Caps And Consumer Understanding

I read with interest your editorial proposing that IBC go directly to consumers for their views on the cap and reducing claims costs. (‘Are Caps Off the Endangered Species List?’ Canadian Underwriter, July 2009.) We couldn’t agree more and have been doing just that.

In a nutshell, we have confirmed that consumers like what they’ve got when they know what they’ve got.

IBC commissioned POLARA in March 2009 to survey Nova Scotians and New Brunswickers about their perceptions of auto insurance and the cap on pain and suffering payouts.

The results confirmed that consumers are confused about the auto insurance product. Specifically, they are in the dark about how the cap on minor injury payouts works. Often they think it applies to more than it actually does. By extension, and not surprisingly, support for the cap is low.

However, the survey also found that once consumers understood how the cap works, acceptance of it increased by more than 15 percentage points.

Support increases further when consumers are aware of the cost savings associated with the cap. Specifically, support for the cap was 76% in Nova Scotia and 74% in New Brunswick for consumers who knew that losing the cap would cost at least Cdn$200 more in premiums.

So, yes, we know where consumers stand on this issue, and the appropriate industry response is clear — increased consumer education.

IBC has done much of this work already, including submitting dozens of letters and op-eds to newspapers, meeting with journalists directly to ensure they understand the cap and adding user-friendly videos to our Web site. We will continue to enhance these efforts.

We remain committed to communicate credible and accurate information to the public. After all, consumers will benefit when they know all the facts.

Michael Freill’s proposal that we reduce oil spills by offering homeowners premium reductions on their insurance policies rather than through government regulation sounds good in theory. (‘Oil Change,’ Michael Freill, Canadian Underwriter, August 2009) The reality, unfortunately, is that the math just doesn’t add up for those buying the policies.

Only a small percentage of the premium dollar is allocated for claims resulting from oil leaks and spills from tanks. Any discount insurers could offer for replacing or risk-proofing older oil tanks would be negligible compared to the cost of the upgrades or purchase of a new tank. The discount simply would not provide a financial incentive significant enough to encourage homeowners to improve the safety of their oil tanks.

This is why Insurance Bureau of Canada (IBC) maintains that government regulation is the right approach. It should be noted that IBC rarely advocates for increased regulation — on any issue — because it is usually not the most effective solution. But in the case of maintaining oil tank quality, a certain degree of government enforcement appears to be the best way to make a difference.

Prince Edward Island is the first and, so far, only Atlantic province to enact legislation in an effort to reduce leaks and spills from oil tanks. Though critical of the concept of government regulation, Freill offers several insights that the P.E.I. data has brought to light. For example, the data helps to identify the best style and material of a tank, as well as the ideal lifespan after which a tank should be replaced.

If there are other ways that the regulations can be improved, IBC is happy to work with the government to make the system better. Regardless, P.E.I. should be praised for taking leadership on this issue.

Freill calls on the industry to collect oil leak claims data. In fact, IBC has been collecting industry data for all four of the Atlantic provinces since the beginning of 2008. When we have compiled sufficient data to reach statistically meaningful results, we will use the findings to help governments implement or fine-tune regulation to ensure oil tank integrity.

It is true that insurance-driven financial incentives can be a motivator for home improvements. In the case of oil tanks, however, the industry can have the greatest impact by working with governments to implement regulation that will help homeowners reduce the risk of storing heating fuel.