Nova Scotia Auto Reforms Spark Insurer Withdrawals

In the wake of passage of Nova Scotia’s Bill-1 – which reforms the province’s auto insurance legislation – insurers are announcing they will cease writing new business in the province. Royal & SunAlliance Insurance Co. of Canada and the Dominion of Canada General Insurance Co. have led the way by saying that they will not write new business in the province following implementation of a mandatory 20% rate reduction with no reforms to reduce claims costs.

The announcements back up broker concerns that the new legislation is tantamount to a “game of chicken” that would prompt insurers to leave the province. “It [Bill-1] is very irresponsible,” says Stephen Greene, executive director of the Insurance Brokers Association of Nova Scotia (IBANS). “This [legislation] is a step in the direction of public auto because it’s set up a private system that doesn’t work,” Greene adds. Rowan Saunders, president of Royal & SunAlliance comments, “this piece of legislation will force insurance companies to sell automobile insurance below cost. Writing business at a loss will inevitably become unsustainable for insurers in the province and consumers will not be able to find insurance in the regular market.” Saunders says insurers are willing to work with the provincial government to bring about appropriate product reform and cost-savings for consumers, but that cannot be achieved through Bill-1. A major issue for insurers with Bill-1 is the 12 month rate freeze which will lock companies in at 20% reduced rates until the end of November 2004.

Brokers and insurers claim that despite a $2,500 cap on claims for minor injuries, the bill will not amount to more than a 5% claims savings, and say that the government’s own calculations bear this out. “We challenge the government to make public its own analysis of the bill,” says Stan Griffin, president of the Insurance Bureau of Canada (IBC). “Right now, they are irresponsibly pushing ahead with a product that both the [provincial] Conservatives and the Liberals know is not financially workable.”

Since the backlash, the government is beginning to back down, although the legislation is already on the books, notes Don Forgeron, Atlantic region vice president for the IBC. “They [the government] realize they have a major problem on their hands. They’ve destroyed the one thing that was going to bring [claims] savings,” Forgeron says in reference to the $2,500 cap, which was watered down with a new definition of minor injury as anything that heals in 12 months or less. While the government has shown willingness to tinker with regulations for the bill, Forgeron says the place to correct the problem is in legislation.