NLIS 3
March 17, 2004
(Government Services)
Government achieves rate
reductions for consumers
Premier Danny Williams and Government
Services Minister Dianne Whalen today announced a starting package of auto
insurance reform measures that will achieve average overall savings of 15
per cent. The savings will depend on the coverage purchased and where in the
province you live.
"We have worked very hard over the past
few months to come up with a plan and, today, I am pleased to join Minister
Whalen in announcing reforms that will result in average savings of 15 per
cent overall on consumers automobile insurance bills," said Premier
Williams. "The reforms we are announcing today are based on sound
actuarial advice. We took the time to do this properly and thoroughly, and
we now have a good, solid package for consumers which is a first step to be
complemented by a longer-term, strategic reform plan."
These legislated reforms are based on the
actuarial study completed by the Public Utilities Board which Government
released today.
The savings will be achieved through a
combination of a $2,500-deductible on claims for pain and suffering and
mandatory reductions on coverage for collision, comprehensive and uninsured
motorists. Savings will also come from basing compensation awards on 100 per
cent of net wages instead of gross, and deducting any compensation received
from other insurance plans to eliminate double recovery.
Government is also introducing a series of
other reform measures that address issues around underwriting guidelines,
Facility Association, uninsured drivers and parents being able to legally
exclude driving-age children in the household.
The measures are the first steps in a
comprehensive package that includes: an immediate freeze on rates, the
undertaking of a closed-claims study, and a full public hearing into auto,
homeowner, commercial and marine insurance.
The hearing, which will be done by the Public
Utilities Board, will be held once a new closed-claims study is complete.
The study will look into the costs to the insurance industry of recent
claims. The only information currently available is nearly a decade old. The
new information will be included in the public hearing.
Government is deferring some issues to the
public hearing for additional discussion, including mandatory accident
benefits, penalties for fraud, new initiatives to combat impaired driving
and uninsured drivers, and preventing insurance companies from rating based
on age, gender and marital status. Government is prepared to implement
additional reforms based upon outcomes of the public hearing.
"These reforms are the first steps in a
comprehensive plan to bring down rates," Minister Whalen said. "At
the end of the day, people want cheaper rates and good insurance coverage.
We are doing this in a balanced and thoughtful way."
Reforms will be effective the date the
legislation is proclaimed. Insurance companies will be required to issue a
refund to paid customers on the remainder of their policy.
The immediate freeze on rates is for one
year, or until the completion of a new closed-claims study and the public
hearing.
The actuarial study is available on-line at www.pub.nf.ca
Media contact:
Elizabeth Matthews,
Communications (709) 729-3960 or (709) 690-5500
Tracy Barron,
Communications, (709) 729-4860 or (709) 690-6157
BACKGROUNDER
Minimum Mandatory Reductions
- Government will legislate minimum
reductions based on the actuarial study of:
- 9 per cent Third-party liability
- 27 -37 per cent Collision
- 19 per cent Comprehensive
- 11 per cent Uninsured motorists
- The average overall savings is 15 per
cent.
- The range of savings is between 9-20 per
cent, depending on the coverage carried and area of province where you
live.
- Reforms will be effective the date the
legislation is proclaimed. Insurance companies will be required to issue
a refund to paid customers on the remainder of their policy.
Reforms:
Third-Party Liability
- $2,500 deductible on all pain and
suffering claims.
- Lost wages will be paid based on 100 per
cent of net wages instead of gross (gross wages less income tax,
Employment Insurance premiums and Canada Pension Plan contributions).
- Any compensation from other insurance
plans will be deducted from the amount of the award. This eliminates
double recovery, and ensures a claimant doesn�t earn more being off
work because of an accident than if they were working.
Rate Freeze
- Rates are immediately frozen for one year,
or until a new closed-claims study is completed and a hearing held by
the Public Utilities Board.
Underwriting Guidelines
Underwriting guidelines are used by insurance
companies to determine rates and whether to insure a person. An insurance
company will no longer be able to refuse coverage or rate individuals solely
based on:
- not at-fault accidents and claims;
- minor damage where no claim is paid;
- NSF cheques;
- another company refusing to insure the
individual;
- lapse in coverage (unless the lapse is
caused by a policy cancellation for failing to make payments; failing to
disclose a conviction or claim that would cause a higher premium to be
charged, or a driver�s licence suspension for driving with no
insurance).
A company will no longer be able to refuse
coverage based on:
- age, gender or marital status;
- age of vehicle (may request an inspection
after eight years);
- not having other policies with the
company, known as tied selling;
- the individual currently being in Facility
Association.
A company will no longer be able to cancel a
policy for a NSF cheque if the amount is paid within 30 days, unless the
returned cheque is for the first payment.
Excluded Driver Endorsement
- Drivers will be able to legally exclude
anyone from coverage. This means parents will now be able to exclude
driving-age children in the household from their policy, reducing the
parent�s insurance costs.
- If the excluded individual drives the car
and gets into an accident, the vehicle is considered uninsured and the
driver is subject to the penalties for driving without insurance.
Facility Association (FA)
Facility Association is the market which must insure drivers who can�t get
insurance in the regular market. To ensure drivers are fully aware that they
are in Facility Association and why, companies must:
- advise drivers they are in Facility
Association and the reason
- write FA on the application, policy
certificate and pink slip
- provide drivers with an annual report on
status detailing what they can do to get out of facility, and how much
longer than can expect to be in the category
- provide a monthly payment plan
Monthly Premium Plan
- All insurers with 5,000 policies or more
must offer customers a monthly payment plan
- Insurers can charge interest, but
regulations will set the rate at no more than 3 per cent of premium
- Insurer may require the monthly premium be
paid automatically by electronic transfer from a bank account
Claims Practices
- Companies must make interim payments to
individuals whose claims are being processed where liability is not in
dispute
- Companies must inform policy holders of
claims made against them and the amount ultimately paid out
- Claimant may have settlement paid
periodically instead of in a lump sum
Brokers Disclosure
- Insurance brokers must disclose, in
writing if requested, the companies they represent and the quotes
obtained. This ensures policy holders are aware of the number of
companies the broker represents.
Capital Requirements for Property and
Casualty Insurers
- The minimum amount of capital required to
start an insurance company will increase from $1 million to $3 million.
Uninsured Drivers
- Minimum fine for uninsured drivers will
increase to $2,000 from $1,000 for the first offence. Maximum fine will
increase to $4,000 from $3,000.
- Minimum fine for the second offence will
increase to $3,000 from $1,000. Maximum fine will increase to $5,000
from $3,000.
- Vehicle will be impounded for 90 days upon
conviction
- Driver�s licence will be suspended for
90 days upon conviction
- Government will explore other ways to
reduce the number of uninsured drivers on the road
Failure to Wear Seatbelt
- Claimants will have a 25 per cent
reduction in award for not wearing a seatbelt which is consistent with
court rulings. They will still have the right to show not wearing a
seatbelt did not contribute to injuries.
Withdrawal Notice
- Companies must give six months notice
before withdrawing from the auto insurance market in province or pay a
minimum fine of $100,000, up to maximum of $1 million.
Other Reforms:
- Government is investigating other possible
measures, including:
- penalties for claimants who provide
false testimony or evidence
- stiff measures to combat impaired
driving
- preventing claims from impaired drivers
and uninsured motorists involved in not-at-fault accidents
- prohibiting insurance companies from
rating based on age, gender or marital status
- permitting group rating
- forcing companies to disclose to injured
parties that they are, or have been, under surveillance
- mandatory accident benefits
Public hearing:
- These and other measures will be discussed
at a public hearing into auto, homeowner, marine and commercial
insurance at the completion of a new closed-claims study. Legislation
will be introduced to give the Public Utilities Board authority to
conduct the hearing and the study. The hearing will require full
disclosure from the insurance industry. Government may implement
additional reforms or amend existing components of the legislation based
on the outcome of the hearing.
2004 03 17
3:00 p.m.
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