IBC tells Alberta board that competition is the best regulator

Competition is the best regulator of price and profit, the Insurance Bureau of Canada (IBC) has told the Alberta Insurance Rate Board (AIRB).
Earlier this month, the AIRB held a series of consultation meetings to “discuss an acceptable cost of capital and profit margin for auto insurers.”
The board posted the IBC submission on its Web site. In it, the IBC argued that Alberta’s auto insurance market’s 60 firms form a competitive market.
Because there are no profit monopolies or rents to be regulated, the nature of the competitive market “has the potential to make regulation more complex, but it also puts another tool in the hands of regulators that is not available in uncompetitive markets,” the IBC said in its submission.
Rate boards should allow companies the flexibility to select the target return on equity a ratio that measures earnings compared to invested capital “that reflects the companies’ level of risk and to base prices in the Alberta auto insurance marketplace on their unique actual costs,” suggested the IBC.
Price regulation “ultimately increases volatility in insurance premiums in the long run,” and “for this reason IBC’s recommendations for the AIRB are oriented towards including room for competitive market dynamics within the regulatory system of market oversight.”
Maximum premiums for mandatory auto insurance coverage are set by the AIRB each year following a series of public meetings as well as input from the industry and the board’s consumer representative. The next meetings are expected to be held in June 2007.