Newfoundland and Labrador tackles increasing auto claims costs

This week, the Board of Commissioners of Public Utilities (PUB) resumes hearings in St. John’s, Newfoundland and Labrador (NL), as requested by the NL government. The purpose of these hearings is to review and report on a number of issues regarding auto insurance, including the reasons behind increasing claims costs and options to reduce costs. 

“Newfoundlanders and Labradorians deserve affordable auto insurance,” says Amanda Dean, IBC’s vice-president, Atlantic. “With these hearings, IBC is pleased that the government has taken the time to understand the issues affecting the system that have been driving costs higher for NL drivers. The auto insurance system needs to focus on consumers. Auto insurance, especially when it comes to helping those with collisions and injuries, needs to make people well while also being affordable.”

Below is a letter that Dean sent to the Members of the House of Assembly (MHAs). In the letter, she outlines the issue of rising auto insurance costs that the drivers in the province face and presents IBC’s recommended steps toward a solution.  

Letter to MHAs

Drivers in Newfoundland and Labrador pay too much for auto insurance. We want to be a part of fixing that problem. 

Auto insurance claims are too high relative to the premiums that are taken in. Once insurers pay provincial and municipal taxes; broker fees or agent salaries; building costs; and other operational fees, auto insurance is a losing proposition. This was recently confirmed by Oliver Wyman, an actuarial firm hired by the government to research the industry’s profit and loss. The insurers who are left standing in the province are trying to hang on in order to serve their customers. To be honest, the industry fully recognizes that this fact means nothing to drivers – nor should it. However, the impact of that fact is felt by everyone who drives within the province. The good news is that there is a pressure release valve to this problem.

Government legislation & regulation

The insurance industry can only sell the auto insurance product that is regulated by the government. Then, it can only sell that product for the price that is regulated by the PUB. 

That is why IBC, on behalf of our members who are the insurers who write auto insurance policies in this province, continues to participate in the auto insurance reform process that is currently being carried out by the PUB. Drivers in this province need relief. Real change is needed in order to avoid increasing premiums. 

Recommendations 

Implement a minor injury damages cap: A cap amount of $5,000 with annual inflation adjustments, along with a definition of minor injury that reflects the prevailing medical literature. These are injuries that resolve within days, weeks, or months. Additionally, the amount of the cap is over and above lost wages and medical bills. Features of this recommendation have already been implemented elsewhere in Canada;

Enhance accident benefits: To bring NL in line with neighbouring provinces, we suggest making accident benefits mandatory, and increasing the benefit amounts to match the neighbouring Atlantic Provinces. We are also suggesting to establish pre-approved evidence-based treatment protocols for minor injuries which would see people begin treatment quickly;

Make it easier to repair and replace damaged vehicles: a direct compensation property damage (DCPD) model would mean that regardless of who is at fault, the customer’s insurer would repair their vehicle in a collision. However, for rating purposes, fault would still be assigned to the at-fault party; and

Change the rate regulation process so that it is quicker and less costly: This too will work toward making the product more affordable to offer for Newfoundland and Labrador drivers. In spite of the best efforts of those who regulate, the current system is incredibly costly. This translates into price shock for consumers and deters new entrants.

Solving this problem

The bottom line is that the challenges with the auto insurance system in Newfoundland and Labrador will not go away without serious change. 

The PUB of Newfoundland and Labrador has undertaken an incredibly extensive process aimed at receiving as much public feedback as is possible. When the PUB prepares its report, IBC and our member companies are hopeful that the government will make real change to the auto insurance system to benefit all Newfoundlanders and Labradorians who drive. 

As a member of the House of Assembly, your understanding of this issue is important. I urge you to reach out and have a conversation if you are confused about what you are hearing. Frankly, when I hear numbers about the insurance industry, from sources outside the industry, I am confused too. 

However, you have the opportunity to fight for pressure relief for your constituents, and the facts are readily available – let’s fix the auto insurance system and bring pocket book relief to the drivers in this province. 

Key facts

• NL has fewer insurers offering auto insurance than other provinces do, but that isn’t the main problem. 

• In NL, the top-four auto insurance groups that insure private passenger vehicles make up 85% of the market. In the maritimes, the top four make up 50%, and in the rest of Canada, 55%. This means that consumers in NL have fewer options if they want to shop around for the best product at the best price.

• Over the past five years, NL insurers of private passenger vehicles have had an average return-on-equity of –6.8%, the worst in Canada.

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This story was originally published by Canadian Insurance Top Broker.