NLIS 8
March 16, 2005
(Government Services)
 

Government announces changes to rate setting process for auto insurance

Government Services Minister Dianne Whalen announced today a new rate setting process for auto insurance that will require individual insurance companies to justify any rate increases once the current rate freeze expires March 16, 2005.

The current process used by the Public Utilities Board is not used in any other jurisdiction in Canada. It uses minimum and maximum benchmarks in setting rates, with requests for rate increases within the benchmarks being automatically approved. Government believes any rate increases should be based on actuarial information and companies will now be required to individually justify any increases.

The removal of the benchmark system, with its minimum benchmark, will also increase competition by permitting companies to charge rates below the benchmark, which will benefit consumers.

"We believe consumers will be better served by requiring companies to individually prove to the Public Utilities Board why they need a rate increase," Minister Whalen said. "We are committed to protecting consumers from rate increases that insurance companies aren�t prepared to defend."

Since announcing the freeze on auto insurance rates last year, government committed to a series of initial insurance reforms, a public review of auto insurance by the Public Utilities Board and its own review of the rate setting process. Government has delivered initial average overall savings of 15 per cent on consumer�s auto insurance premiums, and the Public Utilities Board report on the auto insurance component of its review is expected at the end of this month.

The department has now completed its review of the process by which rates are set, and solicited public input. As a result, government will bring forward legislation this session to provide for the new rate setting process retroactive to March 17, 2005.

"A system of individual filings provides tighter regulation over rate increases and it is consistent with systems in place in Nova Scotia, New Brunswick and Ontario," Minister Whalen said. "We want to ensure we have a fair process for setting rates that protects consumers from rate increases that cannot be actuarially justified."

In addition to the rate setting process, the department reviewed and consulted on three other issues related to auto insurance, including stiffer penalties for impaired drivers, penalties for providing false testimony and disclosure by insurance companies of injured parties under surveillance. These issues will be dealt with by government at the same time as the report on the public review conducted by the Public Utilities Board.

Media contact: Tracy Barron, Communications, (709) 729-4860, 690-6157

BACKGROUNDER

• Shortly after taking office, the Williams government commissioned two actuarial studies, one into the savings that could be achieved through various auto insurance reform measures, and another into homeowner, commercial property and liability and marine insurance.
  On March 17, 2004, government froze auto insurance rates for one year and announced a series of proposed auto insurance reforms to provide consumers with overall average savings of 15 per cent on premiums. These reforms were based on the actuarial study into the savings that could be achieved through various reforms.

Key reforms:

• A nine per cent reduction in Third-Party Liability premiums based on a $2,500 deductible on pain and suffering claims, lost wages paid on 100 per cent of net wages instead of gross wages, and elimination of double recovery of insurance claims.
   

• Mandated reductions on collision (27-37 per cent), comprehensive (19 per cent), and uninsured motorist (11 per cent) coverages, resulting in average premium reductions of about 15 per cent (including the nine per cent reduction on liability).
   

• The introduction of new underwriting guidelines used by insurance companies to determine rates and whether to insure a person. An insurance company is no longer 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 can no longer 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;
     

• Claimants will have a 25 per cent reduction in their compensation for not wearing a seatbelt.
   

• Drivers may now legally exclude anyone from coverage. This includes parents wanting to exclude driving-age children from their policy.
   

• Other consumer protection measures, including mandatory monthly payment plans and interim claims payments until the amount is settled.
   

• Changes to Facility Association to ensure drivers are fully aware that they are in Facility Association and why.
   

• The Public Utilities Board was directed to have an updated closed claims study completed and to hold a public review into the cost and availability of auto, homeowner, marine and commercial insurance, and what can be done to make insurance available at more reasonable rates.
   

• In June 2004, government�s auto insurance reform package, Bill 30, passed the House of Assembly.
   

• On August 1, 2004, Bill 30 was proclaimed into law.
   

• August 23, 2004, government released the Study of Homeowner, Commercial Property and Liability and Marine Insurance that will be part of the Public Utilities Board review. The study found that homeowner insurance is very profitable in the province, while commercial insurance is less profitable and insurance companies are suffering loses on marine insurance.
   

• September 24, 2004, a consumer advocate was appointed to represent consumers at the Public Utilities Board review into insurance.
   

• October 28, 2004, government released the Terms of Reference for the Public Utilities Board review.
   

• From February 15 to March 2, the Public Utilities Board held public sessions with industry, consumers and other interest groups on the auto insurance component of its review.
   

• The Department of Government Services reviewed and consulted on four issues relating to auto insurance that are in addition to the Terms of Reference for the Public Utilities Board review. They include the process by which rates are set; disclosure to injured parties under surveillance; penalties for providing false information about claims, and increased penalties for impaired drivers.
   

• The Public Utilities Board has now concluded public sessions on auto insurance reform. The PUB is to submit its report by March 31, 2005. Public sessions on homeowner, commercial and marine insurance will follow.
   

• On March 16, 2005, government announced it is moving to a rate setting process that requires insurance companies to file rates individually and actuarially justify any rate increases.

Ministerial Statement

2005 03 16                 2:35 p.m.