Canadian Underwriter

Nova Scotia projects 17 per cent claims cost increase from tripling auto injury cap

January 31, 2011   by

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The Nova Scotia Utility and Review Board says the province’s decision to triple its minor auto injury cap from $2,500 to $7,500 will result in a 17 per cent increase in third party liability-bodily injury claims costs, and the industry-wide rates are adequate to absorb the costs.

The board held a hearing on the effects of the cap, the final submissions of which were heard on Oct. 28, 2010.

In its final decision following the hearing, the board’s actuary reported the increased claims cost would result in a $24 increase in required premium (the analysis presumed a return on equity of 12 per cent).

But since the average street premium (the premium charged to a policyholder) is about $800 – $106 higher than the estimated amount required to cover claims and generate a reasonable profit – the board concluded the $24 could be absorbed in the industry-wide rate without consumers being charged more premium.

The board’s numbers were in marked contrast to those submitted to the board by an actuary contracted by the Insurance Bureau of Canada. Ron Miller of Exactor Insurance Services estimated the impact of the province’s higher cap would increase claims costs in the third party-bodily injury area by 49.3 per cent.

Miller said the $70 increase in claims costs would require a premium increase of more like $100 than $24. The surplus in street premium would mean the full $100 would not need to be charged, Miller noted.

The board did note it was premature in 2010 to determine the effects of the cap reform on loss costs and loss trends. It therefore concluded it will “hold a formal paper hearing in the fall of 2012 to examine any impact of the minor injury reforms.”