Keeping Watch Over Auto

Compared to two short years ago, the insurance marketplace is relatively stable across Canada.

On average, auto rates have dropped dramatically, there is increased competition and more and more new products are being introduced into the marketplace. The insurance industry has worked hard to recover from the untenable position we were in, but now is not the time for the industry to sit back and be complacent.

The Allstate Canada Group of Companies (ACG) is not interested in turning back the clock to a time when the insurance industry was in the midst of a crisis. Double-digit rate increases, claims spiraling out of control and other costs such as medical and rehabilitation and lawsuits were pulling the industry under. Consumers faced a roller-coaster ride of rate instability that triggered public outrage and forced governments to respond and reform the system.

Over the past two years, ACG and the industry have worked with governments and regulators to bring the system under a measure of stability. The industry has accomplished a great deal but our work is far from done.

The legislative reforms that have been introduced right across Canada are having a positive impact on consumers and on the marketplace. This is especially true in the area of auto claims reform. For example, the minor injury caps introduced in Nova Scotia, New Brunswick and Alberta are achieving their objective. Although it is too early to tell, the elimination of the Designated Assessment Centres in Ontario also appears to be a positive step.

Recently, however, for the first time in nearly two years, frequencies are not dropping; in some cases, they are trending up. It would be premature and hasty to sound the alarm bell. But it is imperative to recognize the leading indicators and respond accordingly.

FUTURE DIRECTIONS

If indicators continue to follow current trends, an important decision will need to be made in 2006. At what point, for example, will it be appropriate to approach decision makers about small rate increases on auto insurance? The industry should not be afraid to consider small rate increases towards the end of 2006 in an effort to stave off potentially larger increases in 2007 and beyond. It will be important to sustain the measure of market stability that has benefited consumers over the past couple of years.

Litigation is one area that continues to present challenges and has a significant impact on the future direction of the industry. There are currently legal challenges to the minor injury cap regulations introduced in Alberta and Nova Scotia. It is fair and appropriate that consumers receive the benefits and compensation to which they are entitled. However, it is inevitable that when new legislation is introduced, some groups will look for ways to manipulate and capitalize on the new system.

In addition to these court challenges, recent decisions in Ontario may lead to more injuries piercing the catastrophic impairment criteria. This will have an impact on future costs of accident benefits claims in Ontario.

ACG will continue to fulfill its obligations to consumers according to the legislation that has been passed and the decisions that the courts have made. However, insurers are watching the challenges in Alberta and Nova Scotia very closely to determine what, if any, costs will be added to the system.

In addition to keeping an eye on the pending legal decisions, ACG has a renewed focus on fraud and SIU investigations. Unfortunately fraud does exist in the system and it must be dealt with appropriately when we find it. ACG works hard to strike the right balance between fulfilling our responsibility to consumers who file legitimate claims and ensuring that compensation is spent appropriately. ACG will continue to be vigilant in its pursuit to control fraud.

REPAIR COSTS

Just as medical expenses have increased, so too have auto repair costs. The cars we drive today are faster, lighter, and generally much more complex and sophisticated than cars from even a decade ago. Composite body parts, zenon lighting systems, air bags, ABS braking systems have all become popular features in the cars of today.

The safety and security of an individual or family is paramount and should not be compromised.

However, the cost of repairing cars and replacing these parts has increased accordingly. For example, the use of aluminum is becoming more prevalent, and is now the second most used automotive material after steel.

At ACG, we are addressing this by stepping up our I-CAR technical training initiatives for our employees and our PRO shops. It is now a requirement for all employees involved with assessing auto physical damage to work towards their I-CAR Platinum Individual designation. To date, over half of our staff now holds this designation.

I am optimistic that legislators, regulators and the industry will continue to work together to ensure that the insurance system remains healthy and stable. More importantly, it would be very short-sighted to ignore the leading indicators and throw away all of the progress that the industry has made to get back on relatively solid ground over the past couple of years.

The Allstate Canada Group of Companies is very proud of the service that we provide to our customers and we will continue to fulfill our obligations to our customers when the unexpected happens.