May 15, 2018 by Jason Contant
Nine out of 10 drivers in Newfoundland and Labrador believe insurance companies operating in the province are profitable, according to a new poll commissioned by Aviva Canada.
“I cannot speculate about why people seem to believe this, but I can tell you about the facts: the government’s recent Oliver Wyman Report Profit and Rate Adequacy Review – Private Passenger Automobiles concluded that the current market isn’t working,” Gordon Murray, Aviva Canada’s vice president of broker distribution in the Atlantic region, told Canadian Underwriter Tuesday.
Oliver Wyman’s report says the standard approach used by insurance companies is to measure and report profits on an after-tax basis expressed as a percentage (return) on equity. For both accident year 2016 and 2015, provincial insurers’ ROE after-tax was -8%. (The provincial Board of Commissioners of Public Utilities’ guideline target profit level for private passenger automobile rating filings is an ROE of 10%).
This March, Aviva Canada reported that it “pays out more to settle claims in Newfoundland and Labrador than we collect in premium dollars, which is unsustainable.” Murray told Canadian Underwriter that the insurer has been in discussion with the provincial government “for some time,” and that the government agrees meaningful reforms are needed to stabilize the auto insurance system for drivers across the province.
Amanda Dean, Insurance Bureau of Canada’s vice president of the Atlantic region, said some within the market “have suggested that insurers are making money.” The report on profitability and General Insurance Statistical Agency data “factually prove otherwise.”
The poll of 400 residents released earlier this week was conducted by MQO Research last month. It found that two-thirds of polled drivers said that auto insurance has become “financially difficult” to pay for.
When asked if there was anything in particular that stood out regarding the poll, Murray pointed to two other findings, besides the belief that insurance companies are profitable (90% said yes, 8% didn’t know and only 2% said they were losing money):
Newfoundland and Labrador drivers pay the highest auto insurance premium rates in the Atlantic region: $1,090 per year on average. Premiums increased 22.4% from 2008 to 2016, compared to 11% at the same time in other Atlantic provinces.
Dean said the study coincides with what IBC has been hearing within the Newfoundland and Labrador market. “Insurers have been doing business at a loss in the province for the past few years, as they genuinely want to serve their customers. However, that’s getting increasingly difficult without substantial reform to the auto insurance product. We’re hopeful governments current review will result in the needed change.”