Taking The Good & Bad In Stride

The property and casualty insurance market in British Columbia has felt the pains of the hard market, as can be expected in the year following the least profitable year on record for the insurance industry. Premium increases for straight-forward commercial business were sometimes as low as 15%, but others, especially those with U.S. exposure, saw increases triple, quadruple and more. This has increased the workload for brokers and the frustration level for consumers who wondered why these increases could not have been more gradual.

This was the first year that the new requirements of the federal Marine Liability Act were felt, and small marine operators such as white-water rafting and whale-watching tour guides found themselves hit with huge premium increases. The tourism associations are seeking exemptions for these operators on the basis that they are being impacted unfairly by legislation meant for larger vessels.

The province’s economy marked some highs and lows this year. The new tariffs imposed on softwood lumber exports to the U.S. have caused logging and sawmill operations to shut down or move to Washington State, taking the major employer away from several B.C. small towns. Government cut-backs to services such as hospitals, schools and court houses have led to lay-offs, which again have hit the smaller rural centers hard.

GOOD DAYS

However, there have been some “good news” stories. The loss of consumer confidence due to the leaky condo problems had brought the housing market in southwestern B.C. to a virtual standstill for a couple of years, and the spring of this year saw it bounce back, thanks to pent-up demand and new rain-screen technology evident in both new and resale inventory.

Leaky condo and mould claims are working their way through mediation and the legal system. In one notable decision, the Corporation of the City of Delta (which was not insured for this) found itself on the hook for $3 million in moisture damages because its co-defendants have all since dissolved.

B.C. has been blessed with fairly moderate climatic conditions for the past year, so we have not seen any major weather-based claims to the same degree as other parts of the country have. However, there have been several large industrial fires this past year.

INCREASED COMPETITION

B.C. has been insulated from the rising claims costs and other problems plaguing the auto insurance markets in Alberta, Ontario and the Atlantic provinces. This has not gone unnoticed by our government. The public auto insurer, the Insurance Corp. of B.C. (ICBC), was required to undergo a “core services review” as were all provincial ministries, agencies and crown corporations. Government has been waiting for the completion of this review before announcing its intentions as to how it will follow through on its election promise to bring more competition to the auto insurance system in B.C. While brokers and private insurers have held their breath waiting for news, ICBC has been getting into fighting trim, reducing its staff by about 20% and introducing several measures to become more competitive, including a complete migration of its data-management system from mainframe to a web-based system. All but a few brokers are now on this new extranet system.

One bright spot for brokers during this phase was the renewal of the ICBC/broker “strategic accord”, which reaffirms brokers as the exclusive distribution channel for “Autoplan products”, maintains the moratorium on agency contracts and provides a framework for cooperation between the parties for the next five years. At time of writing, the association was still waiting for government to announce its intentions regarding ICBC, but a phrase that has been used by ICBC senior staff and government ministers recently is “evolution, not revolution”. We welcomed ICBC’s Sept. 13 appointment of Terry Squire, the retired president and CEO of The Co-operators, to its board of directors as it has long been one of our recommendations that ICBC should have more industry experience on its board.

LOOKING AHEAD

The Financial Institutions Act is undergoing the most comprehensive review since it was enacted in 1989. Industry stakeholder submissions have been posted to the Ministry of Finance website at http://www.fin.gov.bc.ca/PT/fcsp/comment.shtml. Provincial privacy legislation is being drafted and officials expect it to be in place by May 2003.

For 2003 we’re expecting much more of the same as far as rates and capacity are concerned. There might be some abatement of rate increases and perhaps some additional acceptance of previously shunned classes, but we do not anticipate much change in the short term. There cannot be significant turnaround in B.C. until profitability is restored to the overall market through both underwriting gains and investment returns. We are hopeful that the provincial government’s reform measures throughout the province will start to pay increased dividends in consumer and investor confidence, and that we can start our return to a strong economy and a more “normal” insurance market.