Highlights from AIRB meeting
On June 15, 2010, the Alberta Automobile Insurance Rate Board (AIRB) met to discuss premium setting that would come into effect in November. While the Board is set to release its decision on basic coverage by August 1, both IBC and AIRB’s actuary said they support no change to the mandatory basic auto coverage. However, the price of optional coverage, including comprehensive and collision, could rise.
Insurers and stakeholders presented their submissions at the meeting. Here are some of the highlights:
IBC: Happily, it would appear that we are now entering a more stable environment for auto insurance in Alberta. The Supreme Court of Canada’s decision not to grant leave to appeal the MIR’s constitutionality has removed the most significant factor affecting market uncertainty from the ratemaking process. Gasoline prices have become more stable. Alberta’s economy is showing signs of recovery. And, interest rates appear poised to rise through the year and start to bring insurer investment returns back towards more normal levels. Almost six years after the rules governing auto insurance were reformed, the pricing of auto insurance can begin to be done with greater predictability in claims trends and market conditions. However, it is still the case that the experience data that forms the basis for forecasting future cost trends remains distorted by the unique effects on claims reporting patterns that we believe occurred as a result of the turbulent events of the recent past.
Since the reforms of 2004, insurers and the AIRB were forced to determine rates and rate adjustments for a future market without the certainty of knowing whether the costs of minor injuries would be contained by the cap on non-pecuniary awards. When the MIR was overturned, some experts concluded that Alberta’s basic coverage was underpriced by 25 per cent. Had the subsequent appeal not been successful, industry would have faced skyrocketing claims costs, and, in the absence of defensive action by insurers, possibly in some cases threatening insurer solvency.
IBC understands that at this point the matter is in the hands of government. However, we hope that the Board will find opportunities to convey to the government our shared support for a timely move towards a more competitive system for establishing auto insurance premium levels in Alberta. A more competition-based filing system would be able to take into account the diversity of insurers with different business models and, by incorporating a simplified filing approach, would permit companies to undertake more maintenance-type filings and move quickly to react to changes in market conditions.
Read IBC’s full submission here. (PDF)
Merle Taylor, Consumer Representative, Alberta Automobile Insurance Rate Board: Ms. Taylor surveyed 840 Alberta insurance consumers by telephone and 283 by online surveys. She found 70% agreed with the statement that ‘Insurance premiums are fair and reasonable’. This compares to 75% who agreed with the statement when the survey was conducted in 2009. Only 48% of the respondents from the web survey agreed with the statement. When this question was asked of survey respondents in 2005, 46% agreed with this statement. On the issue of credit scoring: The survey indicated that 48% of consumers in the telephone survey and 54% of the consumers in the web survey were not comfortable with the use of credit scoring, even if it resulted in a premium reduction.
She says: While basic coverage rates have decreased since 2004, total insurance premiums have in fact, increased as a result of increases to optional coverage. The majority of consumers carry collision insurance and do not differentiate increases to basic coverage versus optional.
A sensitive issue for consumers this year will be the significant profits that insurers are reporting. Insurers established reserves to provide for a potential court decision that ruled that the minor injury cap was unconstitutional. When the Court of Appeal upheld the cap and the Supreme Court of Canada denied leave to appeal that decision, those additional reserves were no longer necessary and were released, contributing to an improved profit result for 2009.
A lot of Albertans have relatives in Saskatchewan and they are very aware that the rates are significantly lower across the border. While some of this difference in rates relates to the increased traffic density in Alberta, the no‐fault system in Saskatchewan also contributes to lower rates. In discussing this difference with consumers, the majority would prefer a system that has lower premiums, even if the ability to sue for non‐economic damages was forfeited. This may be a view that the Alberta Government may want to consider over the longer term. In considering the annual adjustment, consumers would be critical of any increase in rates given the profitability of the auto insurance sector in Alberta for this year.
Read her full submission here. (PDF)
David Simpson, Facility Association: Simply stated, maximizing insurance availability for consumers can be achieved in an environment of product stability and pricing flexibility. We therefore believe that a move away from a rigid industry-wide process to a more flexible company-specific approach to rate review would not only lead to improved premiums but smaller residual market mechanisms as well. In a similar vein, we continue to encourage suggest, as we did last year, that steps be taken to ensure the protection afforded by the premium grid remains as tightly focused as possible on the group of consumers it is intended to protect and that insurers be allowed to charge adequate rates for risks not targeted by the grid. As long as the premium grid remains in force, we believe allowing open price competition below the maximum premium set by the grid will pave the way for the smallest possible residual market volumes in the current regulatory framework.
To read this submission in full, click here. (PDF)
Other submissions (all submissions are in PDF form.)
