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Canada is the most insured country in the world. So says Leonard Brody, venture partner with Vancouver’s GrowthWorks Capital Ltd. and author of Everything I needed to know about business ... I Learned from a Canadian, which profiles homegrown billionaires such as Jim Pattison and Paul Tellier. Brody argues that Canadians are inherently conservative in nature with a built-in aversion to risk, and he links this character flaw to a seeming dependence on cradle to the grave policies. Ironically, the average insurance agent would very likely take an opposing view: that most Canadians are in fact under-insured.
Whether or not we’re a timid people is beside the point; the reality is that most of our big-ticket insurance policies are mandated, often by faceless, unknowable regulatory bodies. Homeowners know this all too well, so do business operators, tradesmen, licenced professionals, tour guides and event organizers—in short, nearly all the points of our lives and activities are attended by some form of obligatory insurance program. How and why that situation developed is a complete mystery to me, possibly to you as well.
The scope of this magazine doesn’t allow for a prolonged general discussion of insurance policies nor the Canadian psyche. Still, it is worth noting that since 9/11, we live in a very different world. The major underwriters took a tremendous hit that day—as much as $72 billion in the immediate post-event wave of claims—and even now, more than a half-decade later, our understanding of what it all meant is still in the development stage. But where premiums for insurance policies are concerned, all bets are off. The industry itself admits as much.
“Rate setting will never be an exact science,” it says in the Insurance Bureau of Canada’s 2005 Factsbook. In the days immediately following 9/11, 30-year industry analyst Frank Caruso wrote an exceedingly prescient article in which he made at least two bold, somewhat haunting, statements about the industry’s future:
1. Pricing will rise significantly. Indeed, it’s been estimated that global insurance premiums grew by 9.7 per cent in 2004 to reach $3.3 trillion. More locally, Thompson’s World Insurance News 2006 says that ”Canada’s property and casualty insurers reported a $1.25 billion increase in net written premiums over the first nine months of 2006 compared to the same period last year, while overall claims and expenses have remained steady.” According to Thompson’s, “data from the Office of the Superintendent of Financial Institutions shows property and casualty insurers have raked in a record $3.87 billion profit so far [in 2006], up almost $1 billion.” The news agency goes on to say that “the gain for Canadian-owned insurers is only about eight per cent. And they’re hoping their relatively modest gains in 2006 won’t give regulators any ideas about more cuts in auto insurance premiums.”
2. Reinsurance capacity will shrink significantly. Just ask any motorcyclist in Ontario what it means to reinsure a bike these days, in a province where few companies are willing to even write a policy. And no, it’s not just a rumour, there actually is a “black list’ of sport-oriented models that are subject to a surcharge, according to a document leaked to Canadian Biker by a major Ontario insurance company. That list runs to nearly 300 models dating back to 1985. Strange though, while the Buell Blast is named on the list, my Triumph Thruxton is not.
THE BOTTOM LINE, IF THERE ACTUALLY IS ONE, IS THAT insurance has become a major part of our lives and since 9/11, an increasingly expensive part at that. It could be cynically argued that underwriters have used the convenience of the tragedy in New York to re-evaluate the very nature of insurance policies and that regardless of profit margins, premiums will continue to rise. But, more often than not, Mr. Brody, policies are things required by law, not choices left to individual discretion.
Perhaps that explains some of the love/hate affair motorists have for the public insurance systems in the provinces of British Columbia, Saskatchewan, Manitoba and Quebec where crown corporations carry the monopolies on basic vehicle insurance. In British Columbia for example, motorcycle owners rail against ICBC, the Insurance Corporation of British Columbia, but many still grudgingly admit they’re benefactors of a better-rounded system than what may be found in other provinces. What rankles most though is that government dictates where and in what form they may purchase basic insurance.
Vancouver-based think tank, the Fraser Institute, finds the situation deplorable and has made a rather ambitious study of 61 regions in Canada, the United States and the UK, and concluded that public insurers are “actually among the worst performers in terms of cost and affordability of vehicle insurance premiums.”
But, when presented with the Fraser Institute’s criticism, Vancouver-based motorcycle lawyer Daryl Brown takes a broader stance.
“I remember hearing about the FI’s study and could not help wonder if they looked at ICBC’s balance sheet in the comparison,” he says. “I think ICBC is likely one of the most profitable insurance companies out there—given their land and other holdings—even though we constantly hear them talk about increased payouts and the need to raise rates.”
In this issue, Mr. Brown examines the ICBC model in the page 42 feature “After the Accident: What’s Next?”
Here he points out that under ICBC there are benefits that many policy-holders may not be aware of and that might not even be available to private policy holders in other provinces.
“It is cheaper to buy auto insurance elsewhere,” says Brown, “but I believe we get a deal for the money in the Accident Benefits program. We are also one of the last provinces not to cap the amount of damages awarded for pain and suffering.”
According to Brown, the Supreme Court of Canada capped the upper limit at $300,000 for the most catastrophic cases, although there is now a move by provincial legislatures to hold less serious injuries at a flat rate. “Alberta pays only $4,000 for soft tissue injuries,” says Brown, “while the range in BC is $15,000 to $40,000 and Ontario holds back the first $30,000 for the same injuries.”
At the risk of sounding like another one of those conservative, risk-aversion Canadians berated by Leonard Brody, I will cautiously suggest that the best fight against insurance companies is not on the grounds of premiums, but rather on what the policies themselves actually offer the holder. Read the fine print.
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