Why Sonnet asked for a 50% auto rate increase in Nova Scotia in 2020

Online direct writer Sonnet has been under-charging auto clients in Nova Scotia who have fewer than 20 years’ experience or less, but that is about to change.

As a result of rate changes approved Thursday, the premium increase will be about 50% across Sonnet’s book of business in Nova Scotia. Most of what Sonnet asked for got approved.

Sonnet was established in 2016 by Waterloo, Ont.-based Economical Insurance, which uses its own brand to distribute through brokers and the Sonnet brand to write direct to consumer.

In its latest Nova Scotia rate filing, Sonnet said it underwrites more policies for inexperienced drivers than Economical does. Drivers with less than 20 years of experience are over-represented in Sonnet’s book of business, wrote Roberta Clarke, a member of the Nova Scotia Utility and Review Board, in the NSURB ruling released Jan. 9.

“Sonnet’s competitive analysis shows that the company is underpriced for drivers licensed for 20 years or less, and especially so for drivers licensed less than 10 years.  The opposite applies to drivers licensed 21 years or more.”

Sonnet had not been using the same rate differential as Economical for drivers with less than 20 years of experience, the utility board said. So now, in its rate filing, Sonnet is proposing to use the same differential as Economical for third party liability, direct compensation property damage and accident benefits coverages.

These and other rate changes take effect Jan. 23 for new business and March 1 for renewal business.

Driving experience was not the only rating factor affected in the NSURB ruling. For example, Sonnet is also approved to increase the differential for drivers with convicted of offences, explaining that Sonnet has a much higher proportion than Economical of such risks. So Sonnet intends to provide “some deterrent” for those risks, said NSURB.

In its Jan. 9 ruling, the NSURB approved most of what Sonnet asked for in its rate filing.

What the board did not approve was a 275% surcharge if a client has had a policy cancelled for non-payment of premium in the past three years. Instead the board approved a 140% surcharge. Currently the surcharge is 25%. NSURB staff did not feel that Sonnet had provided enough evidence to show that a 275% surcharge was reasonable.

“Sonnet will have to redetermine the off-balancing calculation as a result of this change,” the board wrote in its decision. “The company is to file revised rates within 10 business days of the date of this decision to reflect those changes.  Once they are approved by the Board, an order will issue.”

When it made its rate filing, Sonnet said the proportion of risks who had previous policies cancelled for non-payment of premium is about eight times that observed for Economical, and that being a direct to consumer underwriter “exposes it to considerable risk of fraud and may result in more of these non-payment cancellation risks seeking insurance with Sonnet.”

Sonnet will be able to apply for a further increase – beyond the 140% approved by the board – if the new surcharge does not reduce the percentage of such policies to a more reasonable level.