Actuary observes a wide variety of Alberta auto claims handling methods during period of cap uncertainty

Alberta auto insurers demonstrated a wide variety of ways to handle claims reserving and payments for bodily injury during the period of minor injury cap uncertainty, according to an actuarial report prepared by Oliver Wyman for the Alberta Auto Insurance Rate Board (AIRB).
The report outlines actuarial assumptions to help the board determine Alberta insurance rates commencing in November 2010. The annual adjusted rates will reflect the fact that the province’s $4,000 minor auto injury cap has been upheld.
Oliver Wyman’s report to the AIRB does not actually contain any recommendations for rates, which will be done after the board’s public consultations on June 15, 2010.
The report notes the assumptions used to determine the 2010 rates are somewhat dependent on data related to bodily injury coverage. This data is uncertain because of the uncertainty around the minor injury cap over the past two years.
“To provide greater insight into the bodily injury coverage data issues, the [AIRB] Board Staff surveyed 20 insurance companies in April 2010,” the Oliver Wyman report notes. “The results of the survey indicate that insurance companies took various approaches to paying claims and setting individual claim case reserves between February 2008 [when the province’s Minor Injury Regulation was struck down] and December 2009 [when the cap was re-instated].
“Some companies settled claims without regard to the cap,” the Oliver Wyman report says. “Some companies paid up to the cap amount and held in abeyance any amounts beyond the cap pending the resolution of the cap; other companies paid little (if at all) above the cap.”
The report says claims reserving trends were similarly all over the map. “Some companies increased their individual claim case reserves at the time of the February 2008 Court decision [when the cap was struck down]; others did so some time later; and others did not make any changes to their individual claim case reserves,” the report says.
Of those companies that did increase their individual claim case reserves:
•some did so for new claims only, while others did so for all claims;
•some reduced their individual claim case reserves at the time of the June 2009 Supreme Court decision, some reduced their reserves later during the year; and
•a couple had not completed reducing their individual claim case reserves as of the end of 2009.
“The lack of consistency in the claim handling process during this time period makes it very difficult to select appropriate factors to estimate what the ultimate claim amounts will be when all claims are settled, and to determine what the estimated ultimate claim amount would be if all claims had been subject to the cap, Oliver Wyman notes.