Canada’s auto insurance direct loss ratio rebounds in 2006

During the past 10 years, the Canadian automobile insurance industry’s underwriting results have changed dramatically, as reflected by the significant variations in the direct loss ratio according to a special report by A.M. Best Co. A.M. Best predicts the direct loss ratio will level off in 2006.”A.M. Best anticipates that the direct loss ratio for automobile lines will level off in 2006, which should result in another good year for the industry,” the ratings agency says.A.M. Best notes that from 1996 to 1998, the industry direct loss ratio “remained flat, at around 75. Premiums did not grow and claims incurred remained steady.”But over the next seven years, between 1998 and 2005, direct loss ratios started to increase, A.M. Best noted.”In 1999, auto claims incurred increased to CD$7.9 billion, or 5.3% over the prior year,” the A.M. Best reports notes. “Premium revenue increased only 1%, to CD$10.1 billion, sending the direct loss ratio up to 77.7.”Claims costs would continue to rise annually by 10.3% on average for each of the next four years, reaching CD$11.7 billion in 2003, due primarily to increasing healthcare costs, higher vehicle repair costs and an increase in fraud.”In Quebec, where the government provides bodily injury protection, the underwriting results of private insurers were not adversely impacted by medical inflation, A.M. Best notes. Since 1997, the direct loss ratio in Quebec has trended downward from 78.7 [in 1997] to 57.4 in 2005, a 21.3-point drop.In the Atlantic provinces and Alberta, direct loss ratios reached highs of 103 and 88.7, respectively, in 2001. The Ontario the ratio topped out at 98 in 2002.Between 2003 and 2005, direct premiums earned increased 22.9%, claims incurred decreased 8.4%, and the direct loss ratio decreased to 64.4 (approximately 22 points below its peak in 2002.)