Ahead of the Curve

Under the new leadership of incoming president Mark Yakabuski, Insurance Bureau of Canada (IBC) expects to be ahead of the curve on hot-button issues such as private auto insurance reform and adapting to climate change.

Yakabuski, currently IBC vice president, federal affairs, Ontario, is no stranger to politics. After studying political science in France, Yakabuski joined the IBC in 1992 when his boss at the time, Paul Kovacs [now the executive director at the Institute for Catastrophic Loss Reduction (ICLR)], became IBC vice president. Kovacs joined to help IBC in the area of policy development and called on Yakabuski’s experience in the area. One year later, IBC’s president at the time, George Anderson, charged Yakabuski, originally from Barry’s Bay Ontario, with establishing an IBC office in the nation’s capital of Ottawa.

Yakabuski’s time in Ottawa establishing contacts gave him a real sense of the mercurial nature of public policy development. In the political realm, policies and contacts made today may be gone tomorrow, he notes. Therefore, rather than rely on keeping alive past relations with a small coterie of officials, good policy development means consulting as widely as possible with politicians of all stripes, both within government and the opposition.

And it means making sure the IBC is always thinking towards the future when it comes to developing public policy around issues of importance to the Canadian insurance industry and consumers, Yakabuski says.

“IBC needs to continue to be proactive and to get out in front of these trends,” he says in his downtown Toronto office. “That’s what our board wants. That’s what our members want. “

In particular, the IBC is looking to influence the evolution of Canada’s two largest private auto insurance markets, Ontario and Alberta. “The only way to do that is to make sure that you are well out in the field long before major problems arise,” says Yakabuski.

One looming issue is that claims costs are once again rising in both Ontario and Alberta. IBC statistics show auto claims costs in both Ontario and Alberta have trended upward, outpacing the inflation rates in both provinces. Claims costs in Ontario are up 2%, for example, whereas the CPI inflation index in the province stands at 1.6%. In Alberta, costs are up 9% while the inflation rate sits at 6.3%.

Yakabuski notes the rise in Ontario’s auto claims costs are in part because of the increasing costs of accident benefits; in turn, AB costs are based on inflationary pressures in health care. He calls for a long-term solution that will keep costs and rates down beyond the short term of 2007-08.

Here, Yakabuski speaks with the experience of someone who actively participated in the negotiations with Ontario that culminated with the auto insurance reforms contained in Bill 198. The reform saved the insurance industry and its policyholders almost Cdn$2 billion in claims costs, he estimates.

“I think our member companies want us to be solidly involved in working on a new reform package for the Ontario auto insurance market,” Yakabuski says of the new claims environment in 2007. “We already have in place a process here at IBC to arrive at a comprehensive, new reform package for auto insurance in Ontario by what I hope would be the end of this year or at the beginning of 2008.

“We will take that reform package on which we are currently very much hard at work, and we will use it in all of our discussions with the government of Ontario, with the government, with the opposition, with interested parties, to make sure that we’ve got a system that responds to the six-million-plus private vehicles we’re insuring in this province. Nobody can take for granted that just because we were able to achieve a number of important reforms [in Bill 198], we can rest on our laurels.”

Yakabuski says IBC also hopes to help Alberta safeguard competition and innovation in its auto insurance industry. In particular, he says the Alberta government is coming around to seeing the virtue of promoting more competition in an auto insurance sector that placed the province’s drivers on a new grid system for the purpose of pricing risks.

Each year, the AIRB reviews and adjusts premium levels for basic coverage under the grid program, and sets the allowable percentage change for individual insures’ rating programs.

Yakabuski notes the grid system annually applies the same rate formula to different companies with different distribution systems, different capital costs and different underwriting styles. One unintended result is that the same formula produces an uneven effect on insurers’ costs across the market, stifling competition. And when competition is limited, he notes, consumers suffer because they might not get an auto insurance rate reduction to which they might have been entitled had the market been more competitive.

” I would like them to make sure they keep that in mind in addressing the auto insurance system. One of the key challenges we have is to allow more competition into that market.

“What does that mean? We need to get more and more risks off the grid. The grid should only be there, frankly, as a public policy choice on the part of the Alberta government for a certain number of inexperienced drivers. The grid is not there to subsidize people who are genuinely bad drivers and who are costing everyone else money. I’d like to see more competition by reducing the number of vehicles on the grid.”

Another huge issue the IBC expects to address is adaptation to climate change. He notes that even if society succeeds as a whole in reducing its carbon dioxide and other greenhouse gas emissions, there are currently enough gases in the atmosphere to contribute to the warming of the planet for decades to come.

What does that mean for insurers and consumers? “We’re going to have more severe storms,” he says. “We’re going to have much greater water damage faced by all parts and regions of the country. We’re going to have a lot more drought and all of the attendant problems that come with that.”

IBC has a role to play in leading the discussion on climate change and its impact on the industry and consumers, Yakabuski says. In particular, the country’s property and casualty insurance industry needs to answer three questions:

* What must the P&C industry do to help manage the challenges of more severe weather and adapt to climate change?

* How can the P&C industry share its expertise to help governments manage the huge challenge of adapting to climate change?

* How can the P&C industry help the Canadian consumer adapt to climate change?

” I can tell you that we look forward over the next year to coming up with a very comprehensive plan that answers those three questions and that ensures that the IBC and the P&C insurance industry play a leading role in this country in the discussion around climate change,” he says.