Alberta stakeholders say overhaul of residential property insurance needed

Changes need to be made to the current property insurance product for it to be sustainable, especially in the wake of major flooding in Alberta, several industry participants agreed during a recent event held by the Insurance Brokers Association of Alberta (IBAA).

On Sept. 12, the group held a forum on property insurance in Edmonton, bringing together stakeholders from across the country.

Participants represented insurance companies including Aviva, Economical, Intact, Peace Hills, SGI, The Dominion, and Wawanesa, the IBAA, the Canadian Independent Adjusters’ Association, Alberta Insurance Council, Insurance Bureau of Canada, Institute for Catastrophic Loss Reduction, and Alberta Finance.

Most agreed that government disaster funds are being stretched in the wake of damage not covered by traditional property insurance, the IBAA said in a release Wednesday.

“I have no direction whatsoever, either explicit or implicit, that the government is interested in increasing its regulatory stance regarding property insurance,” said  Alberta’s Superintendent of Insurance Mark Prefontaine, although he did say” the government is concerned about what it’s seeing and what it’s hearing.

IBC’s vice president  for the Western and Pacific Region William Adams also noted that the proposal from the Office of the Superintendent of Financial Institutions Canada (OSFI) for a 5% to 20% increase in capital charge on insurers’ personal and commercial property exposure will inflate required capital reserves or reinsurance and thus inflate product cost, the IBAA noted.

“Concern was voiced that property insurance premiums and deductibles have been underpriced for years, while the product has incurred minimal change,” the association noted. “Opinion on consumer response to price increases ranged from the need for consumer insurance education to mitigate sticker shock to fear that some consumers will find the product unaffordable or that revamping the product to maintain affordability would restrict availability, either in type of coverage or to high-risk property areas.”

IBAA past president Dean Bailey also cautioned that a perils-based underwriting approach, using postal code territories and other forms of risk mapping, is becoming more common and changing the original concept of insurance whereby the premiums of the many pay for the claims of the few.

Alberta has been hit particularly hard in terms of natural catastrophes recently, with its insured losses from severe weather representing 62% of the Canadian total in 2012, according to a study from the Institute for Catastrophic Loss Reduction.

“Competitive forces will likely lead insurance companies to develop new products,” the IBAA noted. “Many stressed the importance of consumer education about insurance, its relationship to disaster relief, its long- and short-term costs (for individuals and for the economy), and current and future risk reduction measures that government and consumers can undertake to keep property products equitable, available, affordable, sustainable, transparent, and private, with minimal government regulation.”