The insurance industry appreciates the perspective of the Consumer Advocate, as he is likely hearing from Newfoundlanders and Labradorians (NLers) about the high cost of everything, including insurance, these days. But unfortunately, the numbers behind his recommendations just don’t add up.
Auto insurance in Newfoundland and Labrador is in crisis. It’s costly to provide and it’s certainly expensive to purchase. Insurers can provide any car insurance policy that the government wants, as long as they can charge the appropriate premium to cover costs. Expensive bodily injury court settlements are the primary reason why premiums are so high.
A $10,000 deductible on an individual’s eventual court settlement would not have a positive impact on claims costs. That’s because if the deductible (the portion of a claim that is paid by the insured) is not high enough, it would be vulnerable to lawyers manipulating the size of claims in order to cover the cost of the deductible. This happened in Ontario over a six-year period from 1996 to 2002. The $15,000 deductible caused claims costs to increase by 150 per cent. Once the deductible was set at $30,000 and linked to inflation, it was found to stabilize costs. For a deductible to be effective in the N.L. system and have a positive impact on premiums, it would have to be over $38,000 and linked to inflation.
Released on Jan. 31, the Board of Commissioners of Public Utilities’ (PUB’s) report on the auto insurance review outlined that, in 2017, NLers should have been paying $190 more than they actually did for their auto insurance in order to cover the claims made that year in the province. I can’t imagine how much premiums would go up to cover the cost of a $10,000 deductible.
The PUB report also stated that:
“A cap would have greater claims cost reductions than an increased deductible. It is clear that the caps implemented in the other Atlantic provinces in 2003-2004 were more successful in reducing and controlling bodily injury claims costs than the deductible that was put in place in Newfoundland and Labrador at around the same time.”
The solution is clear.
The proven, most effective solution is to put a cap on pain and suffering damages for those who sustain minor injuries in a collision. Nova Scotia and New Brunswick did this 16 years ago and are proof positive that a cap would stabilize rates. In 2017, the average premium was $1,132 in N.L., $842 in Nova Scotia and $819 in New Brunswick.
The Insurance Bureau of Canada (IBC) presented this proven solution to the government, along with recommendations to significantly increase the amount of medical coverage available to injured drivers after an accident. The key is that IBC’s recommendations provide a package of fixes to make the auto insurance system work better for NLers.
To implement a rate freeze as the Consumer Advocate suggested, would force insurers, who want to do business in this tough market, into losing money. How could any business stay in operation in this province if that were the case?
We’ve heard that a lot of people don’t believe insurers. What you certainly shouldn’t believe is that your premiums will need to increase when there is already a proven, effective solution to stabilize premiums. A solution that would ensure people heal from their injuries as quickly as possible and are still able to receive compensation beyond their medical bills and lost wages.
Let’s bring in the cap on minor injuries.
Insurance Bureau of Canada