Property policies getting additional segmentation by cover: Alberta finance ADM

Recent changes to insurance policies – in large part, responding to weather-related losses in recent years – could lead to more checker-boarding in coverage as additional segmentation within insurers occurs, suggested Mark Prefontaine, Alberta’s assistant deputy minister of financial sector regulation and policy.

There is currently an evolution of the insurance contract in Alberta – and in Canada overall – Prefontaine said Tuesday at the joint conference of the Canadian Insurance Claims Managers Association and the Ontario chapter of the Canadian Independent Adjusters’ Association, held in downtown Toronto.

Noting that Alberta has witnessed a number of successive years with catastrophic loss – including the devastating flooding almost two years ago – insurers are “responding with product change, they’re responding with various degrees of underwriting practices,” he pointed out.

“What we’re seeing is greater transparency and additional segmentation by cover. So no longer are we seeing policies that have a particular policy limit with all perils covered under that policy limit and one deductible,” he told attendees.

Instead, a variety of perils are being lifted out of policies and there are differing deductibles and sub-limits, dependant upon geographic location and “a whole bunch of other underwriting factors,” Prefontaine said.

For example, some insurers are offering perils to be optional (whether that be wind or hail), and some insurers are using sub-limits within their policies for particular perils (but then offering policyholders to buy up to additional levels).

Prefontaine emphasized he is well-aware that changes are being made “for very good marketplace competitive, contractual reasons.” Still, “as this additional segmentation occurs within insurers,” the level of inconsistency “will be magnified so that if we do get an additional – and I’m relying on the word ‘if’ – but if we do get additional losses of any degree of magnitude that affects a larger area, we’re going to have further checker-boarding in terms of coverage.”

And if that occurs, he added, this “will present challenges for government, it will present challenges for insurers, and it will present challenges for those that are managing and adjusting claims.”

Prefontaine has no solution “right out of the box,” he said, “but I do think some additional collaboration between governments, policymakers, regulators and industry should lead us down the path of an increased level of understanding of what, in fact, coverage people do have, for what losses, in what scenarios, so that when there are claims, people can more easily understand the process and decisions that are being made.”

Although changes to insurer policies are not a concern from a policy perspective, “it certainly is creating some consternation and confusion in the marketplace,” Prefontaine told attendees. Part of that confusion came to light following the flooding in southern Alberta, although he noted evidence of the evolving insurance contract was seen in advance of that event.

Alberta’s office of the Superintendent of Insurance has taken a lot of calls from people asking why their premiums have gone up 20%, 30%, 40% or 50%, Prefontaine said.

“Overland flooding is not something that is predominantly covered in the residential market, it’s not something that is well-understood in the commercial market, and it’s not something that, as evidenced by the southern Alberta flooding, that consumers, homeowners, business owners were prepared for from a planning perspective, a coverage perspective and, really, a knowledge-based perspective as well,” Prefontaine said.

“The lack of knowledge of consumers as to exactly what their policies covered and what they didn’t cover became an issue that was at the forefront,” during the flooding, he said. The confusion was increased “when you then overlay the additional challenge of the inconsistency” among what specific insurer policies covered or did not cover.