Why now is a good time to press for auto reform

Elected officials in Canada have an opportunity to fix underlying issues in the auto insurance product now that the pandemic has temporarily suppressed insurance companies’ auto loss ratios, says the head of Canada’s association for home, car and business insurers.

During the year of COVID, which featured business shutdowns to prevent the spread of the novel coronavirus, loss ratios for Canada’s auto insurers plunged from 78.1% in 2019 down to 71.8% in 2020. The loss ratios are widely seen to be lower because fewer drivers were on the road during government lockdowns, and so the frequency of crashes decreased. But what happens after the pandemic, when more people will be driving again?

Canadian Underwriter put the question to Don Forgeron, president and CEO of Insurance Bureau of Canada, during Swiss Re’s Canadian Insurance Outlook Breakfast Tuesday. Specifically, Forgeron was asked: What is being done now to prevent auto loss ratios from climbing back up to 80% [i.e. pre-COVID levels] once the threat of the pandemic was over?

“The debate about auto insurance reform across the country is in different places in each province,” Forgeron reported. “We’ve had some positive reforms in Alberta late last year. We’ve stalled in Ontario, and [governments in] Atlantic Canada [are] in various stages of discussions…about the need for auto reform…

“We have engagements with every province, with every ministry responsible for auto insurance, and we are hopeful — we are always hopeful — that sooner or later, the efforts will pay off. Now’s a good time to do it, because the loss ratios have gone down. Now is a good time, because that will return premiums to consumers, which is what every elected official hopes will happen after they introduce reforms.”

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Commenting on the same question, Monica Ningen, Swiss Re’s president and CEO of Canada and English Caribbean, observed that driving patterns may not be the same after the pandemic — particularly if more hybrid workplace arrangements become the norm.

For example, now that Canadians have had one year of experience of working from home, she suggested, they may be less inclined to risk driving to the office in the middle of a snowstorm.

But it shouldn’t take a global pandemic to produce a long-term, stable auto insurance product, she said.

“You can’t look at a global pandemic year and say that’s going to be the norm going forward — it’s not,” Ningen said. “Long-term sustainability and [a] long-term stable [auto] product, both for the consumers and for the insured, is really important. We have to make sure everybody recognizes that this [pandemic] year [of 2020] is not an indicator of what we are going to see over the next five years, once the world starts moving [again].”

The same question could apply to insurance lines other than auto, Jonathan Isherwood, CEO of Reinsurance Americas at Swiss Re, added.

“There are other areas where there has been a withdrawal from economic activity” because of the pandemic, Isherwood said, using workers’ compensation and GL policies as examples.

“There is no evidence that the underlying trends — the social inflation or other aspects [that have contributed to rising claims costs] — have changed at all….

“We should be careful to use long-term trends here…to fix some of the things that need to be fixed. To your question, probably not enough is being done. And it’s not just an auto question.”

Feature image courtesy of iStock.ca/Robert Labrecque