N.B. Government and Auto Insurers in Face-Off

In its first “throne speech” since the recent provincial election, New Brunswick’s Conservative government announced a legislative amendment to its Insurance Act which will require all registered insurers to file for new auto rates by August 15 of this year or face an automatic 20% reduction in the price of coverage. The new legislation also presents draconian “penalties” on insurers with regard to late reimbursement of “excess premiums” to policyholders as well as attempts by companies to withdraw from the province’s auto insurance marketplace.

In addition to the mid-August deadline for filing new rates with the province’s Public Utility Board (PUB), insurers will have to make rate reductions retroactive to July 1, 2003. Insurers not having reimbursed policyholders the difference between existing and new rates within 45 days will face fines up to $5,000 per policy. The new bill also places a “rate freeze” on auto pricing for 12 months to July 2004. Insurance companies having already filed for rate reductions will not have to do so again. The new legislation requires insurers looking to withdraw from the province’s auto market to provide six months’ notice or face a maximum penalty of $100,000.

Prior to the province’s recent general election – through which auto insurance rate increases became the central political platform of debate between the major contesting parties, which in the end almost resulted in the PC party losing its voter majority – the government had presented a plan for auto insurance reform that capped “pain and suffering” bodily injury awards from vehicle accidents at $2,500. Subsequently, several auto insurers operating in the province announced their intent to reduce rates based on the reform initiatives. However, the government’s plan outlined a hearing process to be conducted through the PUB for investigating and approving rate adjustments relative to the new auto insurance reforms. The hearing process began on August 11 of this year – just three days short of the government’s latest rate reduction ultimatum. “To date, companies that insure almost half the motoring public in New Brunswick have filed for rate reductions with the province’s Public Utilities Board. Many others [insurers] have opted to wait for the conclusion of the hearings given that they were told their filings would not be approved if they in fact filed them with the Board,” says the Insurance Bureau of Canada’s (IBC) Atlantic region vice president, Don Forgeron.

Through the IBC, insurers have objected to the government’s latest demands, pointing to the province’s “bureaucratic process” which has slowed filing applications and also created confusion as to when rate submissions should filed for approval. “Insurance companies have been more than willing to comply with the government’s rate reduction policy but, before this bill, we were essentially not even allowed to apply for lower rates because of the pending PUB hearing process. The government could have avoided all this [confusion] by establishing clear rules very early on in the process. As a result, policyholders may have to wait for insurers to calculate and return retroactive funds in terms of the difference charged on old rates”, Forgeron observes.