Canadian Underwriter

Why Intact says an upward correction in auto rates could be imminent

April 1, 2021   by Greg Meckbach

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Motorists could be hit with more premium increases once driving levels return to pre-pandemic levels, Intact Financial Corp. CEO Charles Brindamour suggests.

During the early part of 2020, Canada’s auto insurers had a collective combined ratio in auto more than 100%, Brinadmour said during a recent virtual fireside chat with Jaeme Gloyn, equity research analyst, diversified financials for National Bank of Canada.

[For its part, Intact reported Feb. 9 an 11.1-point improvement in its combined ratio in personal auto, from 97.7% in 2019 to 86.6% in 2020.]

Collectively, Canada’s auto insurers have provided $2.5-billion worth of various relief measures since COVID-19 was declared a pandemic Mar. 11, 2020, Insurance Bureau of Canada president and CEO Don Forgeron stated at Swiss Re’s Canadian Insurance Outlook Breakfast Tuesday.

“In the aggregate, we see [auto] rates coming down in the near term. They are flattish at the moment,” said Brindamour.

But throughout 2020, “the [auto insurance] industry started to pick up on trends that [Intact] identified in 2016,” Brindamour said. He was speaking at the National Bank Financial Markets 19th Annual Financial Services Conference on Mar. 24, 2021.

“When driving returns to normal, we will see a correction take place again,” Brindamour predicted,  alluding to increases in auto insurance rates in recent years, before the pandemic.

In 2016 Q4, Intact had an underwriting loss of $9 million in personal auto compared to underwriting income of $28 million in personal auto in 2015 Q4. At the time, Intact said claims cost inflation was leading to rate increases in all markets.

Then, in February 2018, Brindamour told investment banking analysts during a conference call discussing Intact’s 2017 financials that Intact took a number of measures in 2017 to improve its auto insurance results. Those measures included “meaningful rate increases” across Canada, as well as measures to reduce the claims cycle times on auto repairs. At that time, Intact attributed rising auto loss ratios both to claims inflation for bodily injury and psychological damage, as well as increases in repair costs due to technologies like cameras and sensors.

During the 2021 National Bank conference, Gloyn asked Brindamour for his observations about miles driven, auto claims frequency, and whether he was thinking a hard market will return to auto.

“It is important to keep in mind that the industry came into [the COVID-19] crisis on the defensive,” replied Brindamour.

Then, a result of measures taken to mitigate the pandemic, miles driven dropped about 50% during in late March and early April of 2020, reported Brindamour.

“In the second part [of 2020], you can see that people’s behaviour has changed dramatically from the first lockdown,” said Brindamour. “Driving [in the second half was] down about 10% from what it was a year ago, before COVID actually started.

“Our view in 2021 for Intact is that we will be operating [the auto] business in the lower end of what we call mid-90s [combined ratio] for the foreseeable future, as long as driving remains below normal.”

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