Newfoundland Government announces additional auto insurance reforms

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May 18, 2005 — Government Services Minister Dianne Whalen has announced additional auto insurance reform measures that will provide a further overall five per cent reduction in premiums for many drivers, with far greater savings for young drivers, while still retaining an injured person�s ability to be compensated.

�Government has brought forward reforms that provide consumers with an average overall savings of 20 per cent on their auto insurance premiums since August 2004,� Minister Whalen said. �We unveiled a comprehensive plan for reviewing and reforming auto insurance in this province shortly after we took office. With this announcement today, we are demonstrating that we have delivered on that plan and on our commitments.�

Government will bring in legislation this session that will provide for the elimination of rating based on age, gender and marital status; a further five per cent reduction in premiums, unless companies can actuarially justify that they can�t absorb the decrease; requirements by insurance companies to ensure consumers are adequately informed of their rights when making a claim; group rating, and a new process for setting rates.

These reforms are based on the outcome of the Public Utilities Board (PUB) review and the department�s own review of several issues that were in addition to that process. The elimination of rating based on age, gender, and marital status is a major issue for young drivers and their parents. It is estimated that this measure alone will result in premium decreases of up to 46 per cent for drivers under 25 in some cases.

�We mandate people to carry insurance, and therefore it is incumbent upon government to ensure consumers are treated fairly and that they have access to coverage at reasonable rates. This is what we have achieved with our review and our reforms,� Minister Whalen said.

In addition to the further reductions in premiums that the reforms will provide for certain groups and policyholders overall, the legislation gives affect to the new process by which rates are set, which was announced by government in March after public consultation. The new rate setting process requires individual insurance companies to actuarially justify any rate increase to the PUB. Companies will also be required to complete a Point of Claim Disclosure Form to ensure that consumers are informed of their rights when making a claim.

�We wanted to ensure consumers are treated fairly by insurance companies in the premiums they pay, and that they know their rights when making a claim or having a claim made against them. This is what has been achieved through our consultations with industry and consumers,� Minister Whalen said.

Government is confident that these additional measures are reasonable, given the significant profits reported in the industry in recent years and the 10 to 12 per cent flexibility the PUB report indicates exists in the system to reduce rates.

Government�s initial set of reforms, contained in Bill-30, came into effect August 1, 2004, and provided consumers with an average overall savings of 15 per cent on their premiums, depending on their coverage and where in the province they live. The reforms included a $2,500 deductible on pain and suffering claims.

The findings of the PUB review support government�s position that the savings from a cap, which is the preferred direction of the insurance industry, are not sufficient to justify the compensation restriction on injured parties. The people of the province indicated they wanted to retain their ability to be compensated for their injuries, which government has done.

Backgrounder

Government is legislating additional auto insurance reform measures based on the outcome of the Public Utilities Board (PUB) review and the department�s own review of several issues that were in addition to that process.

Key reforms:

  • elimination of age, gender and marital status, and mandating that insurance companies can�t raise premiums of those over 25 years of age as a result of this measure, unless it is actuarially justified;

  • mandated five per cent reduction of premiums, unless insurance companies can actuarially justify to the PUB on an individual basis that they can�t absorb it;

  • permitting group rating, which will provide lower rates to members of identified groups (i.e., alumni associations);

  • a new rate setting process based on individual company filings where each company must justify any rate increase to the PUB; and

  • requiring insurance companies to complete a Point of Claim Disclosure Form to be signed by consumers to ensure consumers are adequately informed of their rights when making a claim. The form will ensure that companies disclose:

  • that federal law permits insurance companies to conduct surveillance of injured parties making a claim without their knowledge or consent;

  • it is a Criminal Code offence to make a false or inflated insurance claim, and that the claimant may be prosecuted;

  • an insurance company must advise a policyholder of a third-party claim and the final amount paid out;

  • an injured party can apply to court to receive their claim settlement in periodic payments instead of a lump sum; and

  • an insurance company must settle a claim as quickly as possible and, where fault has been determined, to make interim payments until the final amount of the claim has been settled.

These changes are in addition to the auto insurance reforms that came into effect August 1, 2004, that provided consumers with overall average savings of 15 per cent on premiums.

Auto insurance was a key platform in the 2003 provincial election. Shortly after taking office, this government unveiled a comprehensive plan for reviewing and reforming auto insurance in the province. The plan included:

  • a one-year freeze on auto insurance rates;

  • a series of reforms, contained in Bill-30, based on the savings an independent actuary indicated were immediately available in the system;

  • an updated study on the costs of the most recent claims, and

  • a review by the Public Utilities Board into auto, homeowner, marine, and commercial insurance.

Government�s initial auto insurance reform package, Bill-30, was proclaimed into
law August 1, 2004.

Key reforms:

  • A nine per cent reduction in Third-Party Liability premiums based on a $2,500 deductible on pain and suffering claims, lost wages paid on 100 per cent of net wages instead of gross wages, and elimination of double recovery of insurance claims.

  • Mandated reductions on collision (27-37 per cent), comprehensive (19 per cent), and uninsured motorist (11 per cent) coverages, resulting in average premium reductions of about 15 per cent (including the nine per cent reduction on liability).

  • The introduction of new underwriting guidelines used by insurance companies to determine rates and whether to insure a person. An insurance company is no longer able to refuse coverage or rate individuals solely based on:

  • not at-fault accidents and claims;

  • minor damage where no claim is paid;

  • NSF cheques;

  • another company refusing to insure the individual;

  • lapse in coverage (unless the lapse is caused by a policy cancellation for failing to make payments; failing to disclose a conviction or claim that would cause a higher premium to be charged, or a driver�s licence suspension for driving with no insurance).

  • A company can no longer refuse coverage based on:

  • age, gender or marital status;

  • age of vehicle (may request an inspection after eight years);

  • not having other policies with the company, known as tied selling;

  • the individual currently being in Facility Association.

  • Claimants will have a 25 per cent reduction in their compensation for not wearing a seatbelt.

  • Drivers may now legally exclude anyone from coverage. This includes parents wanting to exclude driving-age children from their policy.

  • Other consumer protection measures, including mandatory monthly payment plans and interim claims payments until the amount is settled.

  • Disclosure to drivers placed in Facility Association to ensure they are fully aware that they are in Facility Association and why.