No Crash, No Cash…

Following recent political events surrounding auto insurance in New Brunswick is a bit like getting hooked on one of the more inane soap-operas on television: each line delivered by a character is a clich, and the only reason to keep watching is to see just how stupid the story can get. In fact, seeing the New Brunswick situation in light of being a soap-opera played out for voters as each of the province’s major contending political parties continue to bite at each other’s heels in the aftermath of a close election call, provides a humorous perspective which can be the only sane manner in which to try understand the political mess surrounding the auto system. Or, as one insurance industry executive observes, you can just shake your head and walk away from it: “Good riddance, let the government have it [auto insurance].”

To set the stage for this “New Brunswick soap-opera”, the province’s Conservative government introduced mild auto insurance reform just prior to the provincial election by capping minor bodily injury “pain and suffering” awards at $2,500. This occurred after two years of fairly steep coverage price increases introduced by insurers in response to spiraling claims losses. Needless to say, insurers were painted the “bad guys” by the other characters in this sad tale.

The government’s move drew heavy criticism from the New Democratic and Liberal parties, as well as some consumer groups – all accusing the authorities of pandering to profit greedy insurance companies (clearly no one in New Brunswick politics can read an income statement). Then, following the election, and in one of those classic “soap-opera moments”, the government accused insurers of not responding in an appreciative and timely enough manner to its “great gift” of the pain and suffering cap. The government demanded that insurers file for rate reductions of 20% or more by August 15 of this year or face automatically reduced rates. In making this bold statement (among other aggressive demands and general posturing), the government appears to have forgotten that it had previously indicated to insurers that rate reductions would have to be filed through the province’s Public Utilities Board (PUB), and that these filings would be subject to review. The PUB file hearings were scheduled to begin on August 11. But, in yet another one of those “gasping soap-opera moments”, and within a week of its ultimatum rate reduction demand, the government announced the creation of a committee to investigate the establishment of a public auto insurance system for the province.

At this point, anyone having experienced or followed this absurdity is likely conflicted by the desire to laugh and cry at the same time. The “Select Committee on Public Auto Insurance” (SCPAI), which is headed up by no other than the NDP’s Elizabeth Weir (who had punted the concept of a public insurer as part of her election campaign message), is expected to deliver a preliminary report of its investigation by the end of August. In announcing the creation of the committee, New Brunswick premier Bernard Law is quoted saying “public automobile insurance is a difficult and complex issue…There are many difficult questions that need answering.”

Without trying to sound glib, I have a couple of big “bottom-line” questions which if Law had bothered to present to his own insurance regulators before acting in what appears to be an erratic and hasty manner may well have scuppered the idea of forming the investigative committee and thereby squandering yet further taxpayers’ money. The most obvious is the massive infrastructure start-up costs and reserving resources required to establish a public insurer. Then, these costs have to be seen in light of the insured benefits that can be offered, all of which has to then be placed in context to the size of the market – i.e., is there sufficient “premium volume” to deliver overhead and risk cost-efficiencies.

British Columbia’s Insurance Corp. of B.C. (ICBC) is the model being most touted by the proponents pushing for a government insurer for New Brunswick. Of course, the drum-beaters forget that B.C.’s basic auto product is valued at more than $2 billion in annual premiums versus New Brunswick’s total auto market of about $482 million. Dennis Prouse, a representative of the Insurance Bureau of Canada’s (IBC) Pacific Region office, notes that the B.C. government was forced in 1972 to shore up its crown insurer by around $178 million (in today’s terms, he figures that to be about $600 million inflation adjusted) due to unexpected costs that arose within two years of operation. ICBC has also attempted over recent years to push for a no-fault system, and today applies a policy of “no crash, no cash”. In other words, the insurer does not pay for bodily injuries where there has been no or only minimal damage to a vehicle.

These minor injuries, mostly whiplash related, combined with court costs are the very issues that have plagued insurers in Atlantic Canada, observes Don Forgeron, vice president of the IBC’s Atlantic Region. Furthermore, Forgeron notes that, while ICBC’s basic auto rates are higher than the average private insurer rate in New Brunswick, the insured benefits are significantly less. “We’re [as private insurers] are only asking for a cap on minor injury awards,” he adds in response to ICBC’s “no crash, no cash” policy.

Having recently attended government meetings on the auto insurance issue in Nova Scotia and New Brunswick, Prouse says that the IBC has completed cost studies in terms of setting up a public insurer. A costing for Nova Scotia would be a minimum of $340 million, he adds, which is a fair “ballpark number” for the establishment of a similar government insurer in New Brunswick. Overall, as I watch this farce play out in New Brunswick, I can only wonder to why any private insurers should bother to show interest in a relatively small regional market that has delivered nothing but losses for the last 10 years.