Fire in the Hole (October 01, 2002)

Personal auto insurance – specifically the losses and subsequent pricing actions taken within the private sector markets has become a political “hot potato” almost countrywide. Brokers and consumer groups from the east coast through to the west are beginning to grumble with not just the dramatic upward price adjustments, but also the availability of capacity. The question lingering in the back of insurers’ minds as well as those in political office overseeing provincial regulation of insurance, is “just how far can consumers be pushed?”

With pending elections in several provinces, the politicians have begun placing pressure on the bureaucracy to “make this problem go away”. Ontario, New Brunswick and Nova Scotia have established investigation committees to look into issues driving personal auto insurance rates. The insurance industry, represented at the negotiation table by the Insurance Bureau of Canada (IBC), is pushing for auto product reform with the specific view of reducing claims costs i.e. reduced terms of cover, greater pricing flexibility and better regulation of claims vendors such as healthcare and vehicle collision repair.

Meanwhile, brokers are voicing their ire over lack of market capacity and the “blanket approach” that seems to have been taken by insurers in “slicing and dicing” the business that they want to keep or discard in this new era of a “hard market”. Consumers also seem to be tiring of the “insurance rates are higher because of 9/11” fallacy, and their MPPs have entered the field in what could soon turn “auto insurance” into a full-out political battle. This is the last thing insurers need, as already auto insurers have come under fire by members of New Brunswick’s select committee for alleged manipulative profit-taking. As CGU Group Canada president Igal Mayer notes, “I’m not confident in wanting to turn this [auto product reform] into a political debate”. Mayer, a guest speaker at a recently held Insurance Brokers of Toronto Region (IBTR) luncheon, was referring specifically to the reform initiatives taking place in Ontario.

So far, brokers generally appear to be on the side of insurers, agreeing to rally political support for product reform. However, many of the more public broker personalities have also expressed displeasure over the sudden shift in rates after brokers had been warning companies for years of poor rate adequacy. Stephen Greene, executive director of the Insurance Brokers Association of Nova Scotia (IBANS), notes “We don’t dispute the evidence [of insurer losses on auto] presented by the IBC and so we don’t dispute the need for higher rates. We think rate increases could have been spaced out better – it’s as if they [insurers] are trying to make up for seven or eight years of losses in one year.” (See cover article of this issue for further details.)

Some brokers are also concerned that, should insurers get the product reform they seek, this will not necessarily be the “magic wand” to suddenly open market capacity. Feedback countrywide from the independent broker associations indications an alarming decline in the number of markets represented by brokers there are cases where brokers now operate through only one insurer, and therefore are technically selling as agents (Ontario auto product reform legislation under private-member Bill-166 proposes that brokers will in future have to inform consumers upfront of the number of companies they represent).

Because of the numerous stakeholders involved in the auto insurance environment, and the conflicting lobbying pressures that come to bear when legislation goes into surgery, it is unavoidable to keep auto insurance coverage/pricing out of the political, public spotlight. Ultimately, insurers may be playing a high-stakes game in their firm stand on double-digit pricing adjustments and cutting business. An organized public outcry, or switch in alliance by brokers, could see political supporters of the industry breaking ranks and draconian regulations placed on insurers – possibly some free-market provinces switching to state-run auto insurance systems (hopes of deregulating British Columbia’s basic auto insurance market seem to be temporarily dashed partly due to the “mess” seen in the private insurance provinces).

Nowhere is the political debate and lobbying pressure greater than Ontario. Not only are the stakes high, but so are the number of players with their fingers in the pie. The Ontario government’s Auto Insurance Review Committee (AIRC) is currently holding hearings with interest groups over proposed auto reform changes. The IBC and the Insurance Brokers Association of Ontario (IBAO) have appeared before the committee, as well as other stakeholders such as the Collision Industry Standards Council of Ontario (CICSO). The lines seem to have already been drawn between the insurance industry and CISCO over use of original equipment manufacture (OEM) parts, and standards reform for collision repair shops proposed by MMP Frank Klees under Bill-165.

The collision bodyshop lobby under CISCO has definitely kicked into full drive, with Klees having personally addressed a “letter to the editor” to voice his disagreement with regard to insurer views expressed in a CU article (see Insight, August 2002 issue) – well, at least I know someone reads the magazine. Meanwhile, insurers have called the province’s brokers to arms, with Mayer having pressed for “grass-roots” support at the IBTR luncheon. He reminded attendees that the broker associations had agreed to use their political connections to drum up MPP support for auto product reform. Auto insurance reform may not yet be a full-out political battle, but this is probably a good time for the meek to take cover.