Uncertainty in auto product does not warrant a “wait and see” approach on rates: OSFI

Uncertainty in the auto insurance business does not mean insurers should take a “wait and see” attitude when it comes to increasing rates to offset increased claims costs, the Office of the Superintendent of Financial Institutions (OSFI) has cautioned.
“Don’t wager your business on a bet that regulations will change,” OSFI superintendent Julie Dickson said in the text of notes she prepared for a speech delivered in Cambridge, Ontario on June 4. “Price appropriately for the risks.”
Dickson said in her speech that Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), has made a number of recommendations intended to alleviate pressure on insurers’ accident benefits costs in the province.
Ontario’s Finance Ministry has indicated to the industry that it will be acting on FSCO’s overall recommendations sometime in June.
In the meantime, Dickson observed, insurers have not been particularly aggressive about taking rate to offset their increased claims costs.
“It is…fair to examine the industry’s actions during the past few years — when it has been obvious that Ontario automobile costs have been escalating,” she said.
“In 2007, claims costs increased by approximately 11% and by 9% in 2008. Aggregate approved rate increases were only 1% and 6% respectively.”
She concluded that insurers have been playing a game of “wait and see” before raising their auto rates, in the hope that FSCO’s proposed reforms might allow them to ease up on future rate increases (and thus protect market share).
“That to me sounds like a dangerous practice — waiting for another party to make a fundamental change that you are hoping for — rather than taking a corrective action that is patently necessary,” Dickson said. “Hope is not a risk mitigant in OSFI’s parlance.”