Change essential to control automobile insurance rate increases

Government Services and Lands Minister Walter Noel says reducing the cost of claims is essential to prevent significant automobile insurance rate increases.

The minister was responding to a news release issued by the Insurance Bureau of Canada indicating insurance company losses have increased.

"While current actions geared towards increasing penalties for impaired drivers, banning the use of cell phones by drivers while driving, and promoting safe and affordable driving will help reduce costs, these actions alone will not dramatically affect auto insurance rates.

"In our automobile insurance reform consultation paper, we advised consumers that the only initiative that would have any significant impact on reducing rates was the proposal to restrict compensation for non-economic loss to injuries of a permanent or serious nature. We estimated that this would reduce rates for third party liability insurance by about 35 per cent.

"It is clear that compensation for minor injuries is resulting in increased rates. IBC says that insurance companies lost $234 million on automobile insurance in Atlantic Canada in 2001, and that for every premium dollar the industry collected it paid out $1.22 in claims. The bureau also conducted a closed claims study which showed that 67 per cent of all claims paid were for non-economic loss.

"But, as we have seen through our polling and our consultation process, the majority of Newfoundlanders and Labradorians do not appear to want to place compensation limits on the current system at this time. There are, however, perhaps 40 per cent who support restrictions. That might change if rates continue increasing.

"Drivers have to make a choice as to what kind of automobile insurance system they want. All costs of insurance are paid by drivers. If they want a system which pays compensation for injuries which do not result in financial loss, they have to pay higher premiums than would otherwise be required.

"Throughout the consultation process, I stated that government would not bring in a system of automobile insurance that consumers do not want.

"Some drivers have suggested they should be given a choice of purchasing coverage for compensation for non-economic loss, or not purchasing such coverage. Several U.S. states have such a system and Saskatchewan is implementing a choice system in 2003. We will do further study to determine if a choice system would be appropriate for this province. We will also look at the benefits and disadvantages of a government-run system.

"In the meantime, it seems we can expect significant increases in automobile insurance rates. Current increases are often in addition to other recent increases. We are now receiving complaints from consumers about rates rising between 10 and 25 per cent."

"This file is still open. If there are any new suggestions out there, I would like to hear them."

Media contact: Rick Callahan, Communications, (709) 729-4860.

2002 06 06                              5:05 p.m.