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2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008.

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Presentation on theme: "2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008."— Presentation transcript:

1 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008 Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2 Auto Insurance Coast to Coast An IBC Perspective Don Forgeron VP, Ontario Insurance Bureau of Canada September 26, 2008

3 Auto Market risks 2008-10 Low risk Medium risk High risk

4 Alberta Auto February 8, 2008 – Court of Queen’s Bench struck down Minor Injury Regulation Appeal heard September 12 – Appeal Court decision reserved Likely Supreme Court appeal Adding significant uncertainty and potential growth of unfunded liability

5 Alberta auto loss ratios Direct loss ratios, 6 months, financial year Source: IBC with data from OSFI

6 AIRB Announcement On July 31st, AIRB announced 5% increase in premiums for mandatory coverage from 2007 levels for the year beginning November 1, 2008. AIRB actuary valued minor injury cap at 20% or $120 per policy

7 Agreement in principle with government, regulator and AIRB Implementation delayed during constitutional challenge and appeal Letters to new Minister & Superintendent, Submission to AIRB stressing need for changes Alberta Premium Regulation Review

8 Nova Scotia Auto Constitutional challenge underway –Trial to take place in October Positive consumer environment –Premiums down 24.9% –FA population down 51% Claims costs beginning to rise –Up 6.8% 2006 to 2007

9 -24.9% Nova Scotia Auto Premiums Source: IBC with data from GISA

10 '03→'07 4.7% decrease '06→'07 6.8% increase Nova Scotia Auto Claims

11 Nova Scotia – Political Environment Tenuous and unpopular minority government Likely Spring election – NDP capable of forming next government Mandatory filings introduced

12 Nova Scotia Challenges Potential for harmful reforms if NDP forms government Timing of court decision? Trial lawyers will try to make the cap an election issue Impact of Alberta appeal decision

13 New Brunswick Auto Constitutional challenge proceedings likely in 2009 Cost of removing cap – $200-$225 (government actuary) Positive consumer environment –Premiums down 36% Trial lawyers pressing government to replace cap with deductible

14 -36.0% New Brunswick Auto Premiums Source: IBC with data from GISA

15 New Brunswick Auto – Claims Source: IBC with data from GISA

16 New Brunswick – What Next? Outcomes of challenges elsewhere affect political perceptions IBC meeting with government to emphasize cap’s effectiveness in lowering premiums IBC to apply for intervenor status when test case identified

17 PEI Auto Effect of cap similar to other provinces Timing of constitutional challenge not yet clear IBC has retained counsel and will seek intervenor status

18 -14.6% Prince Edward Island Auto Premiums Source: IBC with data from GISA

19 Prince Edward Island Auto – Claims Source: IBC with data from GISA

20 Constitutional Challenge Milestones Oct 2008 – NS trial Dec 2008? – AB appeal decision 2009 – NS decision 2009 – NB and PEI cases begin

21 Deductible vs. Cap Claim Cost Per Vehicle ($) April 04 PEI cap introduced Nov 03 NS cap introduced Aug 04 NF deductible introduced July 03 NB cap introduced

22 British Columbia Auto IBC working to open up optional market Regulator ordering independent review of ICBC cost allocation ICBC repair centre scandal pointing to need for competition

23 Bill 68 (1990) Liberal government introduced enhanced first party injury benefits and limited right to sue to those suffering permanent and serious injuries Bill 164 (1994) NDP government substantially enhanced first party benefits while increasing tort restrictions, including introduction of deductible for pain & suffering awards Bill 59 (1996) Conservative government somewhat reduced first party benefits while raising deductible – Claimants could sue for excess economic losses but not to top- up AB health care benefits Ontario Auto – Recent Reforms

24 Bill 198 (2003) Conservative & Liberal governments introduced measures to try to control spiraling first party health costs – Key changes: Third Party Liability –Increased pain & suffering deductibles from $15K to $30K under Insurance Act and from $7.5K to $15K under Family Law Act Accident Benefits –Introduced Pre-approved Framework (PAF) Guidelines for Whiplash Associated Disorder (WAD) –Introduced fast track DAC review process (DAC eliminated in March 2006) –Required prior approval of assessments –Introduced further health provider fee schedules

25 Effect of Legislative Change on Injury Costs ?? ? Source: IBC with data from GISA

26 Softening Market: Declining Average Written Premiums 14.6% decrease Source: IBC with data from GISA $ 1501 $1281 Average Written Premium by Entry Month ($)

27 Softening Market: Rising Claim Costs Source: IBC with data from GISA Claim Cost Per Vehicle ($)

28 Ontario Out of Synch: Injury Claims Source: IBC with data from GISA

29 Market Deterioration Accelerating Over Four Years Source: IBC with data from GISA

30 Market deterioration accelerating over last year Source: IBC with data from OSFI

31 Ontario Auto – Affordability Risk With gas prices also rising, transportation costs are becoming a sensitive issue for Ontarians. Source: IBC with data from GISA, Statistic Canada

32 An affordable product Market conditions that allow insurers to be profitable A simplified and stable system A higher proportion of premium dollar going to claimants Position industry as trusted partner of government Objectives

33 Challenges Improved image, but more work to be done Little government appetite for insurance issues System too complicated to explain Costly tort changes sought by trial lawyers – using sympathetic cases to garner support Health care providers sure to resist AB changes

34 Problem Areas System routinely overcompensates minor injuries Rate regulation not responsive to market Accident Benefits: –Overutilization –High assessment costs System subject to retroactive “shocks” from arbitrators/courts Last payor principle not enforced

35 Government Relations Our story – simple, convincing GR outreach – Ministers, MPPs, regulators, senior bureaucrats, opposition Stakeholder outreach – trial lawyers, providers, brokers (government wants cooperation) Insurance Community Action Network (ICAN) – Queen’s Park reception & meetings

36 GR Messages Consumers deserve affordable, stable system Claims costs rising rapidly System too generous Significant changes needed IBC’s recommendations will deliver affordable, stable system for all Ontarians IBC is your trusted partner

37 GR Strategy Phase 1: Convince them there is a problem Phase 2: Present solutions

38 Shock First Party-No Fault system out of its high cost habits End pattern of routine over-expenditure on benefits for minor injuries No change to verbal tort threshold, deductible Eliminate towing and storage abuses Repeal Bill 5 Proposed Solutions

39 Lower 1 st Party med/rehab limit to $25K for claimants not spending 2 nights in hospital Require PAF-type treatment for all minor injuries except on referral from physician specialists. Also: Impose $1,500 hard cap on med/rehab for post- PAF treatment of minor injuries No access to attendant care No access to in-home & worksite assessments Housekeeping/home maintenance and caregiver support limited to two weeks following injury Proposed Solutions – IBC Submission

40 Lengthen insurer turn-around times for responding to assessment proposals and eliminate assessment “rebuttal” Limit interest on SABS debts to Prime +1% Update definition of Catastrophic Impairment Exclude punitive damages from auto policy Enforce last payor principle for auto insurers Streamline FSCO arbitration system Replace Bill 5 with Respond to Market system for expedited rate filings Proposed Solutions – IBC Submission

41 Continue outreach to government/stakeholders Internal discussion on refining proposals Pray…. Ontario Auto – IBC Next Steps

42 Auto Insurance in Canada Crossroads Uncertain Unprofitable Medium range forecast is…

43 Medium Range Forecast 2008201020112009

44 Other Regulatory Issues New Insurance Acts in Alberta and British Columbia Trend toward risk-based regulation OSFI-IBC MCT Advisory Committee (P&C MAC) to develop framework to allow internal modeling for P&C insurers

45 BC Insurance Act Exclusions to fire policy to be defined by regulation Regulations currently being drafted IBC expects existing list will be expanded to include terrorism and nuclear events We are hopeful about earthquake


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