Quebec auto insurance: Good returns, but premium increases likely

The Qubec automobile insurance industry posted further growth in 2005, reporting an overall operating income totalling 16.8% of earned premiums – up slightly from the 16.6% generated in 2004.

Losses in 2005 (3.0%) grew at a slower pace than earned premiums (3.2%), according to the Autorite des marches financiers (AMF).

At the same time, the Socit de l’assurance automobile du Qubec (SAAQ) is currently holding public hearings on a proposal to increase its public auto insurance contributions as of 2007.

The positive auto industry growth in the province was noted in the the 2005 annual report on Qubec automobile insurance rates tabled recently in the National Assembly by Finance Minister Michel Audet.

“The report highlights the solid position of the Qubec automobile insurance industry, a situation that can only be in the interest of consumers,” the AMF announced on its Web site. “In this regard, the decline in rates reported in 2005 for a third consecutive year reflects a market that is operating efficiently and for the benefit of consumers.”

But continuing deficits have nevertheless forced the SAAQ to consider hiking auto premiums in the province. The national organization of Canada’s actuarial profession says the SAAQ as no choice but to raise Qubec motorists’ premiums because of “very large funding deficits.”

“The Government of Qubec is correct in stating that the SAAQ posted a surplus last year,” the Canadian Institute of Actuaries (CIA) says in a press release. “But despite this surplus, made possible by exceptional returns on its assets, the fact remains that year after year the SAAQ has been accumulating very large funding deficits.

“The revenues generated by premiums paid during the year do not cover the costs incurred to compensate accident victims. This actuarial deficit is alarming, and the SAAQ has no choice but to raise motorists’ premiums in response.”

In June 2005, the SAAQ recommended a rate increase of up to 300% for auto insurance in order to compensate for the more than CD$1 billion in debt the automobile insurance board is financing. According to reports, the SAAQ ran a $500-million deficit in 2004 after the board paid out CD$1.1 billion in accident-victim compensation during the same year.

The CIA noted one reason for the SAAQ’s proposal to raise premiums is that Bill 55, which became law in 2004, requires the SAAQ to restore financial equilibrium by the year 2015 and to ensure that the plan is fully funded by the year 2020.

Normand Gendron, actuary and president-elect of the CIA, said the institute would “not pass judgment” on the number of years that the SAAQ must take to introduce the required premium increases.

“Financial equilibrium could, of course, be achieved more gradually than under the method proposed by the SAAQ,” Gendron said. “But what we need to realize is that the slower approach is the more costly approach, and it would place an unfair burden on future generations.”