Second-quarter profit results from insurance companies eliminate the need for a proposed cap on minor- injury accident claims in Alberta, said an outspoken Edmonton lawyer who acts for a victims’ rights group.
“The manufactured crisis of the insurance lobby has been exposed as a monumental scam,” said Mark McCourt, counsel for the Accident Victims/Insurance Policyholders Advocate.
In its September newsletter Perspectives, the Insurance Bureau of Canada reported that insurers earned $644 million in net profit in the second quarter of 2003, up from $110 million in the same period in 2002.
For the first time, said McCourt, insurers will likely profit from underwriting policies.
Traditionally, to turn a profit, insurance companies have depended on a combination of revenue from premiums and investment returns, which are used to offset claims costs.
Second-quarter profit results from insurance companies eliminate the need for a proposed cap on minor- injury accident claims in Alberta, said an outspoken Edmonton lawyer who acts for a victims’ rights group.
“The manufactured crisis of the insurance lobby has been exposed as a monumental scam,” said Mark McCourt, counsel for the Accident Victims/Insurance Policyholders Advocate.
In its September newsletter Perspectives, the Insurance Bureau of Canada reported that insurers earned $644 million in net profit in the second quarter of 2003, up from $110 million in the same period in 2002.
For the first time, said McCourt, insurers will likely profit from underwriting policies.
Traditionally, to turn a profit, insurance companies have depended on a combination of revenue from premiums and investment returns, which are used to offset claims costs.
The second-quarter results come while the IBC, the trade organization for most insurers in Canada, is asking the provincial government to impose a $2,500 cap on drivers’ so-called minor, soft-tissue injury claims.
The provincial government has announced it plans to rewrite Alberta’s auto insurance regulations in the wake of consumer complaints about rising premiums, especially for drivers under 25.
Auto insurance has become a political powderkeg across the country since New Brunswick Premier Bernard Lord barely retained his Conservative government in June, after refusing to require insurance companies to lower premiums.
Insurance companies have blamed premium increases on increased claims costs, declines in investment returns, re-insurance costs in wake of the terrorist attacks on the World Trade Centre in New York and other catastrophes.
Citing IBC figures, McCourt said that premium increases have outpaced claims costs by a nine-to-one margin in the last two years, and have easily outpaced claims in most other years.
“The insurance lobby in Alberta is sticking to their message despite the fact that their own profit data contradicts the message that they’re putting forth,” said McCourt.
The IBC figures, which cover all types of insurance products including auto, were based on results from across the country. Figures from Alberta-based insurance companies were not available.
But Diane Strashok, chairwoman of the IBC’s Alberta committee, said insurance companies are not earning huge returns.
“When I look at our profits (based on all insurance products) this year, we have a six-per-cent return on equity,” said Strashok, also the president of Peace Hills Insurance. “I don’t think a six-per-cent return on equity is high.”
Contending that consumers want insurers to earn enough profits to easily cover claims, she said the proposed cap on soft-tissue injury claims is necessary because insurers have done all they can to reduce costs.
“When you look at where we can take costs out, we’ve taken costs out of our expenses,” said Strashok. “We’ve taken costs out of our commission to the brokers, and we’ve taken costs out of the system. We’ve become more efficient. There has to be some costs coming out of the claims end of it.”
The average cost for auto insurance in Alberta in 2002 was $942.97, while third-party liability claims totalled $897.8 million – up from $718.9 million in 1998s.
In the same report that released the second-quarter results, IBC chief economist Paul Kovacs said that Alberta’s auto insurance rates are not profitable because its loss ratio was 78 per cent.
In other words, 78 cents of each dollar earned from premiums was used to pay out claims.
“These results, however, do show smaller losses than one year ago as price increases are catching up to claims growth,” wrote Kovacs. “However, costs need to be removed from the system through auto insurance reform if premiums are going to come down.”
The IBC reported a 5.9-per-cent return on equity over the past four quarters – slightly more than half the average annual rate of return.
However, McCourt noted that the percentage would be much higher if all four quarters were not taken into account, and individual companies have announced returns on equity as high as 17 per cent.
But “something has to be done,” said Strashok, to reduce victims’ costs because drivers no longer want to pay for a “Cadillac system.”
“It’s totally up to the individual,” she said. “If (victims) want to be able to sue somebody for an injury, then they have to pay for it.”
Last week, the Consumers Association of Canada released a report saying that drivers in provinces with publicly owned auto insurance, such as B.C., Saskatchewan and Manitoba, pay less than drivers in provinces such as Alberta and others that have private auto insurance systems.
However, in a rare show of solidarity, both AVIPA and the IBC dismissed the Consumers Association report, arguing that it is not applicable to Alberta because each province offers different auto insurance products.
Manitoba has a pure no-fault system, while 90 per cent of Saskatchewan drivers have purchased no-fault insurance and Ontario has a “totally different” accident-benefit section, Strashok said.
“It would be like pricing out an automobile and looking at an Intrepid in Manitoba and Saskatchewan, and then pricing a Cadillac in Alberta – and saying the price of automobiles is higher in Alberta.”
McCourt called that analogy “a fair comparison,” but he questioned why the IBC would praise Alberta for having an excellent system and then try to change it by backing a cap on soft-tissue claims.
Strashok said insurers don’t want to take away the right to sue, and victims would still be compensated for lost wages and out-of-pocket expenses, but they should not receive $10,000-$30,000 for pain and suffering.
“If it’s a broken bone, if it’s something significant, then absolutely, they should be able to put some kind of a price on it,” said Strashok. “For something that may be able to be recovered from in a matter of two, three, four weeks, where do you put the price on that?”
However, McCourt has accused insurance companies of waging a “blame-the-victim” campaign while trying to recoup bigger profits.
“A lot of this has more to do with planes crashing into buildings in New York than it does with cars crashing into each other in Alberta,” said McCourt.
The provincial government has established a committee headed by MLA Rob Renner to examine auto insurance and suggest ways to revamp the system. It’s expected to report within a month and the new rules are slated to be introduced by the end of this year.
Both Premier Ralph Klein and Finance Minister Pat Nelson have spoken out against a claims cap. Jerry Bellikka, a spokesman for the finance ministry, said the province will consider the cap as one of many possible options.
He said the province wants to establish a premium rate for new drivers that is not based on age, sex, demographics or other personal factors. “Even your postal code, in some cases, has been used to assess what your risk is,” said Bellikka.
He said the province intends to revise rates according to your driving record, type of vehicle, where you live and what you use the vehicle for, while emphasizing “personal responsibility” instead of risk.
