto insurance environment. “In a province where there’s healthy competition, rates have declined since the reforms were put into place in 2003,” when the previous cap of $2,500 on minor injury claims was implemented.