ST. JOHN’S, NL, Sept. 8, 2004 – The Study of Homeowner, Commercial Property, Liability and Marine Insurance, commissioned by the Government of Newfoundland and Labrador, is based on erroneous assumptions and reaches incorrect conclusions, Insurance Bureau of Canada said today.
If the government takes action based on this report, it would be the second time in recent months that consumers were ill-served because of the actuarial advice provided to the government. Auto reform legislation, Bill 30, which took effect August 1, mandates a 9% reduction on third party liability rates even though savings of more than 20% could have been achieved with the reforms proposed by the auto insurance industry.
The latest report from Mercer Oliver Wyman Actuarial Consulting Ltd., actuarial firm for both government and the Board presiding over upcoming hearings, states that companies selling homeowners’ insurance in the province produced an average profit of 13% of premium over a 5-year period.
“According to our calculations this is simply not true,” said Don Forgeron, Vice-President, Atlantic, Insurance Bureau of Canada. “Insurers have experienced a loss of at least 3% on homeowners’ insurance over the last five years. Had the government subjected its actuary to the widely accepted practice of peer review, this discrepancy likely would have surfaced.”
He added: “Such oversights and errors can be spotted during even a preliminary look at the report. IBC looks forward to highlighting each and every error at the public hearings on insurance to be held this fall by the Public Utilities Board.”
Forgeron also pointed out the target profit margin of 5% used in the study does not account for losses that could result from a catastrophic event, such as Newfoundland and Labrador’s record snowfall in 2001 that resulted in hundreds of oil tanks rupturing. Many residents also remember the infamous windstorm of 1992 that left St. John’s without power for days and caused $8.2 million in insured damage. These events inflict millions of dollars in damage and insurers must be ready for them.
“We see and hear about these events all the time,” said Forgeron. “We’re required to have money to repair the devastation after these serious events have done damage. That’s not profit. It’s money our customers will need.”
Insurance Bureau of Canada is the national trade association of the private property and casualty insurance industry. It represents the companies that provide more than 90% of the private home, car and business insurance in Canada. To view news releases and information, visit the media section of IBC’s website at www.ibc.ca (http://www.ibc.ca).