CBA report finds Alberta auto product would continue to be profitable without cap

Alberta’s automobile industry would continue to be “highly profitable” even if the Cdn$4,000 cap on payments for soft tissue injuries were removed, according to research commissioned by the Alberta branch of the Canadian Bar Association (CBA).
The study, ‘Alberta’s Minor Injury Regulation: Automobile Insurance Profits, Premium Rates, and Costs,’ was prepared independently for the CBA by Economica Ltd.
The CBA study says the rate of return on equity for Alberta automobile insurance averaged 6% (or nearly Cdn$70 million) from 1998 to 2002 and then jumped to more than 20% in 2003 prior to the Minor Injury Regulation, a CBA release says.
Bodily injury and property damage claims each rose by roughly 20% per vehicle from 1996 to 2003, whereas premiums rose nearly 65%, the report says.
Economica’s research “demonstrates the insurance industry was profitable and that insurance claims were not out of control prior to the introduction of the cap,” said Tom W. Achtymichuk, Q.C. of the CBA.
The report is available at: http://www.cba.org/alberta/PDF/Insurance_Report.pdf
Without the cap, assuming premiums do not change, insurer profits will be about a 16% return after tax (12.2% on basic coverage) using 2006 data and assumptions, the report suggests.
Without the cap, the average premium would have to increase by $112 per year on all coverages if insurers are to keep making profits of more than a 20% return after tax, it continues.