Cap challenges annually draining capital by Cdn$330 million a year in Alberta, Cdn$125 million in Nova Scotia

Court challenges to the caps on claims payments made for minor auto injuries in Alberta and Nova Scotia have substantially altered insurers’ loss ratios and capital positions, Canada’s trade association for insurers says.
Speaking at the 2009 Swiss Re Breakfast in Toronto, Barbara Sulzenko-Laurie, vice president of policy at the Insurance Bureau of Canada (IBC), says Alberta primary insurers are looking at a cumulative, annual capital cost of Cdn$330 million each year going forward without a final court authority on the matter.
The figure assumes no premium adjustments have been made to adjust for the uncertainty of the issue, she added.
The annual capital loss going forward is in addition to the estimated Cdn$425 million in unrecoverable costs from claims open at the time of the February 2008 Alberta court decision to strike down the minor injury cap.
Looking at auto insurance liability in Alberta, the impact of the cap challenge has resulted in a loss ratio 25% per cent higher in 2008 than in 2007, Sulzenko-Laurie noted. The loss ratio went from just over 50% in 2007 to slightly more than 76% in 2008.
In Nova Scotia, where the cap challenge is under appeal (a lower court upheld the cap), insurers estimate an annual cumulative capital loss of Cdn$125 million, assuming no premium adjustments are made, in light of a potential adverse decision in the future.
The annual cumulative capital loss in Nova Scotia is in addition to Cdn$425 million in unrecoverable costs from open claims.
Estimates of the impact of the cap challenges on insurers in New Brunswick and Prince Edward Island, where similar court challenges are pending, were not available.
The IBC notes it may be another two or three years before the current cases in the lower courts make their way up to the Supreme Court of Canada.
IBC noted the absence of any government reforms thus far in Ontario have exacerbated insurers’ problems with high loss ratios in the auto product.
Loss ratios in the Ontario accident benefits product ballooned from between 103% and 124% in the last quarter of 2007 to between 130% and 179% in the last quarter of 2008.
“This was supposed to be a year in which the Ontario government fixed Ontario auto,” Sulzenko-Laurie said. “And guess what? It didn’t happen.”