Canadian Underwriter

Auto Outlook: Dodging Bullets

May 1, 2004   by Rowan Saunders

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There is clearly great misunderstanding in the general public with regards to insurance overall, but specifically auto insurance. A recent furniture store advertisement depicting a couple gleefully defrauding an insurance company illustrates the opinion floating among some consumers. There is an anti-insurance industry sentiment right now, and it is not likely to dissipate any time soon.

Much of the blame of the public’s perception can be put onto insurers – we have done a poor job explaining the reasons behind rising auto premiums. It is clearly more complex an issue than the standard 9/11 “excuse” and the “higher health costs” explanations that have been provided to the public would depict.


However, insurance is not too complex an issue to teach consumers. The public is much smarter than they are given credit for, and if the information is presented clearly and accurately, they would be willing to learn. That is our first challenge. The second obstacle is the fact that auto insurance has a fluctuating profitability record.

As a general insurer operating in Canada, Royal & SunAlliance is committed across the country. However, in order for Royal to continue doing so, there must be an acceptable profit made. Insurers cannot reasonably be expected to offer auto insurance coverage at a loss.

And, with auto insurance being the largest single class of property and casualty coverage in Canada, the health of auto business is therefore critical to the overall health of the insurance industry. In this respect, Royal strongly supports legislation allowing insurers to reduce premiums as long as such legislation is appropriately balanced with reforms that equally address the spiraling cost of settling auto claims.

Claims are the real issue. Claims costs have been continually rising for many years, and now need to be immediately addressed. In Ontario alone last year, auto insurers paid out $1.17 in claims for every premium dollar collected. Over the last three years, Ontario’s auto insurers posted net income losses totaling $1.7 billion. And, the average claim cost per vehicle has risen from $680 in 1998 to $930 in 2002 (source: 2002 AIX Industry Loss Cost, Insurance Bureau of Canada).


As the federal and provincial governments have moved to restrict healthcare spending, even while more treatment options have become available, a significantly greater share of a more costly system is being transferred to insurers. Litigation, particularly the erosion of thresholds and the introduction of new heads of damage, are also contributing to the higher claims.

The argument for, or against, government-run auto programs has been portrayed by the media and many special interest groups as an argument about the price of insurance, but that oversimplifies the issue. Everyone would prefer cheaper insurance, but the real questions are:

How much do consumers want government involved? Continuing a degree of regulatory rates is definitely in the public interest, but should insurers not be allowed more of a say in how benefits are decided?

How do we ensure that we offer consumers the lowest premiums for the best coverage with the best service?

Auto insurance is an election issue because consumers are concerned about it. And they should be. We need to produce an industry roadmap to restore credibility. Five critical components of this plan must be:

Engage our stakeholders directly – do not let our silence define us;

Educate the consumer;

Ensure products live up to consumer expectations;

Energize our brokers and employees as ambassadors of the industry, and

Elevate corporate social responsibility to restore industry reputation.

The challenge is to ensure consumers are making educated and informed choices, and not “knee-jerk” reactive decisions swayed by media reports that do not fill in the full picture. It is our responsibility as insurers to prove to the public that they are better off with a competitive industry.


It is the uncertainty of the future causing insurers to be cautious. As companies, we take on the risk of thousands of individuals because the laws of large numbers have proven that we can predict and price for those risks. However, we can only play when the game is fair.

My perspective looking ahead is that the government(s) will need to create further cost savings for insurers through reductions in healthcare costs, reform of the tort system, and measures to eliminate insurance fraud. Through increased communication and negotiation, results will be achieved.

We have made excellent progress in meeting with various governments and they have listened to us. Auto insurance is not yet a lost cause in Canada, but requires more consumer education and better cooperation between government and insurers. Auto insurance rates need to go down, not up. The question of how we get there is vital to the health of the insurance industry in Canada.