PACICC unearned premium debate continues

The debate surrounding compensation for unearned premiums was among the issues on the table at the recent annual general meeting of the Property and Casualty Insurance Compensation Corporation (PACICC). The corporation, set up to pay out claims following insurer insolvencies, had been asked by regulators to review its coverage of unearned premiums. PACICC had instituted a system to pay 70% of a maximum $1,000 or $700 per policy.

Despite the failure of two companies in the last year, Canadian Millers’ Mutual and the Canadian branch of U.S. insurer Reliance, both were mainly commercial writers and did not provide a test of the new system. However, on the advice of former regulator Lawrie Savage, PACICC concluded its current system was adequate, partly due to new installment payment systems making unearned premiums a smaller exposure for policyholders, and because Savage says some incentive needs to be there for consumers to insure with financially solid companies.

Newfoundland, however, is currently considering provisions requiring insurers to belong to an association that offers 100% compensation. “We have tried our hardest to convince them such action would be a mistake… Obviously, if they do follow through there will be a major problem, for unless insurers belong to such an association, they would not be able to issue any policies in Newfoundland,” says Alex Kennedy, president and CEO of PACICC. Also dogging PACICC is the issue of priority of payment on accident benefit claims in Ontario. Current legislation, which is being rewritten, means insurers of other people involved in accidents get stuck with the AB payment when a driver’s insurer becomes insolvent. “That is far too arbitrary,” says Kennedy. Although new legislation has been introduced, it has yet to be passed. –