the drive for Safer Roads

Canadian automobile insurers wrote a combined $9.3 billion in earned premiums in 1998 while incurring losses of $7.0 billion. This 77.45 loss ratio ranks second only to accident & sickness as the worst loss experience category among all property & casualty business. Factoring in an industry average expense ratio of 32.29, this boosts the total cost on auto to an average combined ratio of 109.74. In essence, auto insurance on its own is bad business. But, there is a growing tide among industry circles that auto carriers should focus their efforts on the front line of their auto policy losses — bad business can be made good business if claims can be reduced by ensuring higher levels of safety regulation of drivers, roads and vehicles.

Robert Tremblay, the Insurance Bureau of Canada’s (IBC) manager of public affairs and the industry point man on the safe driving lobbying initiatives, says there are three elements to the road safety and loss prevention equation.

He says drivers must be more effectively schooled, roads must be more effectively engineered and repaired, and vehicles must be more safely built. The industry, lead by the IBC, is taking a big role in all three of these areas.

Specifically, Tremblay says the IBC has been on the lobbying forefront for graduated licensing programs across the country. It has undertaken studies to determine the effectiveness of various enforcement infrastructure enhancements, and also independently funded increased enforcement in accident-prone areas. Down the line, The IBC plans to initiate steps on improving highway infrastructure across the country.

Specific insurers are less interested in discussing road safety initiatives, preferring to direct their efforts through the IBC. However, some watchers of road safety developments charge that insurers have other motivations for their seeming lack of interest in this area, “most insurers believe improvement in dangerous intersections or monies spent improving the roads will not necessarily impact their own bottom line, but that of the competitors as well. It is the competitive nature that keeps most of these companies from wanting to take an active role in the loss prevention programs that the industry on a whole would benefit from.”

Graduated licensing wave

The most comprehensive and successful among industry safety initiatives has been the drive for graduated licensing programs across the country. Graduated licensing (GLS) involves restricting new drivers to operating their vehicles under set conditions and lifting the restrictions over a set period of time as the new drivers acclimate themselves with the roads. The program has been enacted in one form or another across Canada in all areas but four — in Alberta and Yukon graduated licensing has been introduced but not yet implemented, while Saskatchewan and Manitoba have yet to proceed. Tremblay says the Ontario experience, which was documented in a report issued in 1998, proves graduated licensing should be implemented across the nation and has proven to reduce the insurance costs and the amount of accidents and fatalities among new drivers.

The Ontario report evaluating graduated licensing, issued in 1998 by the Safety Policy Branch of the Ministry of Transportation, offers a compelling case indicating that the holdout provinces should introduce the program. According to the report, 16-year old drivers were three times more likely to have a collision than the general driving population before the introduction of graduated licensing. After the two-year introductory period of GLS in Ontario, the report found the collision rate for novice drivers was down 31%. The fatality collision rate per 10,000 licensed novice drivers was 2.8 after the introduction compared to 3.5 before, representing a 20% reduction in the rate. Other encouraging findings noted new drivers were involved in 27% fewer collisions in which alcohol was a factor and total savings in property damage, emergency response and medical care costs was estimated to be $34 million. Tremblay notes that every jurisdiction’s program differs in its particular rules — a product of the differing demographic environments province to province — but says industry actuarial estimates suggest insurers will see a 10% reduction in losses with the GLS in place. In Ontario alone, which accounts for more than half the nation’s auto premiums, the savings from graduated licensing could total $520 million.

The industry is taking notice to the life and cost benefits of graduated licensing, Tremblay says, pointing to an initiative funded by the Alberta Coalition of Auto Insurers who have enlisted a group of thirteen students to go to community events promoting GLS in Alberta. He confesses his association has not been active in promoting the program in Manitoba and Saskatchewan because of the public insurance policy in those provinces.

At least one of the holdout public insurers though admits they have not yet ruled out graduated licensing. Phyllis Glowatsky, manager of drivers programs at Saskatchewan General Insurance, notes the province does in fact have a probationary period for new drivers. “While our program allows full driving access, the structure of the program allows new drivers to be monitored more closely. If a driver gets into an accident or drives aggressively, they are called in for an interview and their two year probation can be extended to a third,” she explains. The probation program was introduced in 1996 and is due to be evaluated later this year. Glowatsky says early estimates suggest the program has reduced accidents among new drivers by roughly 14%. “When we do our review though, we are not ruling out looking at the graduated licensing system which might suit us as well.”

Advocates charge holdout regions are balking at graduated licensing because of the bureaucratic and administrative costs associated with initiating and administering the program. “A great way to improve road safety is to train drivers better. There is no reason why any province in this country has not yet introduced these measures,” says one market advocate.

Cost should not be a factor though, according to data provided by the U.S.-based Insurance Institute for Highway Safety. According to their case study figures, the GLS program cost the state of Oregon $150,000 to administer while delivering savings of $11 million, amounting to a 74 to one benefit to cost ratio.

More likely though, the hesitancy of some provinces to introduce graduated licensing is attributable to different provincial demographics, Glowatsky notes. “Most of the kids in Saskatchewan are in the rural areas and have been driving around farms from field to field to help their father long before being licensed. This is part of our consideration.”

Tremblay says these provincial differences will stop graduated licensing rules from being harmonized coast to coast. “In the Yukon, there is a night test because of the six-months-of-darkness throughout the year there. The rules have to vary from jurisdiction to jurisdiction but the principles of the program are a must.”

Infrastructure lag

The industry has not unified itself around roadway infrastructure improvements to the same extent it has surrounding GLS. It is, however, a hot issue in some industry quarters. At an Insurance Information Centre of Canada’s (IICC) Automotive Insurers & Manufacturers Forum, vice president of U.S.-based State Farm Insurance, Wayne Sorenson, blasted North American insurers and government for not focusing enough on dangerous roads. Roadway infrastructure gets updated once every twenty-five years but it is often dangerous intersections that are the cause of accidents, he says. “Insurers are the great scorekeepers. We have vital information about the bad intersections that the government could no doubt make great use of.”

Andrew Cartnell, vice president of personal lines at Co-operators General Insurance Company, says the industry supports infrastructure improvement but is hesitant to take too strong a role in upgrades. “Do we expect automobile insurers to fix Hi ghway 401 between Windsor and Chatham? I think everybody supports the idea that roads should be safer but it is kind of difficult to expect insurers to pay for it.”

Tremblay says the industry will not pick up the tab for roadway improvements but says insurers in Alberta are taking the initiative funding increased enforcement by police officers at various accident-prone intersections. He says the undertaking is to experiment with different enforcement techniques. “Red light cameras are being introduced cross- country and that is a project we feel will not be as effective as more police enforcement on the roads,” he argues. Red light camera violations, he says, are not recorded for insurer purposes. “We are telling the government that funding greater enforcement is not being done so that they can ask for more money to fix the roads, we are doing this to help them analyze red light cameras versus more police enforcement.

“It’s not the insurance industry’s role to fix the roads.”

Government offer

The insurance industry can step up to the table and provide valuable consultancy if not money, suggests Liberal Member of Parliament Joe Comuzzi who is chairman of the National Highways Program. Comuzzi’s committee and federal Transport Minister David Collenette recently announced an initiative that could see the government spend $700 million a year over five years, money to be matched by the provinces, in order to construct and repair highways across Canada. Comuzzi, who recently met with cabinet officials to map out the process, says his committee welcomes the support and the input from the insurance industry at the policy level. “With the insurance company’s knowledge, they can help to enhance the highway safety and be part of the overall policy decision making with respect to the roads. Insurance companies could come to the table with empirical data to help the decision makers enhance the safety aspects to create safer road barriers and speed controls.”

Comuzzi admits he has yet to hear from representatives from insurance but with the process moving from the conceptual to planning stages, he hopes insurers plan to lend their loss prevention expertise.

Vehicle safety

The third dynamic to auto loss experience — vehicle mechanics — has experienced a strong push forward, a result of improved consumer sophistication and a corresponding improvement in vehicle safety. This advancement can partly be attributed to consumer information organizations, such as the U.S.-based Insurance Institute for Highway Safety (IIHS), which publicizes its findings in an array of vehicle manufacturing tests.

Dr. Susan Ferguson, IIHS’s vice president of research, says vehicle manufacturers who have received bad scores from the organization’s tests have contacted the Institute to have their upgraded and improved cars re-tested. For example, Toyota’s recently revamped Previa minivan — now called the Sienna — received poor safety scores in its old incarnation, but was re-evaluated and tested highly when revamped. “Nobody likes to not do well in the crash test results. The bottom line is that manufacturers are concerned about their test results and they are improving their safety mechanisms to improve their results. There is no government regulation for crash tests, but the companies are very responsive to the current form of consumer information,” she explains.

With more consumer awareness about individual vehicles’ safety records, the pressure is on the manufacturers to constantly improve. “The manufacturers are becoming more responsible to the consumer,” she adds.

Tremblay says the Vehicle Information Centre of Canada’s (VICC) Canadian Loss Experience Automobile Rating (CLEAR) system addresses manufacturer and safety improvements by devising a system of rate groups to fairly match premiums to the risk associated with the vehicle make and model. “Through CLEAR, Canadian insurers are advocating safety by factoring vehicle safety into their rating,” he adds.

Still, despite CLEAR and IIHS’s findings which assist insurers and consumers to identify safer automobiles, it is essentially the purchasing public — the insureds — that determine whether there will be safer cars on the roads. Although IIHS has determined sport utility vehicles (SUVs) account for the highest number of fatalities in single vehicle accidents, and in cars struck by these vehicles, the market for SUVs has never been stronger, with an unprecedented amount of manufacturers entering this market in the coming year.

Drivers Involved in Collisions Who Had Been Drinking or Exceeded Legal Limit: Rate Per 10,000 Licensed Novice Drivers(pre/post GLS)

1993 Novice Drivers 1995 Novice Drivers% change

16-192319 -19%

20-244331-28%

25-343123-26%

35+2315-36%

Total2720-27%

Collision Rate Per 10,000 Drivers in Ontario(pre/post GLS)

1993 Novice Drivers 1995 G2 Drivers% change

16-191,3621,079-21%

20-241,126867-23%

25-34948719-24%

35-44822645-22%

45-54674630-7%

55+516612+19%

Overall1,142962-16%