Canadian Underwriter

Why insurance regulators’ council wants to stop best-terms pricing

December 3, 2021   by Greg Meckbach

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If you are still placing subscription policies using best-terms pricing, you should stop, the Canadian Council of Insurance regulators suggests.

“Fair and transparent pricing is essential to a successful marketplace and CCIR Members expect insurers and brokers to cease BTP practices,” CCIR said December 2 in a release.

British Columbia’s financial services authority described best terms pricing, on subscription policies, in a release in 2020.

“In putting together such a policy, each insurer would submit its own bid. Under Best Terms Pricing, the final premium paid by strata owners was typically based on the highest of those bids, even if the majority of quotes were lower,” BC FSA said at the time.

In B.C., the concern was over strata corporations having to get common-area property insurance on a subscription basis.

In its release Thursday, CCIR said the outcomes of best-terms pricing, “including adverse premium inflation, do not support the fair treatment of customers.”

CCIR said some insurers and brokers have discontinued the practice, while others are in the process of moving away from it.

Canadian Underwriter contacted CCIR Friday asking whether it is up to all individual provincial regulators to make a decision, and to confirm whether stopping the practice is just a recommendation from CCIR.

“CCIR is not a regulator, however, members of the association work together to develop solutions to common regulatory issues,” a CCIR spokesperson responded, adding British Columbia and Alberta have already taken specific action with respect to condominium subscription policies.

“After engaging with industry to better understand the practice and impact on consumers, CCIR has concluded that the practice of BTP does not support the fair treatment of customers. CCIR members expect insurers and brokers to cease BTP practices,” the CCIR spokesperson said.

The issue of best-terms pricing is something that London market participants have been looking at for a while, suggested Gary Hirst, the CEO of CHES Special Risk Inc., in an interview Friday.

“Just because one market wants a higher price than another market doesn’t necessarily mean that 100% of the insurers should all go at a higher price,” Hirst said.

But one consideration to keep in mind, if the practice is banned, is the risk that “you end up with a patchwork quilt of markets. You then end up with the potential problem of 10 different policy wordings.”

So an insurer might offer to take on 10% of the risk on a policy – at the same price as another insurer –  but wants to use its own wording.

“If an insurer says ‘I want $100 for this and another says ‘I want $150 for this,’ then those prices have been achieved based on the actuarial analysis that the insurers undertake and if they say, “I would say I would want $100 for this,’ then I think that should be the prevailing price for their capacity.”

But when looking at the best terms – among insurers who may participate in writing a policy on a subscription basis –  the cheapest price is not the only consideration.

Commercial clients need to take into account that they could end up – for example – with 11 different policy wordings, 11 different loss adjusters, and having to negotiate the nuances of policy coverage in the event of a claim, said Hirst.

Feature image via Alphan