Canadian Underwriter
Feature

Potential For Millions In Unfunded Liability


November 30, 2008   by


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Alberta’s auto insurance industry is accumulating an estimated $400 million per year in unfunded liability as a result of a provincial court decision late last year that struck down the province’s $4,000 cap on minor injury claims.

Barbara Sulzenko-Laurie, vice president of policy, Insurance Bureau of Canada (IBC), made the observation in remarks made at IBC’s eighth annual regulatory affairs symposium. “If the [current] appeal [of the Alberta Court of Queen’s Bench decision] is ultimately lost, say at the Supreme Court of Canada in 2009, the industry could potentially have hundreds of millions of dollars in unfunded liability, with no way of recovering these losses,” she said.

Sulzenko-Laurie was challenging a decision earlier this year by the Alberta Automobile Insurance Rate Board (AIRB) to raise the province’s auto insurance rates this year by only 10 per cent — half of what AIRB’s own auditors suggested, and significantly below the 37 per cent increase recommended by the IBC.

The decision to go with 10 per cent, AIRB chair Alfred Savage told the symposium in a panel discussion, was based on whether the current appeal of the earlier cap decision would succeed or fail.

Assuming a worst-case scenario, in which the court-ordered ban on the cap was upheld, AIRB actuaries recommended raising the province’s auto rates by 20 per cent.

“We said, ‘Okay, we don’t know if the cap is going to come or go, so we’ll split the difference [between a 20 per cent increase and no increase] and we’ll go 10 per cent,'” Savage said, explaining the board’s logic. The board thus raised rates by 10 per cent, amounting to an overall rate increase of 5 per cent across the industry (the base starting point was a 5 per cent decrease, which AIRB actuaries had recommended on the assumption that the cap was still in place). Savage acknowledged the 10 per cent increase would be “inadequate” if the cap remains outlawed. “But if the cap is struck, my prediction is the province will probably change the law,” he said. •


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