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

Canadian Institute of Actuaries. L’Institut canadien des actuaires. 2008 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2008. Auto Insurance Coast to Coast An IBC Perspective. Don Forgeron VP, Ontario Insurance Bureau of Canada. September 26, 2008. Low risk.

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

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

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

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

  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. Alberta Premium Regulation Review • 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

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

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

  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. New Brunswick Auto Premiums -36.0% 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. Prince Edward Island Auto Premiums -14.6% 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 ($) July 03 NB cap introduced Aug 04 NF deductible introduced Nov 03 NS cap introduced April 04 PEI 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. Ontario Auto – Recent Reforms 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

  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 Changeon Injury Costs ?? ? Source: IBC with data from GISA

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

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

  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 deteriorationaccelerating 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. Objectives • 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

  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. Proposed Solutions • 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

  39. Proposed Solutions – IBC Submission • Lower 1st 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

  40. Proposed Solutions –IBC Submission • 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

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

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

  43. Medium Range Forecast 2008 2009 2010 2011

  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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