November 1, 2003 by Sean van Zyl, Editor
Rate freezes, rollbacks, premium refunds and government-run insurance. It seems that the language of auto insurance has changed so rapidly that insurers have been left dazed and disorientated in an unknown land. But, based on latest events, it would appear that the time for learning new languages is over.
In the Editorial of the October 2002 issue of CU, I referred to a “pending political battle” over auto pricing and product reform based on the direction the market was taking. Specifically, I cautioned against the dangers of the industry implementing across-the-board double-digit rate increases without putting forward solid and explainable reasons to policyholders for the rate adjustments other than “it’s the hard market and we have to make up our losses for past years” and the good old “the stock market took a dump” approaches. Let’s face it, would any of us be satisfied to hear that, say, our telephone usage fees will be doubling overnight because there was too much competition among the providers in the past and now we have to cough up for all those “good years”? My response would be, “let the management of those companies pay the difference”.
With just a year having passed since my dire predictions, the Nova Scotia government has introduced legislation (see MarketWatch for further details) which many in the industry believe is the beginning of the end of private auto insurance in the province. At the time of this writing, at least two insurers, Royal & SunAlliance Co. of Canada and the Dominion of Canada General Insurance Co., had stated that they will not be writing new auto business in N.S. as a result of the new legislation. With the future of private auto insurance in N.S. and New Brunswick hanging in the balance – which the latter has introduced rate freezes along with Newfoundland, Ontario and most recently, Alberta – the business has indeed become the center-point of a political battle.
With every province operating a “true” private auto insurance system having resolved to rate freezes to quell growing public ire, with many of the governments talking of rate refunds and other nasty restrictions to be written into legislation to curtail the actions of the “big, bad insurance companies”, the political attention is quickly shifting from cost-cutting product reform to the ominous threat of government-run insurance.
While my editorial may seem critical of the rate actions taken by insurers, this is not so. The underwriting results of companies over recent years clearly show the dire need for correction. I am somewhat critical, however, of the time frame in which companies attempted to “cram” rate adjustments through for fear of onset of the next soft market (a clear lack of faith of the industry of itself to act responsibly) and the almost complete lack of communication with policyholders to explain the underlying reasons for the price increases – i.e., the underwriting losses incurred which had been subsidized by higher investment returns which no longer exist in today’s environment.
It is therefore particularly irritating to hear industry grumbling in this late hour that “it is all the IBC’s [Insurance Bureau of Canada] fault” for not having communicated the right message to the public. Insurers through their broker distribution networks were in the ideal position to deal with such communication with policyholders in a direct, honest and hopefully intelligent manner – and perhaps even get the public onboard in pushing their MPPs for product reform to reduce premiums.
Instead, misconceptions for the price increases such as 9/11, insurers looking to boost their profits, insurers looking to make up stock market losses, and insurers trying to cut back cover benefits to make more money, have abounded to the point where private insurers are now indeed the “bad guys” in the eye of the public. In essence, the private auto insurance industry has lost the public vote.
In this respect, I also find it disturbing when industry leaders and other spokespeople appear dismissive of independent public surveys as being “too inconclusive”. Such would appear to be the case with the recently released NFO CFgroup national auto insurance survey (see MarketWatch for further details) which the general response from the industry to the results is “there’s not much difference in the numbers” – referring primarily to those questioned who are in favor of public versus private auto insurance systems.
However, I would say when 75% of Canadians across the country believe that the provincial governments should impose limits on rate increases, that 72% of the respondents believe that price increases relate to insurers looking to boost their profits, and that 50% of insureds living in jurisdictions with private insurance favor switching to a government-run system – such results are far from being “inconclusive”. It is public polls such as this which feed the political feeding frenzy that results in impractical, costly and cumbersome mistakes such as government-run insurance systems. And, of course, for private insurers a diminished marketplace and reduced revenue flow. It is such “dismissive thinking” toward the public viewpoint, real or otherwise, that has landed the industry up a particular creek without a paddle.