Game Plan

It all seems to be boiling down to the beginning of a hardening market starting in 2008-09. And it’s time to start planning how to tell consumers about what that might mean for their future insurance rates and availability.

Yes, Canada’s insurance market is awash with capital. Yes, Canada for the past two years has not been hit with the kind of record-setting damage claims seen in 2005. Yes, some industry observers are describing quotes for new business in commercial insurance lines as borderline “silly.”

But despite it all, primary insurers are starting to declare publicly (in the very pages of this magazine, no less) that they can see a gap forming between what is actually happening in Canada’s insurance markets and the rhetoric and mantra of “market discipline.” Loss ratios are up, claims costs are starting to creep upwards, and rates have not increased accordingly — yet.

At the National Insurance Conference of Canada (NICC) in October 2007, a number of actuaries predicted in a panel discussion that auto insurance rates could be expected to increase as early as 2007 Q4. And if anyone in the public were to hear industry executives now, they might hear a clarion call by insurers to raise rates — or at least “hold the line” on premiums. One actuary on the NICC panel likened the current situation to “a game of chicken,” in which all insurers are waiting for some other insurer to suffer the indignity of being the first to raise auto rates, thus justifying the resultant rush to get everyone else’s rate hikes approved by the regulators.

In this atmosphere of waiting for the proverbial shoe to drop, this is exactly the time the industry should prepare the public for the message it needs to send to consumers to manage their expectations. The public message should be straightforward and honest: ‘Consumer, make a choice: You can pay us a little more now — or you will have to pay us a whole heck of a lot more later (assuming we leave your rates alone now).’

I suspect this message has not yet been prepared, in part because the industry doesn’t want to breach anti-trust legislation, and also because the industry is still somewhat gun-shy from the public’s reaction to the last hard market of 2001-04 (the last time pricing and availability became public issues).

But rates will have to be raised. Rest assured, consumers won’t like that whenever that happens, so it’s probably a good idea for the industry now, while it can, to negotiate a “containment strategy” to mitigate the predictable public relations damage associated with the inevitable rate increases looming over the horizon.

Actually, given that these market cycles are cyclical, it’s intriguing the industry doesn’t already have some sort of mechanism in place that would allow them to work closely with consumers during these predictable hard and soft market cycles. One would think developing a rapport with consumer groups would already be a fact of life for an industry that has gone through these boom and bust market cycles before.

Whatever else the 2006 round of New Brunswick auto reforms did, the crisis resulted in a task force that caused the industry to work more closely with consumers and regulators in working out solutions that might be accepted by all. And even if the task force’s recommendations weren’t accepted by everyone, at least there was a common understanding of what was involved in the development of solutions.

Recently at an IBC Regulatory Affairs panel, Suzanne Bonnell-Burley, the assistant deputy minister of justice and consumer affairs in New Brunswick, said the insurance industry did not successfully manage the consumers’ expectations in 2006. While the industry was focused on studying emerging issues, she observed, the public was getting mad as hell about rate increases. “We slayed the wrong dragons,” she noted.

Well, it’s time for the industry to manage the public’s expectations better. To do so, the industry needs to talk to consumers more often — and not just about the latest charitable contribution by the industry, but about the way their real business is done and how rates are established.

In New Brunswick during the time of the 2006 rate crisis, the government, the insurance industry and consumer groups formed a task force for the purpose of talking to each other about how rates are established. Perhaps a similar kind of task force should be established on a more permanent basis. Such a permanent ‘Insurance and Consumer’ committee — including, for example, representatives of the industry, governments, industry regulators and consumers — could meet once or twice each year to flag emerging issues within the insurance industry and identify and/or resolve the public’s insurance issues as they arise. This would certainly appear to be a far more proactive than waiting for a market cycle to determine the industry’s response to a potential public outcry over rates. If nothing else, it might serve a s a possible forum for educating the public about how the business works — and, more importantly, how the business works to support consumers.