CEO Speaks Out on Nova Scotia Legislation
CEO Speaks Out on Nova Scotia Legislation
Insurance Executive Speaks Out On Nova Scotia Automobile Insurance
October 29, 2003
"We are shocked and deeply offended by the punitive insurance legislation passed by the government of Nova Scotia", said George Cooke, president and chief executive officer of The Dominion of Canada General Insurance Company. "I strongly urge the premier not to proclaim this bill, start over and get it right."
"The government has ordered 20% reductions in automobile insurance premiums, effective November 1, 2003, and extended its price freeze to November, 2004." Mr. Cooke continued to explain: "Nova Scotians deserve rate relief, but that can only be realized if compensation levels -- which are set by the government and over which the industry has no control -- are reduced appropriately."
A report written by a government-appointed actuary, and shared with the industry, concludes that the amendments to the auto insurance product contained in Bill 1 will not result in cost savings (a range of +3.1% to -4.6%). This is a far cry from the 20% represented by government. Interestingly, this report has not yet been made public.
The reforms in Bill 1 will not reduce costs by 20%. Assuming there are any insurers left in Nova Scotia a year from now when the freeze is lifted, prices will again rise 20-35% because legitimate cost reform has not been introduced.
"Furthermore," continued Mr. Cooke, "the government has introduced non-withdrawal clauses which purport to prevent companies currently operating in Nova Scotia from modifying business practices in response to changing environmental factors -- one of which is this legislation."
Cooke continued to explain that The Dominion is 100% Canadian-owned and its parent company is publicly traded. "We have a duty to our shareholders to invest their capital responsibly. These shareholders are members of pension funds, retirees and families who rely on our prudent fiscal management."
"The government of Nova Scotia is telling us that, in order to continue doing business in that province, we must knowingly invest our shareholders capital at a certain substantial loss. This is simply unacceptable."
Mr. Cooke emphasized that the industry had been in discussion with the government regarding appropriate ways to address rate inflation in the province. "We were astonished to learn that the bill passed third reading in the house hours after we were assured that our concerns would be addressed."
The Dominion has been operating across Canada since 1887, and is committed to maintaining quality service for all policyholders. However, Mr. Cooke explained that market exigencies in Nova Scotia are unprecedented. "We have informed our staff and business partners that we will stop writing new automobile business in Nova Scotia. In doing so, we will comply with the provisions in Bill 1 while continuing to consider all options. We will continue to fully satisfy commitments to current policyholders, employees and business partners," said Mr. Cooke.
Nova Scotia Auto Reform Backgrounder
In May 2003, Bill 45 amending the insurance act is introduced in the Nova Scotia legislative assembly freezing rates retroactively, including rates that have already gone through the government review process. A legal opinion questioning the legal validity of bill 45 is obtained from the prominent Atlantic law firm of McInnes Cooper and is provided to government. Bill 45 is passed by government on May 22, 2003.
That same month, the Utility Rate and Review Board (UARB) releases its findings pursuant to a government commissioned review of auto insurance premiums in Nova Scotia. Using independent actuarial analysis, the UARB concludes average permiums in Nova Scotia are not excessive in light of rising claim costs.
On June 25, 2003 Minister Russell holds a press conference announcing the government plan to reduce rates by 20% and releases its report "Reducing Rates: a Plan that Works". During the press conference, the minister makes it clear that premium reductions would be achieved by eliminating pain and suffering awards for minor injuries. George L. Cooke, President and CEO of The Dominion of Canada General Insurance Company provides comments to media that commensurate reductions in claims costs are necessary to produce the government's promised 20% reduction in rates.
In a July 2, 2003 letter to Minister Russell, Mr. Cooke emphasises the need for rates and claims costs to be considered in tandem, and encourages an open dialogue with government to achieve a product reform that will work for Nova Scotians. Minister Russell's July 9th reply to Mr. Cooke advises that government has engaged an independent actuary to examine the impact of the legislation and confirms its commitment to a collaborative dialogue.
Bill 1 is introduced for first reading September 26, 2003. The draft bill provides for an across-the-board 20% rate roll back from rates already frozen as of May 2003. The bill also includes a cap on minor injury claims that is similar to legislation introduced in New Brunswick.
The liberal opposition party refuses to support the threshold on minor injury claims as contained in Bill 1.
On September 30, 2003, a task force report to the Atlantic premiers is made public. "The Atlantic Canada insurance harmonization task force report to the Atlantic premiers" concludes that the core problem of rising premiums is product design and rising bodily injury costs, and the solution is to balance acceptable claims compensation restrictions with affordable rates. The task force also concludes that a competitive private delivery system and not a monopoly supplier better serve the needs of consumers.
Bill 1 is sent to the law amendments committee. The Dominion of Canada appears before the committee and engages in discussion with government. The Dominion provides evidence and independent actuarial analysis to demonstrate the financial impact of the bill. The Dominion demonstrates the need for a fair and individualized application of rate reduction and the need to retain the claims costs measures introduced in the bill as necessary to achieve the government's rate reduction promises. The Dominion encourages the Nova Scotia government to continue with the dialogue and commends the Atlantic Canada task force report. Throughout these discussions, the government confirms its understanding of the issues and indicates it continues to work on a solution.
October 21, 2003 a revised Bill 1, as amended by the law amendments committee, is introduced. The amendments significantly erode the threshold for injury claims above the cap. The report of the independent actuary retained by government estimates the amended threshold reduces the claims costs savings to 3%, far short of the 20% needed for government promised 20% reduction. No amendments are made to deal with the application of the rate reduction. The insurance industry advises government that a forced 20% price reduction and an 18 month freeze combined with no cost savings is unworkable.
On October 28, 2003 the Nova Scotia government announced that Bill 1 had received third reading.