Newfoundland Study Finds Savings With “Cap”

Newfoundland’s Public Utilities Board (PUB) will hold public hearings throughout the last half of February and possibly into March on the issue of auto insurance.

The hearings follow the completion of the PUB’s study of closed auto claims, published by Mercer Oliver Wyman. That study suggests significant savings if a cap were put in place on non-economic, or “pain and suffering” awards for minor injuries under specific definitions.

In fact, if the current $2,500 deductible on such awards is removed, placing a $2,500 cap on damages (as has been done in other Atlantic provinces) would result in 11% (or $101 on average) savings, while implementing a $2,500 deductible results in just 3% (or $32 on average) savings.

In order for such savings to materialize under the cap, the definition of minor injuries needs to include: an injury which does not result in permanent serious disfigurement, or permanent serious impairment of an important bodily function caused by continuing injury which is physical in nature.

Taking the $2,500 deductible into account, the average savings with a $2,500 cap under this definition would be 8% (or $71 on average).

Significant savings would also be realized by increasing the deductible from the current $2,500, the Mercer study notes.

The PUB says it is also finalizing its study of the impact of eliminating rating based on age, gender and marital status. And hearings on homeowners, commercial and marine insurance are also expected in the future. n

www.canadianunderwriter.ca* February 2005