Canadian Underwriter

Industry vet believes it’s time for Canada to adopt Quebec’s auto insurance model

February 24, 2020   by Jason Contant

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British Columbia’s public auto insurer recently moved to a no-fault system for auto insurance, but at least one P&C industry consultant believes that all Canadian provinces (B.C. included) should instead look towards Quebec’s public-private hybrid auto insurance model for guidance.

“I’m not up-to-date on what’s going on in Quebec, but last I heard, that system was functioning very, very well,” John McArthur, president of John C. McArthur & Associates, Inc., told Canadian Underwriter last week.

“The private insurers have no play at all on the bodily injury side, but they can price the physical damage appropriately to make an underwriting profit year after year, after year after year,” he said. “And the injured automobile victims are looked after very much like a workers compensation system. At the end of the day, that may be the best thing for all of the provinces to do.”

McArthur, 73, was the chair of the claims committee for Insurance Bureau of Canada (IBC) during the implementation of the no-fault Ontario Motorist Protection Plan in 1990. He also addressed the Chamber of Commerce in Prince Rupert, B.C. in the 1970s in a effort to persuade the province’s NDP government at the time not to set up the Insurance Corporation of B.C. monopoly. “We obviously did not prevail,” McArthur said.

McArthur made his comments about Quebec’s hybrid model after being asked which auto insurance regime works better, if any. Canadian Underwriter also asked him for his opinion on what it would take to improve profitability in deteriorating auto insurance markets across the country.

Critics of Quebec’s hybrid insurance model have argued that the Quebec government’s payment tables for bodily injury victims resemble a “meat chart.” McArthur acknowledged that both brokers and insurers likely wouldn’t be too happy with this aspect of a public-private model.

“My broker friends wouldn’t like to hear that, because they wouldn’t have any involvement in the bodily injury side, and the insurance companies wouldn’t be terribly happy either,” McArthur said. “But the reality is, they’re not making much of any money on the bodily injury side; if they had sole domain over the physical damage side and could price it appropriately, they would at least be able to make money on the automobile line.”

Part of B.C.’s new Enhanced Care model, announced Feb. 6, involves “removing lawyers and legal costs from the system” to reduce auto premiums by 20% and dramatically increase care benefits. But McArthur cautioned that when no-fault insurance was brought into Ontario, it was also supposed to bring down costs for similar reasons.

“We were convinced, those of us on the board of IBC at the time, that this was the answer to a maiden’s prayer – it would significantly reduce the costs,” McArthur recalled. “Most of the companies reserved on that premise for the first two or three years. Then, all of a sudden, late development on older claims came surging forward, and shocking underwriting losses. So then they tweaked the system; the same pattern repeated itself another four, five, six years out.”

Insurance companies were showing combined ratios of 108% or 112%, for example, at the time. “Again, they changed the system. It’s never-ending.”

Instead of legal fees adding costs to the system, it will be healthcare providers’ fees, McArthur predicts. Whatever money lawyers in B.C. are taking out of the system is going to be more than made up by healthcare providers, such as physiotherapy and rehab clinics and masseuses, who will “get in on the action,” McArthur predicts. “They’ll all spring up. A whole new industry will be created in British Columbia. In Ontario, those medical service providers blossomed under the no-fault system and they continue to milk the system 30 years out.”

Ultimately, five or six years into the future, the cost of insurance in B.C. under no-fault will be “above its current level, even with the cost of inflation factored in,” McArthur expects. “If [the B.C. government] reduces the rates by 20%, maybe depending on how they reserve their losses in the first couple of years, they’ll break even. Then the losses will come tumbling in on late-developing claims and all of a sudden they’ll be back in the glue again.”

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4 Comments » for Industry vet believes it’s time for Canada to adopt Quebec’s auto insurance model
  1. Thomas Young says:

    This broker friend concurs with the proviso that while the outcome of a Quebec style solution to the endless difficulty with profitability on the BI part of our business is sort of working there, the surpluses are produced by defined benefits (the meat chart), not through efficient resolution of the claims or through adequate premiums to cover the real losses of the insureds. It’s still the accepted rule that the best solution for the consumer as an insurance purchaser and as an insurance claimant, is a healthy competitive insurance industry.

    The Quebec model came about through the implementation of regulations on the market place that drove insurers out of the province. Forcing insurers to provide coverage at prices that don’t cover the cost of doing the business will limit participation and competition in the market place very quickly. You only need to look to the current situation in Alberta where rate caps on auto insurance were imposed for 5 years with no consideration for the costs of claims and they have produced a very poor situation for the consumer. Claims costs increasing above the cap rate for most classes of business quickly produced underwriting losses of 20% or more on auto insurance in the Province. Rate increases were being applied to the maximum allowed with no consideration to class of risk and the attempt of insurers to obtain profitability in the market finds no place available for many insureds. If you’re an insurance company losing 25 cents on every dollar of business you’re writing in Alberta its not a hard decision to limit your market share by not taking new business and not renewing old.

    Writing this for industry consumption where the technical aspects of it are simple to understand is easy. Explaining to the consumer that their choices in a brokers office are poor or none at all isn’t so easy. In Alberta there isn’t even the relief valve of the Facility Association as an insurer of last resort because the decade old auto reforms replaced it for that purpose with the risk sharing pools. At the present time the risk sharing pools are all full and only the statute coverage’s are available to the consumer now. Telling that customer of yours that’s trying to finance a new car that you can’t provide him section C cover without a $5,000 or higher deductible in the current market and you’ll soon understand the consequences of an unhealthy insurance market place brought about by regulatory interference.

    Of course John likely made all these observations in the interview and his observation that the Quebec model might work better than those being tried isn’t an endorsement of it as the best solution for the consumer or the insurers, though it might be temporarily for the Governments political issues.

    So long as there is a political expectation that the government can successfully produce a better outcome on insurance for the consumer this issue isn’t going to go away. All the evidence to date is that Government insurance schemes don’t do better anywhere that there are enough consumers to make a healthy market. As is demonstrated in the Quebec market they can only produce a better outcome for the premiums charged by eliminating through statutes the cost of the claims paid to the customer and the cost of adjudicating the settlements.

    Your mileage may vary…………

  2. Swathy says:

    I have to agree with McArthur -In BC, it will be health care costs going up instead of legal costs. The basic underlying issue is every one being accountable in doing their job! Insured’s, Insurance companies, lawyers, repair shops and health care professionals….all stay accountable to the bills they invoice. Not talking about ethical practices but urge them to be morally responsible.

  3. Vince says:

    Quebec bodily injury claims are subsided by provincial health plan and transfer payments from other provinces.

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