June 14, 2012 by Canadian Underwriter
CLARIFICATION: Canadian Underwriter initially reported on June 14 that Oilver Wyman suggested a 4.7% rate adjustment in 2011. In fact, Oliver Wyman recommended a 9% adjustment in 2011. In its final decision on an industry wide adjustment in 2011, the AIRB opted to use different figures than Oliver Wyman had calculated for the property damage trend rate, investment rate and provsion for expenses. The board’s changes reduced the Oliver Wyman figure from 9% down to 4.7%. The AIRB ultimately recommended no increase or decrease to the industry wide adustment. Canadian Underwriter regrets any confusion this may have caused.
Oliver Wyman and Insurance Bureau of Canada (IBC) are 2.2% apart in their respective recommendations for annual industry-wide rate adjustments to the Alberta Insurance Rate Board (AIRB), although each is suggesting a double-digit increase.
Oliver Wyman, AIRB’s actuary, is recommending an industry-wide rate adjustment of 10.9% for 2012, whereas IBC is recommending a 13.1% rate adjustment. The AIRB has not made a final decision.
Last year, Oliver Wyman suggested a 9% adjustment, but the board opted to hold the line on adjustments, with no increase or decrease. In 2010, Oliver Wyman called for a flat rate adjustment and the board ordered a 5% decrease.
The annual industry-wide rate adjustment is based on the difference between the estimated required average premium and the estimated average street premium (what is currently being charged).
Oliver Wyman’s figures suggest the estimated required average premium should be $623, based on an analysis of projected bodily injury (B.I.) claims costs, property damage claims costs, accident benefits claims costs, investment income, a health levy, the insurer’s profit margin and expense provisions. IBC’s figure comes in at $633, based mostly on higher projected B.I. claims costs and property damage claims costs.
Oliver Wyman found the average street premium is $562. IBC shows the same figure to be $560.