Alberta’s small and medium-sized businesses are struggling to protect themselves from rapidly rising insurance rates.
According to a June 2003 quarterly survey conducted by the Canadian Federation of Independent Business, 80 per cent of Alberta CFIB members say they have been harmed by rising insurance costs and the termination of coverage. Of that 80 per cent, 40 per cent said they were “significantly harmed” while 40 per cent said they were “slightly harmed.”
“More than any other factor, insurance has had the biggest negative impact on small and medium-sized firms in the last number of months,” said Dan Kelly, the CFIB’s western vice-president.
The percentage of Alberta CFIB members who felt harmed by insurance issues was more than the combined total – 67 per cent – who felt they were harmed by mad cow disease and SARS. Only 38 per cent of Albertans felt harmed by the war in Iraq.
Since last month’s provincial election in New Brunswick, where auto insurance was the top issue and Conservative Premier Bernard Lord retained his majority government by just two seats, Alberta and other provinces have been scrambling to make rapidly rising auto insurance premiums more affordable for consumers.
However, said Kelly, business insurance hikes – for property, casualty, liability, auto and business interruption coverage – have been overlooked. The CFIB is calling on the province and Ottawa to take a comprehensive look at all forms of insurance – not just auto. (Insurance is a joint federal-provincial responsibility under Canada’s Constitution.)
“It’s nice to see (insurance) has been a big issue nationally, but at the same time it really seems to be focused largely on auto insurance, and the pressures on the insurance stream have been much larger than that from a commercial perspective,” said Kelly. “Auto is only one portion – an important one – but one portion of your overall insurance bill.”
Alberta businesses saw their insurance rates rise 30 per cent last year, while another 30-per-cent hike is forecast this year, said Kelly.
Insurance brokers and carriers cite the Sept. 11, 2001 terrorist attacks, the slumping stock market (which affects investment profits used to offset premium costs), an increase in personal injury claims, fraudulent claims and re-insurance – the premiums that insurance carriers pay to insure themselves – as causes of the increases.
“I’m not saying that there are not some root causes behind some of the pressures that the insurance industry has been facing,” said Kelly. “I also feel that there has been some gouging that has gone on at the same time. The retail level of insurance is still quite competitive and working reasonably well. But it’s at the actual insurance-carrier level where we see significant problems and, obviously, huge cost pressures.”
Some insurance companies, he charged, have used the root causes as an excuse to jack up prices, moving closer to what he called a “banking model.”
“Our members believe a lack of competition is a part of the overall picture here,” said Kelly.
In addition to raising premiums, insurance companies have stopped writing new accounts, tightened terms and underwriting rules, and denied coverage. According to Kelly, one northern Alberta motorcycle shop owner was told that his form of insurance no longer existed, while a southern Alberta screen-door manufacturer stopped exporting to the U.S. after his export insurance rose to the equivalent of 25 per cent of sales.
“For many, many others, the cost of that insurance has gone way up,” said Kelly. “Plus the coverage that they’ve received has come way down, so we’re seeing the worst of both worlds – you’re paying more to get less.”
Unlike auto insurance rates, which are approved by the Alberta Auto Insurance Board, commercial insurance rates are not regulated by the province. The province, through a group headed by Medicine Hat Conservative MLA Rob Renner, is examining possible reforms to auto insurance, which are to be implemented by the end of the year.
Given that timeframe, said Jerry Bellikka, a spokesman for the provincial finance ministry, which regulates insurance, business insurance reforms are not likely to be considered before next year.
“Our focus right now is, let’s get the auto insurance system fixed and then we can worry about the next big thing coming up, and that seems to be business insurance,” said Bellikka. “So we’re focusing on what we can do to fix the auto insurance system right now, and then we’ll know what we can, or might be able to do, about the other insurance products out there.”
Auto insurance rates are regulated, because drivers are required by law to have their vehicles insured. Although the province regulates business insurance brokers, who must be licensed, and carriers, who must ensure they have a large enough capital pool to cover claims, the government does not regulate business insurance rates, said Bellikka, “because you are not required by law to have it.”
He was referring to legislation. However, in many cases, contract law – in the form of leases and other agreements – still requires business owners and operators to have insurance.
Bellikka said the province is looking at what it can do to lower premiums for businesses such as taxi and pizza-delivery companies, which “are getting absolutely hammered on auto insurance right now.” But the province is “not there yet” when it comes to other business insurance products. It could also take quite a while for the province to fulfil the CFIB’s request for a comprehensive review of the whole insurance system. “I’m not saying that we’re not going to do a comprehensive review,” said Bellikka. “If you’re talking about getting the feds involved in a comprehensive review of all insurance products, how long do you want that to take? I don’t want to bash the feds, but how long do Royal Commissions last?” But Wendy Armstrong, a director with the Alberta Consumers Association, said the solution is probably beyond the reach of the province. She said the problem stems from a decline in the number of re-insurers, mergers and consolidations, and insurance companies’ heavy reliance on money markets. “In fact, we are more of a global insurance market now than we were 10 years ago,” said Armstrong, adding there seems to be a “real paucity” of scrutiny and regulations. “The solutions are not local or regional,” said Armstrong. “They’re fundamentally national or global.” The Alberta market, she said, is too small to put pressure on the industry to change. “At the end of the day, it will probably take a catastrophe like the one we’ve seen in Australia to have the regulators wake up to the issue of insurance and start to take a look at what is happening in this sector – and what it means to some families,” said Armstrong. In March 2001, HIH Insurance of Australia, which operated throughout the Pacific Rim, the U.S., the U.K. and Argentina, collapsed amid debt of $5.3 billion Australian. “I think we’re just going to have to wait this one out,” said Armstrong.
