INDEPTH: INSURANCE
Insurance...at a premium
CBC News Online | February 18, 2005
What a difference a couple of years makes. In 2003, consumers vented their anger as the premiums they paid to insure their homes and cars registered double-digit increases for the third year in a row. And that's if no claims had been made on their policies.
The anger peaked in Atlantic Canada, where Bernard Lord came dangerously close to losing the New Brunswick election over the issue. Consumers in that province had seen their rates soar by as much as 70 per cent over the previous year.
Rates were going up across the country – but in provinces where government-run companies sold car insurance, the increases were far more moderate.
The Insurance Bureau of Canada cited huge losses – partly because of the fallout from the Sept. 11, 2001, attacks in the United States and partly because the downturn on financial markets took a huge chunk out of their investment income.
And when it came to cars, the IBC argued that the cost of settling claims was rising so quickly that member companies could not make money insuring cars. The organization cited rising medical and legal costs as well as higher repair costs for cars that were getting much more expensive to replace.
The bureau said medical claims were up between 10 and 15 per cent each year since 1998. And many of them are fraudulent.
Lee Romanov – president of the Consumer's Guide to Insurance, a Toronto-based insurance rate comparison service – said fraudulent claims play a major role in inflating rates, forcing insurance companies to hike premiums.
"What seems to be happening is insurance companies are trying to get control over their claims," she said in an interview with CBC News on June 16, 2003.
She said that in some instances insurance companies are refusing to renew policies of customers who file one or more claims. "If you do have a lot of claims…if you use your insurance policy as a maintenance program, your [insurance will be cancelled]."
Several provinces passed legislation aimed at freezing or rolling back auto insurance rates. In Ontario and New Brunswick, limits were put on a car accident victim's right to sue, especially when it came to soft tissue injuries such as whiplash. In Ontario, the government also raised the deductible to $30,000 on damage awards from lawsuits filed over injuries.
Alberta froze rates for 18 months, long enough to get the province through another election.
In Newfoundland and Labrador, the government introduced legislation that was designed to save the average consumer about 15 per cent on their insurance bill. It rolled back the rates insurance companies can charge, including a cut in mandatory third-party liability, by nine per cent. The bill also imposed a $2,500 deductible on personal injury claims.
The legislation prompted the Dominion of Canada General Insurance Company to threaten to stop writing new policies in the province.
"Newfoundland and Labrador consumers deserve rate relief, but that can only be realized if compensation levels – which are set by the government and over which the industry has no control – are reduced appropriately," company CEO George Cooke said.
Despite soaring costs, Canada's insurance companies made money every year between 1993 and 2003. Profits did hit a low point of $340 million in 2002. Those profits, though, were for 206 companies and represented a 1.7 per cent return on equity. Not good if your RRSP includes mutual funds that invest in insurance companies – and you're looking for big returns.
In March 2004, the insurance industry said things were starting to look better. The IBC reported profits of $2.6 billion – its best year ever and almost eight times the profits the bureau's 206 members enjoyed the previous year.
"The average company net earning figure was approximately $13 million," the bureau said in a news release.
Rates did drop in much of the country. Ontario claimed that it had achieved its goal of a 10 per cent reduction in auto insurance rates. And the hue and cry over rates began to subside.
By the end of June 2004, New Brunswick had decided against switching to a government-run auto insurance system.
Insurance profits
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Those record profits of 2003 were about to be eclipsed. Big-time. Feb. 18, 2005 – the Insurance Bureau of Canada reports that the industry is healthy again. Healthy to the tune of record profits of $4.2 billion.
"These financial results confirm that the property and casualty insurance industry has returned to financial health following a period of the weakest earnings in its history," insurance bureau chief executive Stan Griffin told a news conference.
Griffin noted that the numbers have to be put in context. Between 2000 and 2004, the industry made six cents profit for every dollar of premiums and investment income collected.
"The insurance industry's return on equity for 2004 is strong but insurance is a cyclical business – years of profit are often preceded by years of low returns," Griffin said. "Over the last five-year period, the ROE was 8.6 per cent. Many other sectors of the economy have averaged closer to 20 per cent."
Griffin added that big profits mean that drivers will save about $1.4 billion in premiums in 2005.
The Consumers Association of Canada had a different take on the industry's new-found health.
"Governments have clearly failed to protect consumers and businesses from price gouging by the insurance industry," association president Bruce Cran said. "The insurance industry is now in full damage control in an effort to justify their record-setting profits."
Cran said provincial governments in Alberta, Ontario, New Brunswick and Nova Scotia "aided and abetted these obscene profits," and demanded that they roll back rates and restore "reasonable" benefits.
It's clear that consumers have taken some steps in their attempt to hold down their car insurance costs. Many have increased their deductible, making them responsible for the cost of repairing minor dents and scratches.
In January 2005, CBC-TV's Marketplace reported that more Canadians are deciding to pay repair costs out of their own pockets, rather than go through their insurance company.
"We've seen claims as much as $5,000 to $10,000 [that] people are paying out of their pockets …. They know that [their] insurance will go up," a Toronto auto body shop owner said.
"When we do all the operations that are required to make it a perfect job, [so we can] put our lifetime warranty on it, [the bill] could be as much as $1,000. Just for [a] little ding."
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| CBC STORIES: |
N.B. report calls for public insurance system (April 2, 2004)
Alberta freezes car insurance rates for 18 months (Nov. 4, 2003)
Klein ready to freeze auto insurance rates (Oct. 29, 2003)
Ontario freezes car insurance premiums (Oct. 23, 2003)
Overhaul N.S. car insurance industry: consumer advocate (June 5, 2003)
Yukon moves to drop insurance company (May 27, 2003)
N.S. auto insurance hikes justified: review board (May 15, 2003)
Province to freeze car insurance rates (May 5, 2003)
N.B. drivers face more insurance premium hikes (April 29, 2003)
Insurers deny making profits in Atlantic Canada (Feb. 4, 2003)
N.S. Drivers get insurance champion (Apr. 11, 2003)
Atlantic drivers face dramatic premium hike (Jan 7, 2002)
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