Recovery underway for P&C insurance industry but results still weak – IBC quarterly “Perspectives” report

TORONTO, Aug. 22, 2002 – Financial results for the first half of 2002 for Canada’s home, auto and business insurers show signs that a modest recovery is underway, but the situation is expected to remain weak for at least the next year or two.

The latest edition of Perspective — the Insurance Bureau of Canada’s (IBC) quarterly analysis of the financial performance of the property and casualty (P&C) insurance industry — shows the industry has seen recent improvements through higher prices and tighter underwriting. For example, revenues will grow faster this year than claims costs for the first time since 1995. Revenue growth is the strongest since 1986. Unfortunately the growth in claims costs remains high, particularly for auto insurance coverage, continuing to add to pressure on pricing.

Insurers are encouraged by the proposed auto product reform legislation in Ontario. The legislation offers to provide insurers with some tools to improve management of the intense cost pressures that are driving up the cost of insurance. Unfortunately, auto reform discussions in other parts of Canada are not showing as much progress, and that is forcing insurers to address price inadequacy.

“The collapse this year in investment markets is disappointing news as reduced income from industry investment portfolios is adding to the pressure on pricing,” says Paul Kovacs, senior vice president and chief economist at IBC. “The industry invests primarily in bonds and other fixed income instruments and this has moderated the adverse impact. Nevertheless the weakness is disappointing and unexpected.”

Ontario auto insurance underwent major changes in the last seven years. Non-medical payments are no longer the largest component of their cost. Medical payments, which were one third of auto insurance costs in 1995, jumped to almost half by 2001. Now, the cost of treating accident victims in Ontario is the same as the cost of fixing damaged vehicles.

“This growth was driven by accident benefit (AB) medical
payments, as well as by bodily injury costs for deaths and catastrophic injuries,” Kovacs says. “Since 1991, Ontario auto insurers are required to pay higher accident benefits than any other province with private auto insurance.”

Ontario’s no-fault threshold for AB medical payments was set at $100,000 per person, compared to $25,000 for most other provinces. The downloading of services to insurers previously paid by OHIP has also played a role.

Rising medical costs put increasing pressure on auto insurance rates. To help re-establish rate stability, medical costs need to be put under control. IBC is currently addressing this issue through the proposals for legislation reform of the Ontario Insurance Act and through the activities of the IBC health care project.

The Insurance Bureau of Canada is the national trade association of the private property and casualty insurance industry. It represents some 200 companies that provide more than 90 per cent of the non-government home, car and business insurance in Canada. Visit the media section of our web site at to view the latest edition of Perspective and for more news releases and information.

Read Perspectives (in PDF format)