January 24, 2011 by Canadian Underwriter
New Brunswick’s Court of Appeal has ordered the New Brunswick Insurance Board to re-hear an auto rate application submitted by Pembridge Insurance Company in 2009, based on the fact that the board failed to provide reasons for its rate-setting decision.
The province’s attorney general took the case to the Court of Appeal, arguing that the rates the board approved for several insurers were too high, and the board provided no justification for why the rates it did approve were “just and reasonable.”
Pembridge submitted its filing – which covered the period of 2010-11 – in Sept. 15, 2009.
Pembridge identified a rate increase of 9.8% as the average change required for a net after tax return on equity of 12%. Nonetheless, Pembridge indicated its willingness to settle for an average increase in rates of only 3.8%.
Noting that several other insurers were calling for a rate increase, the province’s attorney general intervened. In an effort to test the actuarial assumptions behind the rate increases, the attorney general sought answers to questions put forward to a dozen filing insurers.
But the insurance board said it would not compel the insurers to answer the questions, saying the attorney general’s questions would force insurers to provide “new” information or data not contained in the initial filings.
Ultimately, the board found Pembridge’s rate was “not fully supported.” Nevertheless, the board allowed Pembridge to continue using its rates approved by the board in 2008.
The attorney general challenged this decision, arguing the board did not provide reasons why the insurer’s 2008 rates were “just and reasonable” for that period.
The Court of Appeal sided with the attorney general. In doing so, it cited the Appeal Court’s 2010 decision in The Attorney General of New Brunswick v. The Dominion of Canada General Insurance Company.
“How is the public to be assured that the board is not engaged in arbitrary decision-making?” the Dominion decision reads. “How does the Attorney General obtain a meaningful right of appeal to this court if the [insurance] board has failed to demonstrate that it grasped the issues at hand?
“The answer to those questions is obvious. The board must provide reasons for its decision.”