Don’t wait on Ontario auto outcomes to make necessary changes, OSFI head tells insurers
June 7, 2013 by Canadian Underwriter
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While it may take some time for insurers to see the full impact of proposed changes related to auto insurance in Ontario, companies need to ensure they’re not entering into lines they may not understand, the head of the Office of the Superintendent of Financial Services has cautioned.
In remarks at an event organized by the Northwind Professional Institute in Cambridge, Ont. on June 6, Julie Dickson said that “OSFI will be looking at how companies are affected by and manage the Ontario proposals.”
Among those proposals, included in the Liberal provincial government’s budget for 2013, is to reduce auto insurance premiums by an average of 15% (although no timeline has yet been specified), and to reduce the return on equity benchmark from the current 12%.
“…If Ontario auto insurance business starts to lose money and companies decide to enter new markets or begin selling new products as a way of making up the losses, companies will need to ensure that they are not replacing one risk with a new risk — namely operating in a market they do not understand,” Dickson said.
Companies that already have a low ROE from “ineffective underwriting, lack of claims management, etc.” also shouldn’t use the Ontario proposals to avoid making a needed change, she cautioned.
OSFI expects insurers to consider the Minimum Capital Test (MCT) in their rate-making process, she noted. The organization also expects that Own Risk and Solvency Assessments (ORSA) will help with companies considering moving in and out of lines of business, Dickson said.
OSFI has released a discussion paper outlining proposed changes for the 2015 MCT framework, and the final version will be released after consultations, but in advance of the implementation date, she added.
“It is important not to make the mistake of thinking that the ORSA process is for actuaries alone,” Dickson said. “…The board and the CEO must take responsibility for a company’s ORSA for the process to be effective.”
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