June 29, 2004 by Canadian Underwriter
While welcoming confirmation the New Brunswick government has abandoned the concept of public auto insurance, insurers remain concerned that reforms announced Tuesday will not help reduce the cost of providing insurance in the province.
“We believe the government decision to preserve competition and choice is the right decision,” says Don Forgeron, Atlantic region vice president for the Insurance Bureau of Canada (IBC). At the same time, he sees “more regulation, more cost and more interference” being created by the reforms announced.
Namely, insurers will have to foot the bill for an Insurance Review Board and a Consumer Advocate for Insurance. The Insurance Review Board will assume the rate approval duties formerly provided by the Public Utilities Board (PUB), and also investigate rate issues in the homeowners’ and liability lines. The Consumer Advocate will “act as a watchdog over auto insurance premiums and insurance company practices”, enjoy intervener status at rate board hearings, and can file complaints against companies with the Superintendent of Insurance.
The primary piece of the reform package is the creation of a “no-frills” coverage option, which the government says will lead to an average 10-15% rate savings. The no-frills option includes a $1,000 deductible on damages, and reduces by half the accident benefits available. Along with this, third-party liability claims will be paid on a no-fault basis, by the driver’s own insurance company, rather than on the basis of which driver was at-fault. Only non-economic losses will be decided through the tort system, where they have already been capped at $2,500.
Forgeron says the industry had put forward a no-frills plan which would have seen costs reduced even further, but adds the government has left open the door to further cost reductions which could lead to lower premiums.
In a statement Tuesday, Premier Bernard Lord notes, “The government is prepared to go further with reforms that will not only lower premiums, but also force accountability and transparency on the insurance industry.” Forgeron says his understanding is that this includes welcome road safety initiatives and changes to the graduated licensing system expected to be announced in the fall.
Insurers are further concerned with the removal of underwriting criteria such as age and marital status. In fact, new drivers will be given a “first chance” discount, which will lower their rates until their first accident.
As well, insurers face stiff fines, up to $1 million, for running afoul of the insurance superintendent. And the waiting period for exiting the province has increased from six months to one year.
But the real win for the industry is the government’s outright decision not to pursue public auto as proposed by the Weir report released earlier this year.
Government actuarial studies showed premiums under the public system would be higher than those currently seen in the province, even before the announce reforms are in place. As well, the government says the Weir report’s finding that start-up costs for a public system would be about $82 million and would be repaid by day one of year two of the program. Studies show the start-up cost would more likely be $120-$190 million, and this does not include compensation costs for loss of business due to nationalizing the industry. “Public insurance premiums are likely not to be stable or the risk will be shifted to the taxpayer,” a government release notes, and good drivers would subsidize bad under the system. As well, coverage issues and higher premiums would result for non-standard risks such as motorcycles, ATVs, snowmobiles and commercial vehicles.
The Co-operators CEO Kathy Bardswick commends the decision to turn away from public auto, noting, “we have always maintained that problems with automobile insurance relate to the nature of the product and what it covers, not who produces it or how it is distributed. The product reforms announced today add to the reforms announced last year and can be expected to result in more choice for consumers and further control over costs associated with premium increases.”
Dominion of Canada CEO George Cooke adds, “”I have said before that recommendations in the Select Committee’s [Weir] report were unworkable and would deliver fewer benefits to consumers at a greater cost and risk to New Brunswick taxpayers. It’s personally gratifying that today the Premier has accepted these facts.”
Both Bardswick and Cooke echo Forgeron’s concerns with the additional regulation imposed under the reforms. “”Last year’s reforms to the auto product and territorial rating, supported by both the Conservatives and Liberals are working for the people of New Brunswick,” says Cooke. “Insurers are responding and competition, not more regulation, is benefiting consumers.”
The reforms are expected to be implemented for January 2005 rollout, a timeline Forgeron says is manageable.