Canada’s largest insurer has served warning that it will consider increasing auto rates in Alberta if the recent increase in its auto accident bodily injury tort costs evolve into a longer-term trend.
For brokers, news of a potential rate increase may come as a bit of a surprise, because Alberta’s private auto insurance market is generally considered to be more stable than Ontario’s more volatile private auto insurance market. The announcement serves warning that auto insurance rates could become a political issue again, with Alberta brokers bearing the brunt of a public backlash, after remaining a non-issue since the province’s minor injury cap took effect in 2004.
Overall, Intact Financial Corporation reported a generally good result in 2013 Q1, including a healthy 92.1% overall combined ratio in the fourth quarter of 2012. But its combined ratio of 103.1% in personal property auto lines raised a few eyebrows.
Intact’s said its unprofitable quarterly result in auto lines was primarily the effect of conservative reserving for anticipated increases in claims costs in the areas of Ontario bodily injury (BI), Ontario accident benefits, and Alberta BI claims.
The surprise is the spike in Intact’s Alberta BI tort costs. The province reformed its auto insurance product in 2004, when the government imposed a $4,000 cap on minor injuries arising from auto accidents. The cap, which has served to keep insurers’ claims costs stable, survived a constitutional challenge in the Alberta Court of Appeal, and the Supreme Court of Canada in 2009 refused to hear an appeal, effectively upholding the minor injury cap.
“In the context of Alberta, unlike in Ontario, there has been a change in the field,” Intact Financial Corporation CEO Charles Brindamour said in a February 6 conference call announcing the company’s financial results. “Recent court decisions in Alberta have undermined the effectiveness of the cap on damages due to pain and suffering.”
The decisions have caused the company to reserve cautiously for all accident years in Alberta prior to 2004, Brindamour said, which negatively affected the company’s 2013 Q4 result.
“It is new information, so when I think about Alberta, clearly pricing is on the table right now,”
Brindamour said. “In Ontario, in my view, right now there is no change that warrants pricing action in the short term. But in Alberta, we’re looking at our price adequacy and we’ll decide in the upcoming weeks and months whether what we’ve observed is a trend and, if it is, what the pricing actions will be.”
Brindamour said recent reforms to the Ontario product resulted in cost savings along the line that the company expected. He said the company nevertheless reserved cautiously to anticipated higher claims costs in response to a court decision that widened the definition of a catastrophic injury.
In the Ontario product, accident benefits increase from $50,000 to almost $1 million when the auto injury is deemed to be ‘catastrophic.’
