Now that the Alberta government is set to rewrite the rules on auto insurance premiums, Alberta small business and consumer advocates are seeking lower business insurance rates.
Both the Canadian Federation of Independent Business (CFIB) and Consumers Association of Canada (CAC) are calling for formal government reviews of business insurance rates and policies.
The CFIB wants both the Alberta and federal governments to study the issue, while the CAC did not specify which level of government should come to the rescue.
“Again, it’s one of those classic Canadian examples where it’s a hot potato between levels of government, and, of course, nobody wants to grab on to this issue,” said Dan Kelly, the CFIB’s vice-president for Western Canada.
“We need to educate our political leadership at both the federal and provincial levels to take on this challenge.”
Auto insurance became a political powder keg after New Brunswick Premier Bernard Lord barely retained his government in a June election.
The Alberta government will introduce new regulations by the end of this year, while other provinces have also launched reviews or already adjusted rates.
In a news release, Bruce Cran, the CAC’s national secretary, said businesses and consumers alike have been hurt by rate hikes that the insurance industry has imposed on the public while governments have done little to protect consumers.
“It’s not only auto insurance that people are complaining about,” said Cran.
“Many people have contacted our association about the huge rate increases in property insurance and the take-it-or-leave-it attitude of insurers. This means many businesses can’t afford proper insurance or, if they make a claim, may not be able to buy insurance.”
The CFIB met with the province’s superintendent of insurance last week to express its concerns.
In June, a CFIB study determined that 80 per cent of Alberta’s small and medium-sized business owners were more concerned about insurance price hikes and declining insurance coverage than they were about the impact of mad-cow disease, SARS, the war in Iraq, the softwood lumber dispute or the West Nile virus.
Kelly said most Alberta businesses have faced 20- to 30-per-cent insurance-rate hikes in the last year. In a letter to Alberta Finance Minister Pat Nelson, Kelly and Corinne Pohlmann, the CFIB’s director of provincial affairs in Alberta, charged that soaring property and casualty insurance costs and/or lack of coverage are threatening the future of many small firms and the livelihood of their employees. As a result, the rate hikes threaten to harm Canada’s and Alberta’s export competitiveness, undermine job creation and fuel inflation.
“It’s hard to say, but I don’t think there’s any single cause behind the increases that we’ve seen,” said Kelly. “And I think a review would start to help to explore what it is that’s going on – and how we might be able to address it.”
Jim Rivait, vice-president of the Insurance Bureau of Canada’s (IBC) Western region, disagreed. “There was a clear cause, because (business insurance premiums) were pretty low and (insurance) companies were losing quite a bit,” said Rivait. “We’ve had a severe rate adjustment in the last little while, but now the markets are healthier.”
Contending that the adjustment has hurt some businesses more than others, Rivait called the CFIB and others “opportunistic intervenors” who are “jumping on the insurance bandwagon” now that the province is addressing auto insurance premiums.
“I don’t think the first step is to run to government and tell them to intervene and try to sort out problems in the private sector,” said Rivait.
“It’s quite anti-Albertan, if you ask me.”
If the government expands its auto insurance review to include business premiums, he said, nothing will get done. Insurers and business groups must sit down and resolve problems “industry to industry,” he added, noting the insurance industry is willing to deal with “particular pockets” where premiums are too high, but it has to hear and know about them first.
He said there have been cases – such as with tow-truck drivers – in which businesses have not been able to obtain affordable specialty insurance because of a lack of insurance providers.
But, he argued, there is not a consensus that all insurance rates are too high.
“Every once in a while, there’s another (business) that may be having difficulty, but generally, when there’s a number of providers of a particular type of insurance, competition works,” said Rivait. “If they don’t like what they’re getting from one company, they can get a quote from another.”
Business insurance products include property, casualty, liability and business interruption coverage. The IBC has blamed insurance rate increases on declining investment returns (which are used to help pay for claims) and re-insurance costs (the fees they pay to insure themselves) in the post-September 11 era.
But Kelly said such reasoning starts to “ring hollow” in wake of insurance companies’ profits this year.
IBC figures show that insurance companies earned $644 million in profits in the second quarter of this year and $466 million in the first quarter.
“As a business association, one committed tohe basic principles of free enterprise, you never want to attack anyone’s profit motive,” said Kelly. “But, at the same time, it seems to be difficult for them to explain why premiums are escalating so rapidly. I mean, profits seem to be generous.”
But in 2002, said Rivait, Canadian insurers paid $1.05 on business insurance claims and costs for every dollar that they collected in premiums, while the 1.7-per-cent return on investment – which has since improved to 5.9 per cent – was the lowest on record.
He said “$1.1 billion (in profits for the first two quarters of this year) sounds like a lot, but spread over 207 companies who are generating over $49 billion in assets, it’s not very good.”
People seem to think that auto insurance profits should subsidize other insurance lines, said Rivait, but insurers want to make a profit on each line.
The Alberta government has already promised to review business insurance sometime in 2004, after it introduces new auto insurance rules.
“At this point, we really even haven’t had a chance to see what kinds of things we can look at,” said Jerry Bellikka, a spokesman for the provincial finance ministry, which oversees insurance.
“We know it’s an issue on the horizon, but we’re not at the stage right now where we can say steps A, B, and C are the first things we need to tackle. We know it’s an issue, but when we’re going to be able to tackle it, or whether the marketplace itself will settle down in the new year, we just don’t know yet.”
Kelly said it’s nice to hear that the province plans to review the issue – but many businesses need help right now, especially after dealing with such unusual pressures as mad-cow disease and West Nile virus. He also questioned how the government can adapt new auto insurance rules to business, because, unlike drivers, businesses are not required by legislation to have insurance.
However, in most cases, businesses are still legally bound – through contracts, leases and other agreements – to have some form of coverage before they can operate.
The CFIB and the Accident Victims/Insurance Policyholders Advocate are also calling on the province to eliminate the insurance premium tax, a three-per-cent levy that applies to all forms of insurance and generates $60 million in government revenue annually. However, Bellikka said the Tories are not thinking about scrapping the premium tax.
“Frankly, there hasn’t been any discussion of getting rid of that premium tax, that I’m aware of,” said Bellikka. “It exists in every province in the country and, next to Ontario’s, (the Alberta premium tax is) the lowest in Canada.”
The tax goes into general revenues. In the case of auto insurance, he said, it is used to help pay for traffic safety programs, driver licensing and other auto-related services.
In the case of business insurance, he added, it helps pay for municipal infrastructure and “absolutely everything.”
“You can get rid of it, but you have to make the revenue up somewhere else,” said Bellikka.
“Would that mean another tax in another form? I guess that’s what you have to figure out.”
The CFIB’s Kelly said the province’s message is that the worst is over and the problem will just go away as the market stabilizes itself.
Bellikka conceded that the province would like to see the marketplace settle down before it introduces business insurance changes.
“We don’t want to make it sound like we’re pinning our hopes on the marketplace settling down,” said Bellikka. “But I mean, ideally . . . the best thing is for the marketplace to settle down and get people’s rates to be reasonable again.”
A committee headed by MLA Rob Renner is expected to submit its recommendations on auto insurance around the middle of this month.
