Atlantic Canada: A Political Roller-Coaster

In an article I wrote for CU a year ago, I shared my opinions on some of the reasons for the hard market problems that gripped Atlantic Canada at the time. In reviewing that article, I stick to my story although today’s tough marketplace does offer a little more clarity regarding the background fundamentals.

While I do not presume to speak for all brokers in the Atlantic Canada region, I have consulted many of the regional stakeholders. In this respect, there continues to be consensus as to why we are in this position and where it may take us. The last 12 months has seen our image as an industry sink to new lows in the eyes of the consumer and government agencies. This has been fuelled by continued hard pricing in all lines, especially personal auto. The recent announcement of the $1.1 billion profit for the industry for the first six months of 2003 only increased everyone’s disdain for our industry.

MEDIA RELATIONS

Quite frankly, we as an industry have not done a great job in managing the media or government agencies by getting our position explained or defended.

To make matters worse, New Brunswick, Nova Scotia and PEI have gone to the polls and all political parties have used insurance as a “lightening rod” for consumers. Promises have been made to the electorate, including significant across-the-board price reductions to the auto insurance product.

An election is slated for Newfoundland in the near future with insurance a major plank in all parties’ campaigns.

Insurers, through IBC, continue to put soft tissue claims front and center, choosing to downplay a number of other reasons for our current position – such as the equity market situation, on which the public and politicians have focused. In my opinion this strategy has failed. With the promise from governments of soft tissue caps, the authorities feel that the problem is solved, and sizeable rate reductions of 20%-25% should be forthcoming. Of course, the resolution is not that simple, but political promises have been made and politicians would rather fight with insurers than voters. So, the line will soon be drawn in the sand.

PUBLIC INSURANCE?

Will insurers march to the governments’ beat, or is public insurance just around the corner?

In New Brunswick the Conservative government almost lost their significant majority position to this issue, and in Nova Scotia a minority government was elected for the same reason. In both cases the New Democratic party (NDP), who are proponents of a publicly run system, have done a very effective job of promoting the supposed benefits of public auto insurance, and they now appear to hold the balance of power as a result.

Many public hearings and task forces have been struck to review options. One of the higher profile actions was launched by the Coalition Against No Fault Insurance, a group consisting mainly of personal injury lawyers who brought Ralph Nader to Nova Scotia to speak on the “demon no-fault”. Over the past year, our industry has been dragged through the mud, and our position restored as the profession the public most loves to hate. So where will it lead?

From this broker’s perspective, the next 12 months will be even more challenging than the last. Firstly, in New Brunswick we appear to be on a collision course (no pun intended) for a publicly run auto insurance product. The task force looking into the insurance situation is headed by the leader of the NDP. To me this is a little like letting the fox loose in the chicken coop.

New Brunswick legislation has also been introduced calling for across-the-board auto premium reductions of 20%, which insurers appear unable to meet the benchmark and stay profitable. In Nova Scotia, as this article is being written, legislation is being introduced to also reduce auto insurance rates by 20% across-the-board, which could push this province toward a public system.

To me, legislation reflects the complete lack of creditability and trust for our industry that we would do the right thing on a timely basis. The financial effects of reductions, let alone the prospect of a public insurance system, would have on brokerages is significant and cause for great concern. And, the politicians are not always aware of the ramifications of their words or actions, but they are telling the people what they think they want to hear. Public insurance is not the answer, however, if it comes to pass, I am confident the broker will continue to be the distribution system, but at what cost?

CURRENT CONDITIONS

Commercially, the property market appears to be stabilizing if not “softening”, while liability business continues to attract 15%-25% increases on “normal” classes. Narrowing of underwriting criteria continues, and specialty carriers continue to be pushed to the limits. The time delays for insurers to respond to new business requests, endorsements, policy issuance etc., continues to hamper the ability of brokers to provide clients with the appropriate level of service which coupled with large increases is not helping.

Further consolidation of markets and possibly more complete pullouts in Atlantic Canada will take place as the auto issue unfolds. Some brokers will be forced out of business, especially if public insurance is introduced, and some will just plain give up. The “personal habitational” product will be the next to see significant increases and reductions in coverage. This product continues to cause major losses for insurers in Atlantic Canada, especially with environmental losses (oil tanks) and flood problems. New replacement cost calculators that increase values by as much as 20%-30%, coupled with double-digit rate increases, will have the public up in arms again unless handled properly.

This broker suggests that if we learned nothing else from the last year, trying to fix loss ratios in one year is public suicide. That said, the rate increases are working and the markets are turning their numbers around, which is required to have a healthy and competitive insurance marketplace. Frequency has certainly decreased, as insureds are leery of making all but major claims. I feel the market will eventually settle down and frequency will return.

We as brokers have enjoyed the premium increases, which has strengthened our financial position. I personally feel, however, that the industry’s ability to maintain this will be short lived. For brokers with a long-term perspective, how to strategically use this extra income now is the key to our future. Investment in our people, technology and relationships with markets and clients is crucial. In Atlantic Canada, we as brokers have our seat belts firmly fastened, not just around our hips but with our shoulder harnesses on too. It is going to be a bumpy ride.