Keep Capacity Coming

The committee meetings on auto reform in Ontario were completed in late September, and written submissions presented to the government in the first week of October. We now await the government’s proposed legislation.

From a broker perspective, proposed auto insurance reform cannot come soon enough. MPP Rob Sampson brought forward a private members bill that we do not expect to go forward, but expect many of its recommendations to be implemented in a formal bill from the Minister of Finance. The Insurance Bureau of Canada (IBC) and the Insurance Brokers Association of Ontario (IBAO) worked closely with the government to make suggestions to relieve the pressure on the automobile insurance product.

Urgently required is the “file and use” rate system. The six to nine month delay that now is the norm is totally unacceptable. The rate filing process is long, cumbersome and expensive for insurers. By the time approval is received, in many cases, another increase is required due to rapidly deteriorating health costs. Even though we talk about the need for rate increases as urgent, the crisis we are in will only be solved by product reform. Regulation of paralegals, control over treatment facilities, the need to weed out fraudulent claims, along with the streamlined rate approval system are all required because of the magnitude of the situation.

BUDGET CONSTRAINTS

Brokers as the front line sales force have spent literally every working day this past year explaining to their clients what has happened to our industry and why their rates have been increasing by double digits. Most consumers have accepted this, somewhat grudgingly, but they have accepted it. This will not be the case on the next go around, and we are concerned that this is not over yet.

Most insurers have already set their next year’s budgets. With the return on equity for insurers at record lows, several global insurers must make decisions on capital allocations for 2003. Based on the figures we are hearing for 2002, there appears to be little or no chance of achieving an acceptable level of return on investment, while combined ratios continue to be well over the 100% mark. This means that capital for 2003 will be severely limited. Even with swift product reform, it may be too late for insurers to free up capital to allow growth in the Ontario market. Few markets are actively seeking growth opportunities. We cannot afford any further market withdrawal.

The hardening and consolidating market has lead to greater activity in mergers and acquisitions, consolidation of markets by brokers to minimal numbers along with seriously overworked staff as they struggle to replace business due to loss of markets, or restricted markets, and explain to consumers what’s happening to their individual policies. Our concern is that if more insurers withdraw or contract, the remaining players would not have the capital and surplus to write additional volumes.

AVAILABILITY CRISIS

The insolvencies of Canadian Millers Mutual and Markham General have created serious market availability problems that are exacerbated by the CGU/Pilot situation and the Zurich sale of personal lines and small commercial to ING. As well, The Loyalist announced that they are going to withdraw from the personal lines market in Ontario. Effective from the beginning of October, The Loyalist stopped accepting new business – the company will no longer offer renewals from December 16 this year.

We cannot only blame Ontario auto for all of our woes. A staggering stock market has led to a decline in investment income and surplus capacity for literally every insurance company in Canada. The fact that the product alone must be profitable is a new phenomenon for a generation of underwriters who have never seen a “hard market” and lived by “cash flow” underwriting. And, the horrendous events of 9/11 have added an urgency for the reinsurers to regain capital in a market already immersed in red ink. Reinsurance treaties were already being negotiated with substantial increases, prior to the terrorist attacks.

NEW BEGINNING

For brokers, the year has not been all doom and gloom. Certainly there have been hardships for some, but for many of us, our company partners have stepped to the table and helped in taking their share of the displaced business. Our lobbying efforts with the provincial government appear to have been successful, as auto insurance reform legislation is being moved forward quickly so that legislation can be completed prior to the yearend. Last but not least, the consumer, more than ever is dependent upon us to represent their interests as trusted advisors when it comes to the purchase of insurance products.

36www.canadianunderwriter.ca CANADIAN UNDERWRITER / OCTOBER 2002