A Numbers Game

Just one month into her new position as chief economist at the Insurance Bureau of Canada (IBC), Jane Voll was caught up in a media whirlwind. Her position set her with the responsibility of reporting the “industry’s big sin” – a $2.6 billion profit for 2003. Almost immediately after release of the financial data by the bureau, the net profit figure was bandied about prominently by government opposition members and lobby groups intent on painting insurers in a bad light to control the auto insurance reform process.

“A lobby group in Western Canada, fighting hard to derail auto reform in that province [Alberta], went looking for the most shocking number they could find,” Voll explains. And, in the midst of a slow news week, the story grew legs. “Every media outlet liked the story because it was sensational.”

The $2.6 billion figure was taken out of context, Voll contends, and despite other members of the IBC submitting to media interviews, their attempts to explain the situation were largely edited out, or fell on deaf ears. “In every province there were lobby groups saying the entire earnings were made in their provinces, and all on auto,” she observes. Of course, the reality is that auto insurers lost money last year, not only on their own books of business, but also with an industry-wide charge of more than $500 million resulting from the Facility Association (FA), the industry’s pool for high-risk drivers.

CONSUMER-CENTRIC

On the heels of this media melee, the IBC began to rethink its purpose in releasing quarterly industry financial results. Not only had the results become somewhat redundant in light of the federal regulator also releasing quarterly company results, but what had begun as an attempt to educate legislators and others about the industry was becoming a political tool.

The decision was made to stop releasing quarterly results, while expanding the role of the analysis portion of the “Perspectives” publication. “What is of value is the analysis of economic trends affecting the industry,” Voll says. “I’m excited that the members want to expand Perspectives to look at the overall economy.” She calls insurance the “oil” of the economy, making business possible by transferring its risks. Consumers, she points out, can reflect on their day, from the morning coffee whose manufacturer is covered by products liability insurance to the drive home from work covered by auto insurance. “That’s what fires me up. That’s what I want to convey more broadly.”

Specifically, the industry’s results need to be seen under the lens of the need for a strong insurance platform on which to build the overall economy,” she adds. “You want a healthy foundation under your economy.”

The IBC is realigning itself to better address the need for communication and action on issues. New steering committees are aimed at strategic priorities (auto reform, rebuilding confidence, etc.), while functional committees mirror insurance company divisions such as finance and claims. An example of this system at work came in the development of a five-point auto insurance plan for New Brunswick. The CEO steering committee set the direction, while the functional committees worked on the “nuts and bolts” of the proposal, which involved a program to depopulate FA – already achieved ahead of schedule – and a “no frills” policy design. Voll says in this case, and throughout the auto insurance reform process, she has been impressed by the commitment shown by industry volunteers to finding solutions. “The member involvement in the last 12 months is one reason I love the IBC. They have real jobs, but they step up to the plate.”

Unfortunately the industry has not enjoyed the same kind of dialogue with government in Newfoundland as it has in New Brunswick. Newfoundland recently brought forward legislation which has already prompted several insurers to leave the province. Voll calls the situation “very disappointing…especially when we have examples of successful reform right next door [in New Brunswick and PEI].” She fears history will repeat itself in Newfoundland with company withdrawal, insolvencies and further availability issues.

RESTRUCTURING PHASE

While dealing near-term with auto reforms in every private market province, the IBC is also looking at its long-term goals, first of which is to restore consumer confidence. “At the center of the auto insurance system is an informed consumer. It’s not an insurance company making buckets of money at the center,” Voll says of the bureau’s focus. In each of the bureau’s actions, everyone is pausing to ask ‘what does it do for consumers?’

The industry is asking the bureau to come up with solutions to the issue of consumer confidence before the end of the year, a process which usually takes years.

One approach the IBC is already looking at is the creation of “balance scorecards” to, in Voll’s words, “measure what matters”. The idea is to generate yearly statistics on measurements of factors like availability and affordability of coverage to catch problems early, rather than reacting to them later. The industry wants to end the “tail chasing” cycle that has led to the current crisis in public confidence, she notes. “We can’t stop [the insurance cycle] entirely, but perhaps we can manage it better.”

COMMON CAUSE

Insurers are also trying to head off problems with the commercial liability sector, and for the last year IBC has been talking to organizations – from the Boy Scouts to the local hockey league – about their concerns. The hope is to give commercial clients an outlet to talk to the insurance industry rather than taking their concerns to the government or the media. Through the IBC, “the right people for the conversation can be brought around the table”, Voll says.

Voll says commercial underwriters have subsequently sat down with about 40 organizations to discuss coverage availability issues. In doing so, insurers and their commercial clients are finding they have something in common, she notes. “We are finding a common cause with commercial clients is ‘litgiousness’ [costs and incidence].” Discussions have shown concern on both sides for the growing compensation culture in Canada and the impact this is having on the cost of insurance.

CONFLICTING OBJECTIVES

On a separate front, insurers are advancing their agenda with regulators. Voll hopes to take her “overall economics” approach and put it to work in helping regulators understand the connection between policy and outcomes. For example, federal and provincial regulators need to look at how their differing expectations sometimes work against each other. Insurers are required to carry high amounts of capital by the federal regulator and thus write less business than they might want to. At the same time, provincial regulators freeze auto insurance rates, thus forcing insurers to reduce their exposure so that they can keep their combined ratios down. Federal regulators, in turn, cast a jaundiced eye on insurers writing volatile auto business and exact a charge through their risk-based solvency assessment. In this respect, “availability, affordability and solvency objectives sometimes confound each other”, Voll explains.

“Globally, Canada has got a bad reputation for how intrusive our regulatory regime is,” she admits. Canada’s regulations, specifically those surrounding auto insurance, are out of line with those seen in other countries and with corporate governance ideals. One such area is price regulation in auto insurance. “There are jurisdictions all over the world, most of which don’t engage in price setting for auto insurance,” she comments. A recent IBC study looked at the impact of price setting, which regulators believe will make rates less volatile. Analysis of other countries, specifically the U.S., compared to Canada found just the opposite to be true.

As such, Voll wonders if measures such as the IBC’s proposed “balance scorecard” could be a means to replace price setting in this country. Given that we know cost is a leading indicator of price, a rise in costs will indicate the need to either raise rates or deal with the claims side, she suggests.

BEYOND INSURANCE

Voll’s approach to issues of public policy and government relations is always informed by her experience as an economist and policymaker. A graduate of Harvard University’s Kennedy School of Government, she holds degrees from University of Toronto and Wilfrid Laurier University.

Voll followed her academic background with economics work in both the private sector and the Ontario Ministry of Finance, before joining IBC in 1993. At that time, she and predecessor Paul Kovacs formed the policy division. The two continue to work together through the Institute for Catastrophic Loss Reduction (ICLR). Voll also serves as director of the Traffic Injury Research Foundation. This kind of involvement, she says, reflects her belief in the industry’s role in public life: to assist government in areas beyond the insurance realm such as road safety, climate change, natural disaster and injury prevention.