MR. CHAIRMAN: I call the Standing Committee on Economic Development to order. With us this morning, colleagues and committee members, are witnesses and members from the Insurance Bureau of Canada. On my right, at the head table, is Mr. Don Forgeron. With Don is Aileen Thompson and Mr. Frank Mumford. Sitting in the back is Mr. Freeman Walsh. Mr. Walsh, Ms. Thompson and Mr. Mumford are with insurance companies here in Nova Scotia. The format is essentially a presentation for approximately 20 minutes and then we will have, as per usual, a Q&A session. Perhaps we could begin by asking members of the committee to introduce themselves. Perhaps we could start with the honourable member for Halifax Chebucto.
[The committee members introduced themselves.]
MR. CHAIRMAN: I should point out that the member for Lunenburg West, Don Downe, a regular committee member, does send his regrets. He had an incident, a matter that he has to attend to. It is quite important. He just learned of it, I guess, late in the evening. So I guess, Don, if you would like to perhaps begin. Good morning.
MR. DON FORGERON: Thanks, Mr. Chairman. Good morning everybody. We have a short presentation. We have handed out copies of it to you so you can follow along either up here on the board or with the overheads we have given you. We have also provided a submission to you which I believe was delivered either late yesterday or early this morning. So we will walk you through a very brief presentation which will summarize our submission and then, as the chairman said, we will be happy to entertain questions for the duration of our time.
Who we are. We represent private general insurance companies. Those companies write about 90 per cent of the auto, home and commercial insurance business sold in Canada. We have about 120 member insurer groups, almost 200 companies, members of the IBC. Here is what we would like to try to accomplish today. There has been much talk and much written recently about the rising cost of insurance to consumers. We would like to share with you our sense for why our costs have gone up, the research that we have done on that, which usually translates into increasing costs for consumers. Also, we would like to dispel some myths. The campaign, thus far, has been a short one, really, only since January but already there are many things being said and written which don't necessarily accurately reflect what has happened in our industry.
Here is an overview of the agenda that I hope to follow. I want to touch a little bit on what some of the trends are in our business these days. You have likely all heard about the closed claim study that we did. In the land of myths is some issues around road safety and our financial results as an industry. We will touch on those. Some other factors that are also responsible for increasing costs and then getting onto, I guess, a stage in the debate where many people already are which is what do we do now that we know what the problem is? All of that in 20 minutes.
Our claim costs 1996 to 2000, up by some 46 per cent. Currently, on average, rising at the rate of 9 per cent a year. There are some insurers whose costs are increasing at a much higher rate. This is an industry average. Frequency and severity is really how many and how expensive these claims are and both of those indicators are up quite significantly over that same period of time. At the same time, premium growth is up by 10 per cent. As my 14 year old said to me last night when we were talking about this, she said, I get it. She said, I don't need Grade 12 math to see that that is not a very good formula, and it hasn't been.
Talking about bodily injury claims and claims frequency, the line here that is of interest is the red line and that is the number of total claims. For the period 1990 to 2000, the number of claims on a calendar year basis has gone up by some 45 per cent. So this is a specific type of claim, a bodily injury claim. The average cost of those claims has gone up by some 83 per cent over the course of the 1990's. So that is the worst possible combination, more claims and more expensive claims.
This graph really illustrates a lot of things about how our industry has fared, what it has meant and what it means for consumers. The blue line is industry-earned premium. So that is the premium that our industry has earned on an annual basis. That is $125 million at the bottom to $275 million at the top. So you can see the slope of that line and you can see what happened in the late 1990's where rates flattened out and we will talk a little bit more about that later. The magenta line, I guess it is, is the claims line. So this doesn't reflect expenses and it doesn't reflect investment income. This is just a pure insurance look at premiums versus claims.
For a couple of years in the mid-1990's, you will see later on, the industry actually was profitable on the auto insurance line but you can see now that there is no way that we can overcome - it is kind of hard for me to point - but you will see where the lines have intersected in 1999. So even before we begin to pay the salaries of one staff member, we are already paying out more in claims than we are taking in in premiums.
So in the face of all of those rising claims costs, we set out to find out which types of claims and which types of payments were causing the problems. We released the results of our closed claim study a couple of weeks ago. I won't go into a lot of detail here. You have seen the study. It is available on our Web site if you haven't. These are just some of the highlights from our study and other similar studies that have been conducted in this region and across the country.
The significant numbers from Nova Scotia are 70 per cent of the claimants had only soft tissue injuries and received 56 per cent of the settlements. The other significant number is that 67 per cent of all the dollars that we paid out in claims costs for bodily injury claims went to pain and suffering awards. Those are the two significant numbers. If you look at the numbers for Newfoundland, you will see that they are very similar - 67 per cent had only soft tissue injuries. If we go on and take a look at New Brunswick and Manitoba, again very similar, 61 per cent in New Brunswick had soft tissue, 61 per cent were for pain and suffering awards. Similar results in Manitoba and B.C. Ontario and Quebec had similar conclusions and the research we have begun to do around the world shows exactly the same types of conclusions. When automobile insurance systems get too expensive, this is why.
Road safety. I mentioned that there were some myths that we wanted to dispel. This debate has been going on in Newfoundland for most the 1990's. We have had several government committees, we have had several government reports that have been produced. Those who are opposed to making any types of changes to the system have always come back to the fact that the solution to this problem is road safety. If we can just reduce the number of accidents, we can solve this problem. That is perhaps one of the biggest myths that is floating around out there right now and I want to show you why.
These are national figures showing, since 1990, the number of injuries and fatalities across the country have steadily declined. This will give you, again, a reflection of our costs. While these injuries and fatalities were declining - you'll see here the number of injuries going down - the number of claims have actually gone up and the cost per claim has also increased over the latter part of the 1990's. This will give you a sense of where we stack up, average cost per claim. BI&AB stands for bodily injury and accident benefits, it's basically bodily injury claim payments. You'll see how our average claim has continued to increase during the course of the 1990's to the point where we now have the highest average claim costs in the country.
One of the other myths is that - and related, I guess, to some extent to the first one - if we can reduce the number of accidents we're going to get at this problem, that it's the cost of repairing vehicles and so on, and the other types of claims that are causing your costs to go up. This clearly shows that that's not the case. This shows that the cost of settling bodily injury claims, which is the green line at the top, far outstrips - in fact it's more than double - the cost of settling collision and comprehensive claims. Most importantly, you can see what the trend is. On the bodily injury side the trend is up; on the comprehensive side it's flat.
At a time when I said the total number of claims that we're settling for bodily injury continues to go up, if you take a look at this stat, which are Transport Canada numbers through Statistics Canada, these are the numbers of accidents, collision rates in the four Atlantic Provinces. Nova Scotia is reflected by the red line. Over the course of the 1990's, the accident rate in Nova Scotia has gone down by 20 per cent. In New Brunswick, it's gone down by almost 50 per cent. At the same time, the cost of settling bodily injury claims has gone up and we're getting more of them. It's just not consistent to say that if we reduce the number of accidents, we're going to solve this problem. We have reduced the number of accidents, quite considerably, right across this country, but yet the cost of settling these claims has continued to go up.
Financial results for the industry. This is an historic view of our return on equity, going back to 1975. Just yesterday Statistics Canada released its preliminary numbers for 2001, and the return on equity fell to 2.8 per cent for 2001. Anybody who thinks investing in an insurance company is a wise investment choice right now might perhaps want to consider a different investment counsellor.
Part of our problem has been premium growth. This is a national figure. We'll talk a little bit later about provincial figures. There has not been a lot of premium growth in our industry, and that is part of the problem. Just to put some perspective, again, around where we are compared to some of the other jurisdictions, these are, again, loss ratios, which is just a reflection of premiums and claims, not any of the other financial numbers, such as expenses or investment income. You can see the trend in the Atlantic Region. We're well over 100 per cent. The same thing exists in the property line of business as well.
This is what it has meant for automobile insurers in Atlantic Canada. You'll see here that 1994 and 1995 were the only two years that the industry was profitable in Nova Scotia. You can see which direction the trend is going, it's going to more losses each and every year. I've said this several times, many of you have heard me say it, that consumers should not be concerned about the fact that we're losing money. I suspect most of them aren't. But they should be concerned that this points to a problem, that there's something wrong with the system. If insurers can't make a profit, they only have a couple of choices. One is to leave, which most of them, in fact all of them have not done, they've made the decision to stay here. The other is to raise their rates. That's the result of a system that has gotten too expensive. That's the concern that consumers should have.
I will just quickly touch on some of the other factors that have caused rates to go up. We have mountains of studies that show that the property casualty industry is the most-heavily taxed sector of the economy. Again, consumers ought not to care, but that always and ultimately gets passed through to consumers in the form of higher premiums. We operate under a rather archaic and bizarre taxation regime here in the country that sees taxes on taxes, which is, I guess, sort of the worst form of taxation. Here in Nova Scotia, so bizarre is our taxation system that we legally cannot tell consumers that we pay a premium tax of 3 per cent on their policies. As you see here, that represents $24 million a year. As well, the government, while it's not a big hit for our industry, earlier this year, or late last year, decided to extend the capital tax on large corporations for at least another year.
Health care levies. The government is entitled to recover the health care costs for innocent motor vehicle accident victims. If I'm involved in an accident with a third party and I'm at fault, whatever health care cost is expended to fix the person I've injured is recovered from me by the government. They sue my insurance company and they recover whatever they've spent on health care costs. This was done on a case-by-case basis. Back in the early 1990's, the industry and government got together and said, there's got to be a better way, this is very expensive administratively, it's not very efficient. So we came up with what's called the levy. Annually, we pay to them what we think, or actually they tell us what they think we're going to owe them.
[9:15 a.m.]
It's fairly predictable, and it's worked reasonably well, with one caveat. Back in 1993, they were collecting about $6.7 million, as you can see. In 2000, they were collecting $12.7 million. We had some confidence back in 1993 that the $6.7 million represented what was truly owed to them. We have no confidence that the $12.7 million collected today represents what's truly owed to them. We feel they are recovering more than needs to be recovered for the health care costs of innocent motor vehicle accident victims. This, of course, contributes, as well, to the increasing cost of insurance.
We'll go back to this one, just to talk about insurance fraud. A lot has been said on the effect of insurance fraud on the cost of your product, whether it's auto or property. Ten per cent to 15 per cent of all the premiums you pay go to pay for fraudulent insurance claims, whether it's fraudulent bodily injury claims or fraudulent property claims. It translates to over $1 billion a year. We're no different than a lot of other industries, whether it's the retail sector or other sectors that suffer from fraud. We all pay for the cost of fraud.
What are the options? What can we do? As I said, I think a lot of people have made it to this stage in the debate now. We can change the taxation system and reduce the tax burden on the industry to the benefit of consumers. Are we optimistic? No.
Road safety. We mentioned that there are many groups out there who don't want to make any changes to the current system, who say that road safety is the answer. Well, we agree that road safety is important. We have a long track record of supporting road safety initiatives in this country. Part of the reason why we have graduated licensing in almost every province of this country is because of the work that our industry did to promote it and to convince governments to bring it in. We've now turned our attention to the issuing of aging drivers, and how we can help those people stay on the road as long as possible.
It's important and we'll continue to support it, but it's not the answer, as you've seen. We've reduced the number of collisions, we're not reducing the number of claims. Insurance fraud prevention is also an issue, and we'll continue to do what we can as an industry. Individual insurers do what they can to reduce the number of fraudulent claims, but you have to realize that it's a balance that insurers have to achieve. When it's the minority of their customers who are going to perpetrate these types of frauds, you don't want to treat the vast majority of your customers who are honest with that same view. It's a balance for insurers to not pay fraudulent claims, but not to penalize everybody for the sins of a few.
Finally, we can look at changing the product. When we talk about changing the auto insurance product in Nova Scotia, these are some of the things that we think have to be at the heart of a redesign in terms of objectives. It has to be a fair system. Nova Scotians have to be able to say when claims were settled that they were settled fairly, that people are being compensated fairly for their injuries. That's a key objective that we'd like to see. It has to be affordable and available.
We have to design a system where costs are going to be controlled so insurers can sell the product at a price that people can afford, and also design a system where we're going to attract as many insurers as possible to the province, which further reduces the cost to consumers and makes it more widely available. There has to be a stable system. We don't want to see these increases. As much as I enjoy today's event, I don't want to have to come back here every couple of years to explain why rates have gone up. I think we all want a stable system - insurers want it, government wants it and consumers want it.
Finally, it has to be acceptable. There are a lot of stakeholders who have a vested interest in this system. Whatever we do has to be acceptable to as many of those people as possible. Our focus has been and our recommendations to governments here in Nova Scotia and elsewhere is that whatever we do, we have to focus on the factors that have caused costs to go up. Let's not waste our time focusing on things that may sound sexy and attractive but really don't amount to a whole lot in terms of controlling the cost of insurance.
When we take a look at this issue, we've approached it with the three words at the top of this page - identify what the problem is and I believe that we've gone a long way to identifying the key factor. There are many other factors, but we've identified the key factor.
What we'd like to move onto now is a process and we think that there's a very important role for government to play right now. Government has to provide a clear process that will allow consumers to come forward, that will allow all stakeholders to come forward to voice their views on how we can fix this problem. Tell us what kind of an auto insurance system that they want to have here and government has to step up to the plate now and provide for us, the people of the province, a formal process whereby this can take place. If that formal process is an effective one and consultation is wide, we can easily and quickly move on to action and actually have legislative change that will benefit consumers in this province.
I hope I haven't overstayed my welcome. I would be happy to take questions.
MR. CHAIRMAN: Thank you Mr. Forgeron and thank you for keeping to the time frame. It is appreciated. Do we have some questions? Mr. Chipman.
MR. FRANK CHIPMAN: Thank you Mr. Chairman.
MR. CHAIRMAN: Just before you begin, I would like to request that all members, in the name of fairness, try to keep their questions as brief as they can - since it is such a topical and interesting subject - I will watch the clock so we can give all members an equal amount of time.
MR. CHIPMAN: I know over the years - and I have been accident free most of my life - I have been told as I get older my insurance will eventually go down, but I have never seen a decease in insurance. I guess the interesting part I am seeing now is that as I get older, I am actually going to end up paying a lot more because of age. That principle is not true.
One thing that interests me - I have an invoice here from a constituent of mine, Mr. Chuck Shields, he's with Cartier Financial Planners - his errors and omission insurance for his office has doubled from last year. I would submit that the only whiplash that he would have been affected by is maybe the downturn in the high tech industry. Certainly, it seems to be covering many broad parts of the industry, not only vehicle insurance. It's including office insurance, errors and omissions insurance. Could you explain that? His insurance policy is with Royal & SunAlliance - perhaps you can answer the question, Mr. Mumford?
MR. FRANK MUMFORD: Errors and omissions is an area that represents a very small segment of our business, which means that there's a lot of volatility in that we do not have a lot of large numbers working to our advantage. All of these things have to be experience-rated so if our experience in errors and omissions over time is significantly increased, more specifically by risk type, then that particular type of operation will see an increase in their cost of insurance.
MR. CHIPMAN: This has doubled in one year. It went from $250 to over $500.
MR. MUMFORD: Again, because of the small nature of the total errors and omissions written in this province, it does not take much to really distort those numbers and while the 50 per cent may be significant, the $250 is not.
MR. CHIPMAN: Excuse me . . .
MR. MUMFORD: Fifty per cent may be a big percentage number . . .
MR. CHIPMAN: This is 100 per cent.
MR. MUMFORD: Or, 100 per cent, but $250 is not a lot of money.
MR. CHIPMAN: Depends on who you're speaking to.
MR. MUMFORD: You're talking about a business person?
MR. CHIPMAN: Right. In the financial services industry.
MR. MUMFORD: I don't know what his total budget would be, but I suspect that $250 does not represent a significant proportion, percentage, of his budget.
MR. CHIPMAN: Like I say, we all know what the financial services industry was like in the last year or so . . .
MR. MUMFORD: We are a financial service industry. I know what it's been like.
MR. CHIPMAN: Right. He's a financial advisor and they work on commission, so I guess my point is that a $250 increase or a 100 per cent increase would be significant to that individual.
MR. FORGERON: If I could, Mr. Chipman. Premiums, whether it's for errors and omissions insurance, auto, or any other line of business, merely reflects the experience that insurers have had. All we do is take our costs, hopefully add a profit margin to it and come up with a premium. So if his premium has gone from $250 to $500 or from $10 to $20, it merely reflects the claims cost for that particular line of business. What Frank is saying is it's a very small line of business so it only takes a few large claims in a province as small as Nova Scotia to increase the cost for those people who are buying that particular product. The principles are the same which is we just add up what we pay out in claims, add a profit margin and sell that to the public. What you're seeing here in Nova Scotia is, on auto insurance at least, there are no profit margins so we're not even covering the cost of the product.
MR. CHIPMAN: I have a couple of more questions, but I will wait, somebody else may want to ask some questions.
MR. HOWARD EPSTEIN: Mr. Forgeron, there's virtually nothing in the presentation that you gave us with which I can agree except your last point that government ought to be doing something about this. It's clearly the case that there are problems in the insurance industry, but they're not the ones you've identified. I feel that what we've been given is an attempt at distracting our attention from what I think are the much more serious issues - this business about soft tissue injury and so on and rising costs of medical claims, this is business as usual.
When you look at the insurance industry, what we have to think about is the fact that this is a highly profitable industry. The analysis that you gave us in which you essentially put claims against losses, paid out claims in automobile insurance, is not the whole story. The whole story about the insurance industry is that it has huge amounts of investment income which is the main flow of capital and profitability to the insurance industry. You have left that out of the equation entirely. What you are essentially suggesting to us is that now that the market has gone down and you're having trouble with your investments over the last few years, this is going to be taken out of the hide of premium payers. It's not acceptable. It's certainly not acceptable in a short period of time as indeed your own industry publications show. I refer you to an article in Canadian Underwriter from December in which George Cooke, President of the Dominion of Canada General Insurance Company says that with most companies staggering the level of rate increases expected over a longer period of time, insureds won't accept the full pain overnight. That's a sensible observation. Insureds won't accept the full pain overnight even if you're talking about putting up rates, you can't do it in just one year and expect that will be acceptable to the public.
The reality here is that the companies are doing very well and even given that they haven't made wise investment decisions on their own. I want to give you another example about this. This is from an article in Canadian Underwriter from September. This quotes A. M. Best, the very company that does insurance industry analysis that you've talked about, and they've pointed out that the investment decisions of Canadian insurance companies have been riskier than the investment decisions of American insurance companies. "A. M. Best also highlights the fact that a dozen Canadian insurers had invested more than half of their entire portfolio in equities, while U.S. companies have applied greater caution by limiting their stock holdings to under 25% (investing primarily in less volatile fixed-income securities.) Such a heavy weighting in equities may have paid off handsomely when the markets were high, but now that the economy has cooled and interest rates have descended, the business landscape is beginning to look considerably less rosy."
Your industry, apparently, was over invested in equities - exposure is greater, the risk is greater and if your losses in the stock market are greater, well, you're going to have to live with that. The hard reality is not that it's a one year set off in terms of revenue from premiums compared with claims in that year. For all the years that people pay in, you have that money to invest and that's where the insurance company makes its money - they make it because they have the money year after year after year to invest and that's where the returns come.
You have to look at the lifetime return in terms of whether the companies are profitable, and the companies are wildly profitable. Maritime Life earns record profit in 2001, is one of the headlines in the paper. (Interruption) Sorry?
[9:30 a.m.]
MR. FORGERON: They don't sell auto insurance.
MR. EPSTEIN: Well, that's fine, but . . .
MR. FORGERON: We don't represent Maritime Life.
MR. EPSTEIN: But you know what, here's the reality.
MR. FORGERON: Do you want to talk about the banks?
MR. EPSTEIN: There is very huge amounts of concentration going on in the insurance companies right now, they are all buying each other up. As they buy each other up, what they're able to do is spread the risk, but what they're also doing is they are going to lessen the competition in the marketplace, and I have to say, on behalf of consumers, we're worried about that.
MR. CHAIRMAN: Excuse me, Mr. Epstein, is there a question somewhere in your dissertation?
MR. EPSTEIN: The question in this is that there is another picture here and why haven't you talked with us about the overall profitability of the companies and what it is that the investment picture is? Surely this is relevant, and we have to think about the lifetime of the premiums, not just one year and one year. Do you disagree with that? If so, why?
MR. FORGERON: I don't know where to start. Highly profitable - at a return on equity of 2.8 per cent, I don't know Mr. Epstein what you earn in your mutual fund, but I suspect that it's probably a little more than 2.8 per cent.
MR. EPSTEIN: Insurance stocks have jumped 7 per cent.
MR. FORGERON: Could I finish? The industry's not highly profitable. It's nowhere near. I don't know if you saw any of the slides we put up there . . .
MR. EPSTEIN: I saw every one.
MR. FORGERON: Well, did you see the one that showed a 2.8 per cent return on equity?
MR. EPSTEIN: Yes.
MR. FORGERON: Is that highly (Interruption) - no, for the most recent year - is that a highly profitable industry, Mr. Epstein? I don't think so.
MR. EPSTEIN: Over the long term. You're in it for the long term.
MR. FORGERON: Over the long term we're not a highly profitable industry. If you want to talk financial results comparing our industry to any other industry, we are one of the lower performing industries, many, many other industries earn far more profits than we do, far more profits; far higher levels of profits. We're talking about investing in an insurance company today in Canada, in a general insurance company, not Maritime Life, not a life company, not any of the other financial services companies, but a P and c company, companies these people work for, is not a highly profitable business line. We have reflected investment income in there. Those profit and loss numbers for Nova Scotia automobile insurance results reflect investment income. They reflect everything. The full picture is there. It is not a profitable business and you can talk about business as usual and we've made poor investment decisions, we're not getting returns on investment income the same way, nobody is. I know you're earning more than 2.8 per cent on your mutual fund but it's probably down what it was over 18 months ago, and our investment returns are down too, but that's not what drives this industry.
When you're paying out $1.12 in claims for every dollar in premium that you bring in, you can never make that up with investment income. You haven't even turned the lights on in the building yet and you're already spending 12 cents more than you're bringing in. I don't care what kind of investment portfolio you have, you're never going to make up for those losses.
That's another one of the myths that's being perpetrated out there, we're not a highly profitable industry. This is not a highly profitable business.
MR. EPSTEIN: I disagree. We'll get back to this.
MR. CHAIRMAN: Thank you Mr. Epstein. Perhaps I could interject a question, Mr. Forgeron. I am not sure who it should be directed to, but along the same lines as Mr. Epstein took, automobile insurers in Canada have stated that in 2000 they earned profits of $1.4 billion, yet Newfoundland and Nova Scotia claim that collectively, they lost $100 million. An independent study was carried out and found that in Newfoundland quite the opposite happened. Newfoundland insurers realized a profit of $20 million and in Nova Scotia automobile insurers realized a profit of $30 million when you included the investment income that the insurance companies realized. If that independent study is accurate, and I am sure this isn't new news to you, I would have to ask what confidence can the consumer have that the automobile insurers are providing full disclosure of their profitability?
MR. FORGERON: First of all, Mr. Chairman, the profit number that you mentioned, $1.4 billion, is incorrect. It's $1.1 billion for all lines of business across the country, not for automobile insurance. In the year 2000, profit for the industry was $1.1 billion. If you take just the 112 insurer groups that represent IBC - and we don't represent all the industry - that works out to $9.8 million in profit per company. I don't think that is excessive. First of all, it is $1.1 billion for all lines of business, not just for automobile insurance.
Secondly, with respect to the so-called independent study, that study was paid for by the Atlantic Provinces Trial Lawyers Association. I don't know how independent a study that would be. They have not produced a study, Mr. Chairman. They have merely put out a press release that said, we have an independent study and here is what it says. They haven't shown us anything. We have repeatedly asked - show us your numbers, show us this so-called independent study and let the people decide.
We have put ours on our Web site. We have made our studies public, we make our numbers public, our numbers are filed with the Superintendent of Insurance. The Superintendent of Insurance can verify what our loss ratio numbers are. Everything is public. This so-called independent study is neither.
MR. CHAIRMAN: Well, you know, Mr. Forgeron, some people would suggest that the insurance companies are not providing full disclosure. I can't speak to the authors of that study, whether they are providing full disclosure, but that is the information I have, that the study clearly contradicts the numbers that have been espoused by the Insurance Bureau.
MR. FORGERON: But if it is not a credible study - I can produce a million studies but if I am not going to show you the work behind the study, how credible is it? Statistics Canada yesterday released their numbers. Are they credible?
MR. CHAIRMAN: I would trust that they are, Mr. Forgeron.
MR. FORGERON: Well, they support our contention that industry results, industry return on equity numbers are below 3 per cent for the year 2000 - which was the year where the profit level for the entire industry was $1.1 billion - flies in the face of what the so-called independent studies are.
MR. CHAIRMAN: I have another quick question before I pass along to another colleague.
Throughout the province, especially coming into Halifax, you see signs posted by some windshield and glass companies, windshield repair, windshield replacement, no deductible. A constituent sent me along a document here from a glass company indicating that if they went through their insurance company, the cost of replacing the windshield would be $1,332.46; however, for cash, that windshield could be replaced at $500. I am just a little bit
concerned or confused about how companies can offer windshield repair or replacement without deductible. Who is bearing the brunt of that cost? Where is that reflected?
MR. MUMFORD: Probably the consumer is bearing that cost. I think that rather than ask us that question, maybe you had better have the glass companies come and ask how come they can charge us $1,300 and they can get away with a $500 cost.
What we attempt to do on glass claims is go to these glass companies and try to negotiate the best price that we can. Again, they are independent business people and I cannot dictate to them if they can or cannot charge deductibles or that they do or do not make a profit. I think that question would be better directed to those people.
MR. CHAIRMAN: Well, I guess I would ask then, Mr. Mumford, have you directed the question specifically to them?
MR. MUMFORD: Absolutely.
MR. CHAIRMAN: Obviously, the insurance industry is aware that that practice is taking place. What steps have you taken to correct it on behalf of the consumers that you serve?
MR. MUMFORD: We are aware that there is more than one price list with glass companies. That is certainly an area that is high on our agenda in terms of attempting to control our overall costs. We do address that as best we can.
Again, the glass companies are independent business people. We can simply try to get the best price from the glass company or companies that we can. They are the supplier. We do not control them.
MR. CHAIRMAN: Thank you. I will pass along to Mr. Carey.
MR. JON CAREY: Thank you. I have several concerns but I guess the senior situation - I have several people in my constituency letting me know that their rates seem to be going anywhere from 100 per cent, 50 per cent, there seems to be no consistency.
I am just wondering about the fairness. If a senior has not had a traffic violation, an accident or so on, where is the fairness in doubling their insurance while - I don't know what you are doing to the person that has had an accident but there doesn't seem to be any consistency in what I am hearing. Is there?
MR. FORGERON: I think the lack of consistency is another word for competition. You will get the same situation looked at by different insurance companies and a different premium arrived at. I think that is the beauty of competition. I think that is what consumers benefitted from in the 1990's for the most part. Competition has kept rates down to the level that they are.
Seniors are not being treated any differently than anybody else in this province. We are all being asked to put more into the pot. The essence of insurance is, everyone is going to put money into this pot so that if we ever have to take money out in terms of a claim, it will be there. There are more people taking more money out of the pot than ever before, so we are all being asked to put more money into the pot. To your point, what do we do with those drivers who are higher risk? They are putting more money into the pot than anybody else, but we are all being asked to put more into the pot.
MR. CAREY: I understand the free market but I can't understand how there would be such a great difference in increases, particularly - I don't see the fairness in giving one person a 100 per cent increase and the other one 50 per cent, or something. You represent a company or an organization that appears to be charging excessive prices and seem to want to be bailing out of insuring seniors. Is that a fair statement?
MR. FORGERON: No, on both counts. I don't think the prices are excessive. We don't like this period that we have entered into. We have been talking about the rising cost of automobile insurance for the last four or five years to anybody who would listen to us. I have to tell you that there were not a lot of people who wanted to listen to us. We could have called a news conference three years ago to talk about the rising cost of automobile insurance and nobody in this room would have shown up. They would have all checked their renewal and they said, hey, my renewal is fine, my rate is not going up. We have seen this coming for quite some time.
If we were really intent on gouging Nova Scotians, rates would not have come down in the late 1990's the way that they did. We would not have been coming to government for the last four or five years saying, guys, we have a problem, we're going to have to deal with it at some point. I don't think that is reflective of an organization or an industry that is intent on gouging consumers. We very much don't want to be going through this. That's why we have been as proactive as we have and that's why we want to find a solution to it. We want to find a solution as quick as anybody else does.
MR. MUMFORD: In fact, a year ago, everyone in this room would have received a package.
MR. FORGERON: We didn't hear from anybody a year ago.
MR. CAREY: If I might, just one quick. . .
MR. CHAIRMAN: Yes, Mr. Carey, a quick, short snapper.
MR. CAREY: You mentioned 10 per cent to 15 per cent of the claims are probably fraud. You people, as I understand it, have the investigators, the appraisers and the staff, if there is fraud, why would there not be more concentrated effort to get at these people and work to make sure that where there is fraud, that that is controlled, rather than pass around to the other 85 per cent of honest people?
MR. FORGERON: It is a fair question, and it is one that we have invested millions in trying to combat over the last many years. All of these insurance companies have special investigative units of their own that investigates suspicious claims, to try to make sure that the claims that we pay are only, or to the extent that we can, legitimate claims. We have an industry organization, a division of the IBC, an investigative services division that has investigators right across this country that insurers use to investigate suspicious insurance claims.
We have done a tremendous amount of work trying to combat insurance fraud but, as I have said, it is a double-edged sword. We want to try as best we can to treat our customers in a manner that they want and to treat everyone as suspicious is certainly not going to be welcome. It is very difficult. I mean, the basics of insurance, the premise is utmost good faith. So when somebody files a claim and says my 26 inch colour television has been stolen, we have not seen it, we have not been in the home to take a picture and have it on file, so we pay the claim.
Now, maybe it was only a 20 inch TV, so we ended up paying a claim perhaps that we shouldn't have paid. Maybe there was no TV. To the extent that we can investigate these things, we do, but trying to keep in mind that the vast majority of our customers are honest.
MR. MUMFORD: There are really two types of fraud. One is a hard fraud, when someone is actually attempting to purposely perpetrate fraud. Then there is the soft fraud, where some people attempt to inflate a claim, a legitimate claim that has occurred but inflate quality, quantity, that kind of thing. The first is easier to combat, the second is much more difficult.
MR. CAREY: Thank you.
MR. CHAIRMAN: Mr. Corbett.
[9:45 a.m.]
MR. FRANK CORBETT: Thank you, Mr. Chairman. I will tell you, Mr. Forgeron, if you came here to kind of calm our fears about the industry, I don't think you have. You've already been asked about the seniors and you've danced around it and have not answered the questions. The question is very simple, why should someone who paid insurance for over 40, 50 years into your industry, be accident free and when they turn a magic age, bang, their premiums double. Why is that? What is fair about that?
MR. FORGERON: Maybe we'll get some of the insurance companies to answer that . . .
MR. CORBETT: Don't tell me about competition because there's less competition. That's one part you did answer is that because so many mergers are going on, there's less competition and that's one of the reasons for the price rise.
MR. FORGERON: No, no, that was your colleague who said that.
MR. CORBETT: No, you said that.
MR. FORGERON: No, no I did not. The fact is there is no magic age. I don't know where you get that there's a magic age and once you reach that magic age your premium goes up.
MR. CORBETT: Why are people at 65 or 70 getting hit with increases?
MR. FORGERON: Why are people 45 and 50 being hit with increases?
MR. CORBETT: By 100 per cent?
MR. FORGERON: Why are people 30 or 35? Probably, if you did a comparative study, the people who are older are getting an increase but if you look comparatively at the younger age groups, they're getting a larger hit because these things are predicated on the type of vehicle, the risk, the number of kilometres driven and they are probably getting the benefit of a low mileage discount, as opposed to someone who's 45. While there may be increases, everyone is getting them.
MR. CORBETT: Okay, you're answering some of the question and then you're contradicting yourself. Why is it if you have a low mileage rate and you have a newer vehicle and you travel fewer kilometres, why is that increasing, why is it doubling?
MR. FORGERON: Proportionately it is not increasing as much as it would.
MR. CORBETT: But we're talking about individual consumers. It's fair in one way to talk about industry in general but if I'm a senior living in Cape Breton on a fixed income and I'm getting about $1,200 a month and I found out my insurance bill for the year is now $1,600, which is not unheard of, I would be upset. It's not, as you say, Mr. Forgeron, you can't shop that around, there are fewer and fewer people. You are contradicting yourself.
MR. FORGERON: Well, no, just if I could on that, you can shop that around and I have examples of where seniors have shopped around in Cape Breton and achieved a lower rate. To your point, Mr. Corbett, we share the concern that you have about seniors. Some of my staff are on the way to a meeting with the Seniors Secretariat here, a group we've been meeting with on a regular basis for several years now, again, because we knew this problem was coming and it is going to affect them more than it affects any other segment of society. We share that concern and we want to do something about it. That's why we're here today.
MR. CORBETT: Well, you've got another problem too, outside auto and that's property. Again, it's the seniors being hit. There are seniors that are not carrying property insurance today because they came in and looked at the age of the home. I've got one gentleman whose premium increased from $303 to $525 per year. He's taken off a considerable amount of money, he's cut his content insurance from $48,000 to $10,000 and yet, he lives in a duplex and those are the types of increases they are having.
Seniors are going without insurance coverage because it's becoming a luxury item for them.
MR. FORGERON: All the more reason why we have to solve the problem. If we solve the problem, we solve it for seniors.
MR. CORBETT: You don't see yourself as part of the problem. It's everybody else but you guys.
MR. FORGERON: Excuse me? I don't understand the accusation.
MR. CORBETT: Well, you said you're trying to solve the problem. I haven't seen anything concrete except for you guys trying to raise the rates as a way to . . .
MR. FORGERON: What are you suggesting we might be able to do?
MR. CORBETT: You are the same guys sitting here talking about it's the cost of turning on the lights, you're down 12 cents every time you turn on the lights. Maybe you should look at where you're at. Maybe you should move some of your offices to Cape Breton, instead of the high-rent districts, maybe stuff like that.
MR. FORGERON: Mr. Corbett, that may sound good but in reality this industry has done all that it can to control the cost of automobile insurance. I can list to you dozens of initiatives that this industry has undertaken collectively and as individual insurance companies, to keep the cost of doing business as low as possible. We have a problem. We are part of the problem. We also want to be part of the solution.
Our appearance here before you today is to try to help shed some light on what the problem is. We can talk about what has happened and it is important to understand what the problem is but I think it's time that we move now and start talking about some solutions. We're ready to do that, if you are.
MR. CORBETT: I'm always ready. I will come back with some questions later.
MR. CHAIRMAN: Mr. Boudreau.
MR. BRIAN BOUDREAU: Thank you Mr. Chairman. Good morning, Mr. Forgeron. I want to thank you for coming in because I think this is important. I'm not going to attack you or anything like that but I do have a couple of questions. You indicated three years ago you recognized this problem but you didn't save any statistics. You did a study, you said it's a trial lawyers' study and you indicated you don't give much credibility to it because it's an independent study. Your study, sir, is an independent study and it provides no statistics to endorse it.
MR. FORGERON: I couldn't disagree more, Mr. Boudreau. Our study is on our Web site, all the data is there for people to review and draw their own conclusions. We have drawn conclusions from the study, others are able to review it and draw whatever conclusions they want. The study you refer to that the Atlantic trial lawyers put out, there is no study, they haven't produced a study. They put out a press release that said we did a study. They did not produce a study.
MR. BOUDREAU: I guess I would like to ask, if you recognized this problem beginning three years ago, why didn't you begin to compile the statistics to justify your claim?
MR. FORGERON: We've shown you, I think, a wealth of statistics today that shows the cost of settling automobile insurance claims has gone up steadily. We've shown you all of that today. I don't know what else we can show you to convince you that the cost of settling insurance claims has gone up. At the same time that the number of accidents has gone down in Nova Scotia by 20 per cent in the 1990's, the cost of settling insurance claims just in the last half of the 1990's has gone up by 46 per cent. What more do we want? We even took it a step further because we figure that before we could go on to solutions, we've got to understand what kinds of claims, and we embarked on a closed claims study so we could really pinpoint specifically what's wrong. I don't know what else we can do, Mr. Boudreau, to show you what the problem is.
MR. BOUDREAU: With regard to fraud, is your industry experiencing fraud with regard to the soft tissue issue?
MR. FORGERON: I suspect that fraud is a part of all the types or is paid out in all the types of claims that we pay, whether they're soft tissue or whether they're property losses or collision claims, I suspect fraud is a part of our industry in all facets.
MR. BOUDREAU: With regard to seniors, although you deny, I have a bill here from a senior who lives in Bedford, and I discussed this situation with you before. It clearly indicates that in the years 1999-2000 his insurance was approximately $446 for the year. In 2002 he was sent a bill for $2,838 - an increase of 469 per cent. Mr. Forgeron, I would like to hear how you can justify this increase, not only for this individual, but for many of the seniors across this province?
MR. FORGERON: You mentioned we had talked about that, Mr. Boudreau, I would have to see it to be able to comment on it specifically. There have been no rate increases filed with the PUB anywhere near that. In fact, a brief survey we did earlier this week of members, representing about 80 per cent of the business in the province, showed rate increases filed with the PUB, on average, of 11.5 per cent for last year.
There are only a couple of things that insurance companies can do when they're faced with losses and trying to control their book of business. There's little that can be done on the claim side. Most of these claims are legislated in terms of how we must pay them and we must pay them. There's underwriting and there's premium. Insurers can decide that they just don't want to write as much business as they used to write because they're losing too much money, so they shrink their book of business. Business that they used to write, they're not going to write anymore, so underwriting decisions and premium increases. Those are the two things and I suspect that there's a little bit of both going on in that particular case.
MR. BOUDREAU: How can you explain then, Mr. Forgeron, why this individual went to another insurance company and obtained his previous policy from a different company?
MR. FORGERON: I have no idea. I don't know the details, Mr. Boudreau, so I can't comment on it.
MR. BOUDREAU: This individual called - and he will endorse my statement today - and stated that his agent indicated very clearly to him that this insurance company had no interest whatsoever to insure any seniors in Nova Scotia. Is this the type of companies we have providing insurance in this province?
MR. FORGERON: No, we've talked about that, Mr. Boudreau. There has been one insurance company who has publicly stated that they are not insuring seniors on the regular
book; one insurance company in this province. No other insurance companies have a policy that treats seniors any differently than the rest of their book of business.
MR. BOUDREAU: In regard to rating territories. Industrial Cape Breton - and my colleague, the member for Cape Breton Centre, touched on it a little bit - anyone in industrial Cape Breton, whether you have a bad or a good driving record, good drivers are penalized in a similar fashion as bad drivers. Why do you have rating territories? Why does your industry have these imaginary rating territories? Why is this permitted within your industry?
MR. MUMFORD: I think I can point to New Brunswick to answer that question. In New Brunswick, for liability, there is only one rating territory for the entire province. That came about 30 years ago during Louis Robichaud's tenure as Premier. We have extreme difficulty in that province in writing in the northeastern part of the province because we cannot charge appropriately or we cannot experience rates. So people in the southern part of the province must subsidize those in the north. One rating territory.
If we were able to have four rating territories, then, to go back to the issue of fairness, the people in St. John-Moncton would not have to pay a proportionately higher premium to help subsidize those in the north. Currently there is now somewhat of a crisis in that province because a lot of insurers, including ourselves, are having difficulty in writing business in that area and making any money. There is a market shortage there.
MR. CHAIRMAN: Mr. Boudreau, we can come back to you in the next round, if it's okay. Mrs. Baillie.
MRS. MURIEL BAILLIE: I understand that the premiums have not been increased much in the last five years. You rather answered that, you told me that you saw it coming, but you did nothing . . .
MR. FORGERON: No, I would take exception with that. I think we did a tremendous amount.
MRS. BAILLIE: You didn't do anything about raising premiums. I would just think that if they had been raised gradually it would have been better. Like a private company, you wouldn't run your company losing money for five years and not do anything about it, would you? I find that very difficult.
MR. FORGERON: I can only deal with the first part of your question. I'll let one of the member companies talk about their rating practices. The bureau itself is not in the business of setting rates. We have no authority to direct our members to do anything in terms of how they run their business. In terms of dealing with public policy issues like this, we have a role to play.
Where I took exception with the first part of your question was, we have done a tremendous amount to tell people that we saw this issue coming, we've seen this issue coming for years. We've been dealing with it in Newfoundland since the early 1990's. We knew it was only a matter of time before it came to Nova Scotia. We're one of the last provinces in the country to deal with this issue. The issues are the same. We've seen it coming for a while, and we did all we could to let people know that it was coming, and trying to engage in a debate.
But province after province, time after time, the only thing that motivates governments to move on automobile insurance issues is rate increases. Only when consumers begin to feel the effects of rate increases do governments move to make changes, never before. We could cry wolf as much as we wanted - I prove correct here - nothing happened until rates were increased. As far as how rates are set, maybe one of my colleagues might be interested in commenting on that.
MRS. BAILLIE: Just before he does, I'm sorry. I said you did nothing, I didn't mean that, I just meant with the premiums.
MR. FORGERON: Fair enough.
MR. MUMFORD: One of your statements was that if we were a private company we wouldn't run our businesses at a loss, in fact we are a private company. The reason we are seeing a rate increase is that we cannot afford to run our business at a loss. We have, in fact, at least I can speak for my own company, been raising rates since 1999, 2000, 2001. It wasn't until we have what I'll call Monday morning quarterbacks who are now getting into the act - as I said earlier, everyone in this room received a package detailing the problems and saying, here's a heads-up. We heard from nobody, but now that we're in the soup, everybody becomes a Monday morning quarterback. With hindsight I can manage my business tremendously. It's a little different when you're actually in the midst of that game.
MR. CHAIRMAN: Mr. Barnet.
[10:00 a.m.]
MR. BARRY BARNET: Mr. Chairman, a couple of things. One, you showed us a graph that spelled out, over the past 25 years, the premium growth and/or loss. I want to point out to the committee and to you that according to your growth the last time there was a decrease was the time that I was 16 years old and got my license. I hope I'm not responsible for all these increases.
With one small exception, in 1998 or 1999 there was a blip in the decrease in premium growth. Consumers of the insurance product are not passing that same information along to me. What they're telling me and what I've experienced myself is that the premiums have
increased year over year over year. I guess the first question is, how can you justify this based on the information they're providing to me?
MR. FORGERON: I have another handout, Mr. Chairman, just a one-pager . . .
MR. CHAIRMAN: Go ahead, Mr. Forgeron.
MR. FORGERON: . . . that may help shed some light.
MR. BARNET: While you're passing that out, maybe I could ask a second question at the same time. One of the things that the industry has continued to say and has said here today is that a large portion of the responsibility for the increase in the premium is the soft tissue issue, but a lot of the complaints I received in my office and from people I've spoken to on this issue, their increase in premium has absolutely nothing to do with soft tissue injury. In fact, in a quick review of my own policy, I've discovered that the comprehensive side of my insurance, the fire and theft, has actually doubled over the past two years. It doesn't seem to me that someone can justify this increase in the cost of overall premiums solely on the back of soft tissue. Can you explain that?
MR. FORGERON: I was going to try to find it, but I'm somewhat technologically challenged so I'm not going to attempt to mess with a computer here. We put a graph up that showed the cost of settling bodily injury claims. We compare that with the cost of settling collision comprehensive claims. You'll see the different trends. I can't speak for your own particular circumstances. There are a lot of factors. There is the type of vehicle you're insuring, where you live, the insurance company you're with. There are a lot of things that will affect your individual premium, so I can't speak to that. As an industry, settling bodily injury claims is far and away the most expensive part of our business, and the one that's growing at the fastest rate.
MR. BARNET: As a consumer, the part of my premium that's going up is the comprehensive fire and theft, and nothing has changed with respect to my personal policy. I have no claims, I've never had as a matter of fact. I drive the same vehicle I drove last year and the year before that. In fact, when I inquired of someone in the insurance business, they told me it's my vehicle. The vehicle I have is the type of vehicle that people who steal vehicles are looking for. That's the same answer I received to the same question about five years before that when I owned a different vehicle, and five years before that when I inquired about the same thing when I owned a different vehicle again. It's either my bad luck that I buy the vehicle that everybody wants to steal or it's a standard industry answer to anybody who asks that question.
MR. FORGERON: Over the last couple of years many of the companies have introduced a new rating system, especially for collision comprehensive that takes into account the cost - it's based on statistical evidence that has been gathered over a great number of
years across the country, the cost of repairing these vehicles, the frequency with which they're stolen and so on. Some companies over the last couple of years have introduced these changes, and some consumers have seen their premiums go up, many others have seen that portion of their premium go down as well.
The handout I gave you shows the premium change. If you forget all the gobbledegook that's written on the page, it really reflects premium change in the four Atlantic Provinces over the course of the 1990's. Nova Scotia is represented by the green bar. You can see what happened to rates in Nova Scotia in the latter half of the 1990's. Again, for those of you, and some of you may not be in the room, but there are those who would suggest that the industry has used this opportunity to take advantage of consumers by charging higher rates. I point you to 1998, where, on average, rates in Nova Scotia went down. Again, it's just not consistent with an industry that would be trying to maximize profits on the backs of consumers. This is a highly competitive industry in Nova Scotia.
MR. BARNET: It is interesting that you point that out. I guess the point that I was trying to make to you is that, in my own personal circumstances, and the circumstances of people who spoke to me, they obviously missed that decrease in their premiums because, frankly, the vast majority of people, I think all the people who I have spoken to have said to me that it has been a year over year increase and that this year has been just that much more.
One, I guess, final point that I want to raise, and I think that is the point why we are here today is, at the end of your presentation you had a bullet that said change in product, and you spoke just briefly to the change in product. The gentleman to your right there . . .
MR. FORGERON: Mr. Mumford.
MR. BARNET: . . . Frank, talked about the fact there are a lot of Monday morning quarterbacks. I think, in fact, the reason we are here today and the reason we are seeing the increase is because of a statement you made. In fact, the only thing that motivates government to move is a rate increase. In fact, it is my belief and the belief of a great deal of Nova Scotians, that this rate increase has very little to do with whether or not there is a return on investment or soft tissue injuries or a whole host of things that affect and have affected your industry for a long time. It really has to do with the industry's desire to change the product.
The last bullet you put up there, a change in product, is exactly why we are here. People have expressed to me a concern about the industry's attempt to try to influence or affect government to try to make a decision to change the product to some form of no-fault insurance. They are very concerned that what this will do is provide stability to the insurance industry but won't provide competition and the ability for individuals to shop and find reasonable rate insurance where they can. People have actually said to me that when they do call around they are finding that the rates are pretty much the same everywhere they go anyway, but consumers are concerned about the fact that the industry has used this as a
catalyst to try to push its agenda, and that agenda is to push for no-fault insurance. Now we have seen evidence that no-fault insurance has actually increased premiums in other parts of Canada. Can you tell this committee what your real agenda is? Is it to get no-fault insurance, and what is your experience with those jurisdictions that have shifted to that type of insurance?
MR. FORGERON: Our agenda is up on the board. We would like to see a process whereby we can involve consumers, government, stakeholders and the industry to try to arrive at a solution. We don't have a predetermined solution. We have stated several times that we have not been lobbying government nor are we lobbying government for no-fault automobile insurance in Nova Scotia. It is only one of many options available to us. But contrary to what some groups have done, we have not precluded any of these options before we get started. So if the people of the province decide, after a period of consultation that the government has been able to orchestrate, that they do, in fact, want a no-fault product of one form or another, then why not give it to them if that is what they want. But if they don't want a no-fault product then let's not, but let's solve the problem. So we have come into this process with our eyes open and our minds open to what is possible.
There are many groups, some sporting buttons that say, say no to no-fault, and they have precluded a whole host of options without even considering what the problem is or an analysis. What we are saying is, let's put everything on the table and let's let the people of the province decide. If they want a no-fault product, then give it to them. If they want the current system at the current prices, then so be it. But I don't think it is for us, as an industry, and I don't think it is for the trial lawyers to tell the people of the province what kind of an auto insurance system they want.
As far as the experience in other jurisdictions, I guess the best way is to use the example of a workers' compensation system here in Nova Scotia and in New Brunswick. Two very similar systems, but back in the mid-1990's, the system in Nova Scotia was virtually bankrupt yet the system in New Brunswick, virtually identical, was profitable, as far as Crown Corporations can be profitable. Two very similar systems, same basic principles but two totally different sets of results, and it is how the system was implemented. So you can have a tort system, such as we have here in Nova Scotia, that is well designed and working effectively, or you can have a bad one. You can have a no-fault system that is well designed, meeting the needs of the people, keeping premiums down, or you can have a bad one. It really comes down to how you design it.
MR. CHAIRMAN: Thank you. We will come back to Mr. Barnet. We have to go to the third string quarterback, Mr. Chipman, now.
MR. CHIPMAN: Mr. Chairman, I can go on here all morning because I have examples here in front of me about rate increases. I have an individual who went from $604 to $2,264 a year with no accidents or claims for 25 years. I have experienced, first-hand, in
the last three weeks, in my own personal life, my daughter had an accident through no fault of her own. I will tell you, going through the insurance industry and trying to get a settlement, the adjuster came out, gave a price on the vehicle. All he did was go to three different dealers, ask them the value of the car. He came back, it was extremely low, so I went to three car dealerships and I had them come out and personally look at the car and, of course, that improved my stand and I think we are getting somewhere.
I can name you an incident in my area. A couple hit a pothole in the road - whether you want to blame that on the Department of Transportation, it doesn't matter - they put it through their insurance company and they got a cheque for $1,152 and yet their insurance is going up $222 a year for five years. So it didn't cost the insurance company, well, sure it did initially, but they will get their money back in the raising of the premiums. I guess my concern is any vehicles I have ever owned, they are depreciating assets. I pay a premium at the beginning of the term, we will say in year one of that vehicle and let's say, for example, it is worth $20,000 and five years later it is worth $10,000, my insurance has never gone down. It has always increased but you are insuring a depreciating asset. I basically feel you have us over a barrel, insurance companies have, because the people out there who get those increases of from $600 to $2,250 or $3,000, where do they go and how do they pay for it?
MR. FORGERON: There is, as I have said, still competition that takes place in this province. There is no question that we have a problem and the system is getting more expensive. There is no question. That is why we are here today. So I am not going to tell you or try to suggest that those rate increases that some of your constituents have seen are not real. I am sure they are very real and that is why we are here today and that is why we have to solve this problem.
MS. AILEEN THOMSON: I think something, too, if I may, is that if we were to charge an individual proportionally to the extent that their claim was for their renewal, what would we charge someone where we had to pay $100,000 the following year? So I think that many people are feeling the results of the industry as a whole because that is the basis on which insurance is written, that the losses of the few are paid for by the many.
MR. CHIPMAN: If you have an impaired driver and he goes off the road and causes damage, you pay for the damage but would the insurance company industry pay for the damage to his vehicle?
MS. THOMSON: His own?
MR. CHIPMAN: Right, where he is impaired?
MS. THOMSON: No.
MR. CHIPMAN: Yet his rates go up. He is penalized for that error in judgment.
MR. FORGERON: No he's not. Different issue. Renewal premiums are not reflective of, it is not an attempt to recover anything that has been paid or done. His renewal premium is reflective of the fact that he now has an impaired driving conviction, likely, so he is a much higher risk driver.
MR. CHIPMAN: Right. That's what I mean.
MR. FORGERON: That is why his premium is going forward. So what we are trying to do going forward is we, as best we can, guess at the premiums that are going to be required to pay the claims for the upcoming year. We can never go back and recover what is lost. Those losses we have shown you are gone. Premium increases are not to recoup, rates are set looking forward, not back.
MR. CHAIRMAN: Mr. Chipman, on this round, I am going to try to limit the time. Mr. Epstein.
MR. EPSTEIN: Mr. Forgeron, are there any of your member companies that are only in the automobile insurance business, that is the only product that they offer?
MR. FORGERON: I think we may have a few.
MR. EPSTEIN: But only a few.
MR. FORGERON: We can get the number for you. I don't know the number off hand.
MR. EPSTEIN: But the profile in the industry generally is they be diversified. Isn't that right? They would offer commercial insurance both . . .
MR. FORGERON: But we have niche players who just either do auto or a specific type of auto. They may only do high risk auto. We have a diverse number of companies.
MR. EPSTEIN: But the main profile in the industry is that automobile insurance tends not to be the only product that is offered by insurance companies.
MR. FORGERON: But the marketplace is driven, in large part, by whoever is in the marketplace. So if you have a niche player in a market who just does auto and their rates are here, and whether or not you have a diversified company over here, their rates have to match these or they are not going to rate business.
MR. EPSTEIN: But isn't that, given what you have said about the claims, surely it is very difficult for a company that is so specialized to continue to stay in business.
[10:15 a.m.]
MR. FORGERON: Well then, that is why we have the problem we have today, Mr. Epstein. That is why you have seen the rates go up the way they have.
MR. EPSTEIN: But you suggested that the only options in your industry, and you suggest it as if it were for your industry as a whole, the only options were either to leave or raise rates. Now, that might be a limited approach to those few companies.
MR. FORGERON: I think I mentioned there are a few more options.
MR. EPSTEIN: Well, I didn't hear them. I was going to suggest that leaving or raising rates is an amazingly limited array of answers to a business problem. Surely, diversification is one answer and I would. . .
MR. FORGERON: But diversification doesn't deal with - if you are losing money in auto insurance, to write homeowner's business in British Columbia doesn't solve your auto insurance problem in Nova Scotia.
MR. EPSTEIN: Well, it does because, in fact. . .
MR. FORGERON: No, it doesn't.
MR. EPSTEIN: . . . lots of businesses, in fact, offer in some areas what is known as a loss leader. You sometimes absorb losses in one area so that you can offer a range of products to your customers. So diversification, in fact, is one possible answer. It is not the only answer but it may be part of an answer.
MR. FORGERON: So you're okay with the homeowner in Sydney subsidizing the insurance on a SUV in Halifax?
MR. EPSTEIN: What I am saying is that the idea of pooling risk is something that is basic to the industry, as we just heard.
MR. FORGERON: Not in a long product line for that.
MR. EPSTEIN: Well, indeed, from the point of view of the customer, a cross-product line's pooling risk may indeed be a very acceptable thing.
MR. FORGERON: You are violating some basic principles of insurance and I notice the superintendent is in the room here and I think she might take exception if we decided to take that approach.
MR. EPSTEIN: Well, we are the ones who write the rules for the superintendent to administer. Let's look at something else. Better investments is another possible answer. The other is more efficiencies inside the industry.
MR. FORGERON: Just on investments, highly regulated, again, by the superintendent in terms of what we can invest in, very safe investments, a very limited range of investment opportunities for us. So it is not like we can go out and make any type of investment that we want. Again, in terms of what investment returns will bring us compared to claims that we pay is a very small number.
MR. EPSTEIN: Well, you see, what you have left out by the table in which you showed me the rate of return, it seems it is only limited to your members. In any event, it stops at last year. It is not clear to me that that 2.7 per cent or 2.8 per cent that you are talking about is going to stay at that level or, indeed . . .
MR. FORGERON: No, but that is where we are now.
MR. EPSTEIN: . . . or it's on top of many years in which rates of return have been quite good. I am looking at the annual report of Royal & SunAlliance. Here is their financial review for 2000, their annual report. "Strong investment performance substantially offset deterioration in underwriting results. At 10.7 %, the return on equity has exceeded 10 % for the sixth consecutive year."
MR. FORGERON: Royal & SunAlliance worldwide?
MR. EPSTEIN: No, this is the Canadian company. It is a diversified insurance company. In the same stead, it offers a variety of product lines. It seems to me that the insurance industry continues to be a profitable industry but you haven't told us, for example, what the profile is on share prices. Are you finding that people are not buying shares, that your share price has plummeted and, if so, can we have some specifics about that? (Interruption) I have to tell you, the evidence is the other way around. I tried to read to you from the Wall Street Journal a while ago. Here is an article from the Wall Street Journal from, I will get the date, I think it is November 15th. They were discussing the effect of the September 11th attacks and what effect that had on the insurance industry, the amounts that would have to be paid out in claims and so on. Here is one of the things they say. "Insurance stocks have jumped 7 % since the attacks, . . ." That was two months later. This was November 15th. ". . . outpacing the broader market, and the atmosphere in the industry is one of eager anticipation."
MR. FORGERON: Mr. Epstein, you are looking in . . .
MR. EPSTEIN: What they are saying is they are going to sell all kinds of insurance.
MR. FORGERON: You're lumping in insurance companies worldwide. You are also lumping in life companies, you are lumping in companies that sell workers' compensation insurance. We are talking about a relatively small industry here, the insurance industry.
The p and c insurance industry in Canada is a very small industry. Our entire asset base is one-sixth of the asset base of the Royal Bank of Canada, one-sixth. They have six times as many assets as our industry as a whole. We are a very small industry. We are not this financial powerhouse that you are suggesting we are.
While investment income is an important issue and one that has to be accounted for, and we do account for it in the figures that we have given you today, it pales in comparison with the cost of settling claims. We can increase our investment returns by 30 per cent or 50 per cent, we are still not going to solve this problem.
MR. CHAIRMAN: Thank you, Mr. Epstein. I apologize. I recognize you do have a number of points you probably would like to make but I must move along to Mr. Carey.
MR. CAREY: Thank you, Mr. Chairman. Just to touch on the soft tissue issue, once again, is my information correct that normally, or generally, the insurance industry will pay a claim of, maybe, $10,000 to $15,000 without going to court, rather than to go through the legal expense and take the risk of a court making a higher decision?
MR. FORGERON: This is another double-edged sword. Frank has got a long history in claims. But on this one we get criticized if we pay too early or if we are too tough, so it is kind of a no-win. I will let Frank talk about how these types of claims are settled.
MR. MUMFORD: We sometimes do that but it is really - that decision to pay the $10,000 or the $12,000 is really predicated on what we feel will be our total investment in legal fees to defend something that we may only stand a 50-50 chance of winning. So it becomes more of an economic decision than it does a claims decision. It is like, we can settle this for $10,000 and it is going to cost us $12,000 to fight it. Even if we win it is going to cost us $12,000 and if we lose it is going to cost us $12,000 plus the $10,000. So we sometimes do make that choice.
MR. CAREY: Okay. It is a business decision then. However, it seems there is something wrong with the theory or the system that somebody might be able to not really have a serious problem and they could go to you and get $10,000 or $15,000, while - I guess what I am questioning is, is it not possible or is it not prudent to make an example of people that you might be paying that you shouldn't be? Is it the legal system or is it the government ruling?
MR. MUMFORD: To that issue, 18 months ago, I went to our claims department and I was pretty steamed about that particular issue. They undertook to fight three cases at my
insistence. We got hammered on all three of them. So I had to go back, kind of with my tail between my legs because on one of them, I was absolutely convinced that we would win, $130,000 later. We do do that but we don't make that decision on every claim that crosses our desk.
We do make individual decisions - I mean, if we have less than a 50-50 opportunity to be successful, it is going to cost us $12,000 and we can pay $10,000, to go back to someone else's comment, as an independent company we would be rather foolhardy to go and throw the extra $12,000 when we know that the court decisions go against us time and time again.
MR. CAREY: I guess, just finally - and perhaps you can share with me, what is your recommendation to help rectify this? Obviously, it is a big part of your expenses that people are paying for that shouldn't be.
MR. MUMFORD: I would not have any specific one recommendation. A friend and colleague of mine once said that our business is a cost-plus business. Whether it is full-blown tort - which is what we have today - I will be successful, I will have to conduct my business and attempt to generate a profit in this system or whether it is pure no-fault. I do not have a preference anywhere along that continuum.
Someone asked what our real agenda is. My only agenda is to attempt to bring my business in Nova Scotia, in the automobile sector, to profitability, whether that is under the current system or whether it is under some other system. Really, I do not have a preference. There certainly are price points along that continuum that I think that the people of Nova Scotia have to decide which one they would like me to administer. I can administer any of them. Our company has experience across this country in all of those various systems. I can do any of them. I do not have a preference.
MR. CAREY: Thank you.
MR. CHAIRMAN: Thank you. Mr. Forgeron, it seems to me that Nova Scotians, and it doesn't matter whether you are a teenager, a senior or anywhere in between, Nova Scotians want to make certain that the insurance rates, relative to the premiums, actually reflect fairness.
I believe, Mr. Forgeron, you expressed some reservation about the whole issue of automobile insurance being referred to the URB. I think we heard your perspective. Perhaps you could maybe enlarge a little bit on that as to why you have concerns about passenger automobile insurance being referred to the URB.
MR. FORGERON: The concern is rooted in what the URB can do. We have a problem that is this big, and the URB can deal with this piece of it. What the URB is going to be able to tell us is that rates are adequate, inadequate, too high, whatever the case may be. Those of us who study this issue, I can tell you what their final report is going to be, it's going to be similar to the two last reports they did when they reviewed automobile insurance in Nova Scotia.
It's an important step for consumers. Consumers need some sort of independent third party body to say that rates are adequate. I think it was Mr. Corbett who said if I came here to calm fears, I didn't do that. I'm not the person to tell Nova Scotians if the rates they're paying are in line with the risks these companies are underwriting. I'm not the person to do that. We need a third party body to do it and the URB can do that. That's good and that's useful, but that's all they can do.
Once we've determined that the rates are adequate and as I say, I know that the report's going to come back and tell us not only are they appropriate, they're not high enough to support the business that's being written. So now that we've determined that, what do we do? Well, the URB can't do any more. That's the end of the process. Now we need another process to take that information and all the other information, and as I said, what we're talking about is a process that we can bring consumers in on and ask them what they want done.
Furthermore, there's a cost to the URB hearing, a significant cost that I now understand is going to be passed on to consumers in this province. I think it's unnecessary. I think if we have a legislative committee, a House committee of the Legislature, similar to what we have in New Brunswick presently, we had one in Newfoundland, other provinces have done the same thing, it's a lot less expensive than the URB, consumers will still have an independent view of where rates are, and that committee can do the full job, which is to recommend change. The URB can't do that.
MR. CHAIRMAN: I guess in essence what you're saying is this is going to be a waste of not only time, it's going to be a waste of money. Perhaps that view is shared by some others. I understand that passenger insurance rates are going to be under consideration, and probably not commercial vehicle insurance. I don't know about the soft tissue claims relative to commercial vehicles. Is it a fair question to ask, what relationship would there be between increases in passenger vehicle insurance rates and commercial vehicle insurance rates?
I'm going to take the opposite view, Mr. Forgeron, that you took, I'm going to prognosticate that the URB may find that the passenger insurance rates are not justified in certain situations. I think it's going to take six months to deliberate. Again, I probably shouldn't try to be prophetic. Anyway, I'll make that prediction. You've made yours. If I'm right and you're wrong, what's going to prohibit the insurance industry and its member companies from increasing the rates in the other sectors? Other than this moral principle that you claim to adhere to, what's going to prohibit you from driving insurance rates up for homeowners, for commercial vehicles, et cetera?
MR. FORGERON: It hasn't happened in the past, and I don't see any reason why it's going to happen in the future. Competition, while not everybody in this room will share that view, is the best protection for consumers, in terms of the cost of any product, whether it's insurance or anything else. If we can create an environment here in Nova Scotia that's going to attract insurance companies, like we have, and attracted new ones in the 1990's, consumers are going to win. Consumers are going to win, whether it's on auto insurance or commercial or property insurance. We don't have a track record of huge rate increases just on a whim, and I don't anticipate that's going to happen.
Just a comment, though, on the URB hearing. One, I don't think it's a waste of time. I think that it's a piece of the puzzle, but there's nothing that says we can't have a legislative committee operating at the same time that the URB is operating and still get the benefit of what the URB is going to do. I do think it's a waste of money, though. In terms of where rates are today, our experts, our actuaries are telling us, when they look at these numbers here and they look at $70 million losses in automobile insurance in the year 2000, today, rates in Nova Scotia are anywhere from 35 per cent to 40 per cent below what they ought to be in order for insurance companies to be profitable. That's the kind of information the URB is going to be considering, and that's why I feel - I'm glad the cameras are here so we can come back and see whose prognostication was correct - that when they do come back with their report, they're going to say that, that rates are in line with the experience and we've got a problem, which is what we've been saying for a long time.
[10:30 a.m.]
MR. MUMFORD: I absolutely welcome that review. I absolutely object that we have to pay for it.
MR. CHAIRMAN: Perhaps the costs can be reflected in insurance rates.
MR. MUMFORD: There's no question it will be.
MR. BOUDREAU: First of all, how many rate territories are there in the Province of Nova Scotia?
MR. MUMFORD: Five.
MR. BOUDREAU: In regard to the fraudulent claims, do you have a breakdown - you say the statistics are increasing - do you have the statistics which show where the increase is, whether it's a soft tissue issue or in regard to home break-ins or . . .
MR. FORGERON: We're not suggesting that fraud is on the increase. We've not done any studies to show that it's on the increase. We do have a study back from the late 1990's that provided that original 10 per cent to 15 per cent estimate.
MR. BOUDREAU: In regard to the study you released, the claims study, it clearly indicates, at least in my discussions with you, do you feel that the soft tissue issue is the main issue that we have to deal with?
MR. FORGERON: Pain and suffering awards for soft tissue injuries.
MR. BOUDREAU: So your industry favours some kind of limitation on the compensation for the soft tissue issue.
MR. FORGERON: If we want to control the cost of automobile insurance, we have to control the cost of claims. What we've done is we've identified which type of claim is driving up rates, that has caused rates to go up over the last little while. Every province in this country has now gone through this debate, and report after report - I was reading one last night from New South Wales in Australia, exactly the same problem we have here. They've arrived at a solution. Yes, it does involve dealing with the pain and suffering awards for soft tissue injuries. It doesn't, though, involve dealing with anything that has been lost as a result of a motor vehicle accident. Economic loss.
When you're involved in an accident and you receive a payment for bodily injury you get two types of payments, there is one for anything that you've lost economically. So, if you've lost time off work, if your vehicle has been damaged, if you need extra medical attention, that's your economic loss. There's a pain and suffering award as well. Those are the two types of payments that are made.
What we're saying is it's not the economic loss portion of these claims that is causing the problem. In fact, in the vast majority of the soft tissue claims, there's very little economic loss. It's all pain and suffering awards. That has been the problem in province after province. What we're saying is there are many ways you can deal with that. We would like to have a debate, involve the people of the province, so that we can come up with what works for us here.
MR. BOUDREAU: Can you guarantee that if the government decides to limit the right to sue for pain and suffering that this will stabilize or reduce auto insurance premiums in Nova Scotia?
MR. FORGERON: The Government of Ontario, in 1996, introduced changes - they happen to have a no-fault system - the Government of Ontario, today, says that the average motorist in Ontario is paying less today than they did in 1996 for auto insurance.
MR. BOUDREAU: That isn't true, Mr. Forgeron. A study by the IBC - and I provided a copy of that, I believe, to you - indicated very clearly that the insurance premiums in Ontario are on the rise.
MR. FORGERON: That's not what I just said, Mr. Boudreau. I said that the average motorist today, in Ontario, is paying less for auto insurance than they did in 1996. There are cost pressures in the system today, yes, and there have been some rate increases over the last year, yes, but on average the average motorist in Ontario - this is the Government of Ontario that said this - is paying less today than they did before the changes.
My point is that you can effectively deal with this problem. Provinces have done it. Provinces have effectively dealt with this problem. Provinces and states and countries around the world have faced the same problem. We're not breaking new ground here.
MR. BOUDREAU: In order to purchase insurance from a company here in Nova Scotia, in regard to the consumer, the company has to be filed or registered in Nova Scotia. Do you feel that is a handicap to the consumers in the province?
MR. FORGERON: No, I don't believe so.
MR. BOUDREAU: You don't feel that if I can purchase insurance cheaper from a company that is registered in Ontario I should not be allowed to proceed.
MR. FORGERON: There's a consumer protection issue, and I guess that's for government to decide, what level of consumer protection they want to have in place. We play by the rules. If they say we have to be licensed in Nova Scotia, presumably that's because it provides a level of protection to consumers that companies have met certain qualifications and are able to do business here and that if a consumer had a claim it would be paid.
MR. BOUDREAU: Many of the people I have talked to regard this as an issue that's really between the legal community and the insurance industry and they're drawing the consumers into the middle. What do you think about that?
MR. FORGERON: No, I think there's nothing further from the truth. The legal community is one of the stakeholders in this - there's no question that they have a vested interest in automobile insurance. They work on both sides of this issue. We retain legal counsel to help settle claims, personal injury lawyers work on the other side. This is not a dispute or an issue between us and personal injury lawyers. This is an issue that says the cost of insurance has gone up, what are we going to do about it? And how that affects the stakeholders - they're just one of the stakeholders. There's the whole medical rehabilitation community out there that could be affected by changes that we make. I don't hear people characterizing this as a battle between insurance companies and physiotherapists, because it's not. Physiotherapists are just one of the other stakeholders in this group. The only stakeholder that counts is consumers and they've told us and apparently they've told you that they don't want to see the cost of insurance go up any more than it has to. That's the problem. Who's affected by the solutions we arrive at, we'll just let the chips fall where they may.
MR. CHAIRMAN: Mr. Corbett.
MR. CORBETT: I want to get back to the idea, some people call it red circling, red lining communities. It's done and no other industry could discriminate like that. If a group of kids from one community went over to Wal-Mart and went in there and did a bunch of shoplifting and then got caught and Wal-Mart said, okay, nobody from that community can shop there, everyone would be angered. You wouldn't be allowed to do that, but apparently you folks get together and say - and I know it has happened in the New Waterford area - it's been red circled. Why do you do that?
MR. FORGERON: Mr. Corbett, I take quite an offence to what you just said. You're accusing these people of breaking federal law, of being anti-competitive. I don't think you have any evidence of that and it's clearly not taking place. Companies make individual decisions about where they want to do business, but collectively, as an industry, these people do not break federal law.
MR. CORBETT: Okay, I think we'll go that route then. We'll probably file a complaint and then see where it goes because we believe this is an anti-competitive industry. We believe that there is some collusion from time to time going on here. There are areas suffering because of it. If you're offended, I am truly offended when you keep saying that your primary concern is consumers because I keep seeing - I don't phone these people up and ask them to complain to me about their insurance rates. These are people who are coming forward who are senior citizens that have dropped property insurance on their homes because they can no longer afford it, have stopped driving their vehicles because they can't afford to go any further. We're talking about people living in economically depressed areas of this province that are having a hard time making ends meet so I find it very disingenuous when you keep saying your concern is the consumer. Quite frankly, I don't think that's it at all.
MR. FORGERON: Well, you're entitled to your opinion, Mr. Corbett, but again, I say for the benefit of the other people here. If we weren't interested in finding a solution, why would we have been talking about this issue for the last four or five years? If we're only interested in gouging consumers and collusion and being anti-competitive, why would we be as open? Why would we be out front of this issue? We're way out front in this issue, long before anybody else was. As Mr. Mumford said, we sent packages of information to every elected official in Atlantic Canada last year. We met with the caucuses. One representative of your caucus met with us - one. There was no interest. So, if we're an industry that's interested in all of those things that you're accusing us of doing, that's not consistent with our behaviour over the last little while.
MR. CORBETT: But your statement is kind of unfair too because we've met one-on- one with various sectors too. I have had in the last year and a half various people from . . .
MR. FORGERON: Mr. Corbett, we have not received one call. That information that went out last year, we received no calls.
MR. CORBETT: I met with people from the insurance industry over that. They came to my office in New Waterford.
MR. CHAIRMAN: Thank you Mr. Corbett. I think what we should do is move along. There seems to be a bit of a disagreement between two honourable people in this committee. Maybe we could ask Mr. Barnet to take over.
MR. BARNET: Thank you, Mr. Chairman. Just three quick points. First of all, Nova Scotians need to know do you believe, as an industry, that threshold and no-fault insurance will lead to stable or lower rates?
MR. FORGERON: Maybe.
MR. BARNET: Maybe?
MR. FORGERON: I answered the question earlier, Mr. Barnet. I said you can design any kind of a system you want. If you want a no-fault system that works, you can design one that works. If you want this system to work, you can make changes to this system and make it work.
There seems to be a view out there that we have an agenda that says we want a particular type of change. I encourage those of you who hold that belief - and I know there are some who have been sporting "Say No to No Fault" buttons who have already determined that they don't want a certain course of reform to take place - to go look at what we did in Newfoundland over the last 10 years and take a look at the submissions we made to government in Newfoundland where we provided a menu of options. We said you could do
all sorts of things and here are five or six of them. We went to great expense to cost out what each one of these would mean in terms of premiums for consumers, we took part in the public debate, government ultimately made the decision. We never made a specific recommendation in Newfoundland. I don't quite understand why it's so hard to believe that here in Nova Scotia we don't have a particular preference. We want to solve the problem and there are many ways to solve the problem. A threshold system is one way to solve the problem.
MR. BARNET: If I answered my son with a maybe, he'd keep asking the question over and over again, and I am not going to do that.
MR. FORGERON: I think I told you though, you can design it to work.
MR. BARNET: The answer is not good enough. My next question is, what's your response to the people in Nova Scotia who believe this increase was designed to motivate government to bring the Monday morning quarterbacks into the game?
MR. FORGERON: These increases that consumers have experienced Mr. Barnet, are designed to respond to losses year after year.
MR. BARNET: Mr. Forgeron, can you explain to Nova Scotians how information that I have with respect to no-fault insurance shows that premiums are 17 per cent higher in states in the United States where no-fault insurance occurs? Saskatchewan's no-fault insurance premiums have increased 35 per cent from 1995 to 2000. At the same token, they've actually now offered to their consumers a dual system where you can opt in or opt out. People are, in my mind, legitimately and rightfully concerned that this increase is nothing more than an orchestrated attempt by the insurance industry to bring us into the game, the elected people. Frankly, I am tending to agree with them more and more.
MR. FORGERON: Mr. Barnet, you're also accusing us of anti-competitive behaviour, that somehow we got together as an industry and decided, let's raise our rates.
MR. BARNET: No, I am telling you . . .
MR. FORGERON: No, that's what you just said.
MR. BARNET: . . . that's what people are telling me.
MR. FORGERON: Okay, well, they're wrong on that one because companies make individual decisions about how they set their rates. If you go down to the URB you'll see a range of rates that are offered by insurance companies in Nova Scotia.
MR. BARNET: How do you explain to consumers that when they call around there's a $5.00 difference from the lowest company to the highest company on any particular product.
MR. FORGERON: Try another broker.
MR. BARNET: I am talking about broker to broker, company to company.
MR. FORGERON: I think if you go down to the URB you'll get your ultimate answer, which is where all the rates are filed, and you will see that there's a wide range.
Just to respond to your comments about no-fault, I read those comments from some information that the "Say No To No Fault" coalition has put out. They're making the same claims. I don't know if that's where you got your information, but they're making those claims as well. Nothing could be further from the truth. Once again, rates in Saskatchewan did not go up under no-fault, rates in Saskatchewan went down under no-fault. I just want to make sure that the facts are straight. Rates went down.
MR. BARNET: We're all entitled to our own opinion, but we're not entitled to our facts . . .
MR. CHAIRMAN: Mr. Barnet, I think I am going to have to cut you off and move along here to Mr. Carey. . .
MR. FORGERON: That's not an opinion, Mr. Barnet, that's fact.
MR. CHAIRMAN: . . . we seem to be kind of hung up on that particular issue. It is a disagreement, so let Mr. Carey ask a question.
MR. CAREY: Just to go back to your 2.8 return to the investors and so on. First of all I would like to have you understand that as a former business person I am very much aware and agree with people making a profit who are in business. However, 2.8 last year was a lot better than I did on my investments - maybe I didn't invest properly. A lot of people didn't make 2.8 last year.
Secondly, is a reasonable return on investment, which fluctuates with the ups and downs of the economy, would you have us believe that agents and executives of the larger insurance companies only made 2.8 per cent?
[10:45 a.m.]
MR. FORGERON: I'm not quite sure I understand your question.
MR. CAREY: Well, each company here, large or small, agents and so on, are independent business people, is that correct?
MR. FORGERON: I'm not sure - again, there are insurance companies and there are brokers and agents. Which one are you referring to?
MR. CAREY: I guess one would reflect on the other, as I would see it.
MR. FORGERON: No, not necessarily. They are two totally distinct . . .
MR. CAREY: Well, that's true but for the person buying the insurance, is one sector of the industry doing exceptionally well, while the return to the investor is, as you say, not as large as you would like to see it? I realize, as individuals, you have the right to make as much money as you can and so on, as a private individual company. However, the information doesn't appear - I don't have it anyway - that CEOs and so on of the large insurance companies - are they compensated similarly to, say, bank executives and so on, if that's . . .
MR. FORGERON: Again, I don't have that information. I can't answer that. I suspect, like any private sector industry, that people are paid based on performance.
MR. CAREY: Well, I guess all I would have to say is when you have something going out there that every Nova Scotian has to buy insurance, they don't have the option if they want to drive a car legally in Nova Scotia . . .
MR. CHAIRMAN: Or a truck.
MR. CAREY: . . . I think it's reasonable to have information provided. We don't need to know what everybody makes or what their profits are, but are they getting really excessive profits which would reflect the need to charge high premiums?
MR. FORGERON: I'm sorry, I don't understand the question. Who is getting excessive profits?
MR. CAREY: Well, obviously, your investors are getting 2.8 per cent. You have provided us with that.
MR. FORGERON: That's the insurance companies' return on their investment, yes.
MR. CAREY: Yes. So those are the investors. I guess what I'm asking is, the people who are involved in the industry.
MR. FORGERON: Are we being paid excessive salaries? Is that the question?
MR. CAREY: Well, a bank, I guess you would . . .
MR. FORGERON: My 14 year old doesn't think so.
MR. BARNET: Does she take maybe for an answer?
MR. CAREY: I guess I'm not making myself clear. Quite frankly, if we had bank executives here, my question would be, how can you give stock options and millions of dollars of profit to the CEO? Is the same thing happening in the insurance industry?
MR. MUMFORD: I don't know what my CEO makes. He won't share that with me. I can tell you that my own expense component, relative to the dollar that I bring in, represents six points, my internal expense component. The rest of my expense component comprises commissions that I pay my agents and brokers. Commissions, bonuses, association fees and taxes make up that whole 29 per cent expense factor. My own expense factor is 6 out of 29, so 23 per cent of that is external to my own operation.
MR. CAREY: The point I'm trying to get clear - and I guess I'm not doing a very good job - is some years are better than others in most businesses. There are years you make more profit and years that you don't. Obviously, last year was not a good year for the economy across Nova Scotia or worldwide. Wouldn't you think that you would have to look at the long-term, that you couldn't base significant increases over a short-term . . .
MR. FORGERON: I don't want to confuse the two issues. The fact that our industry's return on equity is low is not why we're here. As I said several times, consumers don't care about how we fare financially and they shouldn't care how we fare financially. But the cost of delivering automobile insurance in Atlantic Canada has gone up steadily over the course of the 1990's. That's why we're here. It's not that our return on equity is 2.8 per cent, that's not why we're here. We're here because the cost of delivering automobile insurance to Nova Scotians has gone up and they are paying for that. That's why we're here. We aren't about our 2.8 per cent, that's our problem.
MR. CHAIRMAN: Mr. Forgeron, if I might, and with all respect, you seemed to indicate, maybe quite clearly, that you have a previous position about the outcomes of the URB hearings, quite different than mine, nonetheless, and that's fair. But I guess I'm curious to know - and probably Nova Scotians would like to know - as to whether or not the automobile insurance companies would be required to provide full disclosure, relative to revenue that is generated - I mean all revenue - by the insurance companies.
MR. FORGERON: Well, when they go before the URB, I still don't know what form the hearings are going to take. I don't know if they are going to ask each company to come in and justify the rates that they are charging or if they are going to look at industry results on the whole and try to come up with a judgment based on that. Presumably, the URB is
going to want all the information that they can so that they can make an informed decision. That would include the financial performance of the industry.
When a company files rates, they have to justify those rates. There is a rate filing. While they aren't approved here, there is still a rate filing process that a company has to go through internally that arrives at a bottom-line number, in terms of what they have to charge in order to cover their cost of claims and so on. So the board would be interested in and, I'm sure, have access to all that information.
MR. CHAIRMAN: Well, I would hope they would.
MR. FORGERON: It would be hard to do the job without it, I would think.
MR. CHAIRMAN: Absolutely, yes. Mr. Boudreau, I guess we are fast approaching the time of conclusion.
MR. BOUDREAU: Mr. Chairman, just before we close, I think it's important that government and the industry - and I want to recognize the fact that Mr. Forgeron has indicated, very clearly, that the industry wants to play a role here, and they want to be part of the solution and not part of the problem.
I have requested that the minister initiate an all-Party committee to investigate these insurance issues and report back to the House of Assembly and make recommendations in regard to the issues that are being dealt with by consumers in this province. With that, Mr. Chairman, I would like to make a motion that the committee write the minister, David Morse, requesting that an all-Party committee be struck to investigate the insurance industry.
MR. CHAIRMAN: Is there any debate or question on the motion? Mr. Barnet.
MR. BARNET: Not that I completely disagree that that might be an approach, my concern is that we do have an approach of this going through the Utility and Review Board at the present time and I'm concerned that it might muddy or cloud the issue. Frankly, I would like to see what the outcome of the URB is before that type of approach is taken.
MR. CHAIRMAN: Mr. Epstein.
MR. EPSTEIN: I think the problems in the insurance industry that are being experienced by the customers are not going away. This is not a problem that is going to be solved this year, it may take a while. Coming to grips with the industry and the structure of the industry, the rates for particular kinds of insurance coverage, is something that will take some careful examination.
That just leads me to think that we don't have to decide this question immediately today. Before we do decide the question, we might want to think in more detail about exactly what mandate an all-Party committee would have. I would like to hear a little more detail about what it is that an all-Party committee would have. I'm not saying that we ought to vote down the proposal, I'm saying we should just leave it for the moment and come back to it when we have had the chance to think about it a bit more and, perhaps, flesh it out.
The point about hearings coming up with the URB is a perfectly valid one. I don't know that the full parameters of how that examination will go are known either. Indeed, it is something that the Legislature could, if it chose, alter; that is, we could always change the mandate of the URB or amplify it, or give it a lot more detail, either through Statute, or the government could do it through regulation. There are various options.
My chief concern is that we might want to have a little more detail about what an all-Party committee would do. So the suggestion I have is that we table this motion for now until we've had the chance to discuss it, think about it and see a bit more detail.
MR. BOUDREAU: Mr. Chairman, on a point of order. These issues are affecting Nova Scotians today. If we look at other provinces such as Newfoundland, six years they're dealing with this issue. It's called foot dragging. If we're serious about dealing with this issue that's affecting consumers today, then we should proceed immediately with an all-Party committee. The URB lacks the authority to deal with this issue, and to make necessary recommendations that would require the changes to come about.
As far as I'm concerned, in my caucus we feel very strongly that the all-Party committee is the process where this should be. The URB is a process that could be helpful to that all-Party committee as well. Of course, the all-Party committee would be cheaper. It could be put together quite rapidly. As far as the mandate, that could be defined right here, today.
MR. CHAIRMAN: Are there further interventions on Mr. Boudreau's motion?
MR. EPSTEIN: The motion is to table, actually.
MR. CHAIRMAN: We already have a motion on the floor, Mr. Epstein. We have to deal with . . .
MR. EPSTEIN: The motion is to table . . .
MR. CHAIRMAN: You're amending his motion?
MR. EPSTEIN: I'm saying we table it. The procedural motion . . .
MR. CHAIRMAN: I understand, but we have a motion on the floor. Mr. Epstein, if you're amending the motion to table it . . .
MR. EPSTEIN: No, no. I made the motion to table. I think tabling just means put it aside for the moment. It doesn't mean defeat it.
MR. CHAIRMAN: Well, if Mr. Boudreau agrees, or does he want me to deal with the motion that he has put on the floor? I am bound to deal by the motion as chairman of this committee, the motion that Mr. Boudreau has before us.
MR. BOUDREAU: I'd prefer to deal with it today, Mr. Chairman. I feel that tabling this issue is just foot dragging, let's proceed. We need to do this today, not in three months or six months. Today is the day. Unless we want to end up like other provinces, such as Newfoundland and New Brunswick, to a certain point, we should be able to recognize and learn from those systems that were put in place in other jurisdictions. They should be a benefit to us. I believe we could use that as a very important tool throughout this process. Hopefully the other committee members will agree with my position on this and vote for my motion.
MR. CHAIRMAN: Just before I call for the question and recognize Mr. Barnet, perhaps for my own clarification, did you not, Mr. Forgeron, suggest an all-Party committee?
MR. FORGERON: Yes we did.
MR. CHAIRMAN: Did you indicate whether or not the insurance companies would pick up the cost of the all-Party committee?
MR. FORGERON: No, I don't believe . . .
MR. BARNET: Again, I share some of the concerns of Mr. Epstein. I guess my biggest fear and concern right now is the fact that the industry supports this all-Party committee of Monday morning quarterbacks over the URB, and that makes me very nervous. Frankly, I'd be much more inclined to wait to see the outcome of the URB. Not that I don't disagree that that might be something that can happen at some point in time in the future. I'm also concerned about Nova Scotians being somewhat confused about what the role of the two parallel processes would be.
To me, it would make better sense to do one at a time. Maybe the outcome of the URB will not require us to do the second, maybe it will be a positive outcome suitable to Nova Scotians. Frankly, I think it's somewhat redundant, duplicating and confusing. I think, simply the comments of the industry referring to us as Monday morning quarterbacks and then supporting us going out as Monday morning quarterbacks to have an all-Party committee on this should make Nova Scotians nervous as well.
MR. CHAIRMAN: I guess we'll call for the question. Mr. Boudreau has made a motion that a letter be sent to the honourable Minister of Labour, David Morse, requesting that an all-Party committee be struck to deal with automobile insurance issues. Would all those in favour of the motion please say Aye.
AN HON. MEMBER: There's no seconder.
MR. CHAIRMAN: You don't require a seconder. Same rules in the House. Would all those in favour of the motion please say Aye. Contrary minded, Nay.
The motion is defeated.
We do have some unfinished business, so perhaps we could recess for five minutes, come back to committee and deal with some issues for future meetings. I would apologize to my colleague, the member for Annapolis. I called him a third string quarterback - it was only in light of the Monday morning armchair quarterback because I understand he used to be a linebacker so I want to make that clear. Thanks very much for coming in, Mr. Forgeron and members of the insurance companies. It is appreciated, especially your patience.
[11:01 a.m. the committee recessed.]
[11:12 a.m. The committee reconvened.]
MR. CHAIRMAN: Could I just bring the committee back to order. The first order of business is to apologize to Mr. Epstein because he had made a suggestion and I didn't realize it was in the form of a motion and really we are quite informal here. I have been told by my peers that that does take precedence over a motion that is already on the floor. So I do apologize, Mr. Epstein.
MR. EPSTEIN: Apology accepted. That is fine. I took no offence.
MR. CHIPMAN: Take him out for dinner.
MR. CHAIRMAN: Well, that is an opportunity. Come to Musquodoboit and I'll get the Heinz tomato soup out. (Interruptions)
We do have some other business to deal with. Rescheduling the Strait Area Chamber of Commerce. Darlene, do you want to just comment on that?
MRS. DARLENE HENRY (Legislative Committee Clerk): That was one of the original meetings that we had back in January that was snowed out, of many. It was just a matter of trying to reschedule them to fit them into the committee's schedule again. They had not really made a formal request to come back again before the committee but there was some
question from other staff people, are these people coming back before the committee to be rescheduled? So that is why it is on the agenda right now.
The same with the Town of Canso. That was another storm cancellation of last week. The Mayor of Canso, Mr. Fraser, did ask if that can possibly be rescheduled within your busy schedules.
MR. CHAIRMAN: Thank you, Darlene. I wonder if we could, whereas the Mayor of Canso has asked to be rescheduled, if we could deal with that perhaps firstly. Darlene, do you have a date in mind?
MRS. HENRY: Well, right now I am trying to get the port, Ceres, going so right now it looks to be almost early May. May 7th is what it looks like.
MR. CHAIRMAN: Now the next series of meetings is intended to deal with the various port authorities. As a committee we agreed to bring them in and sort of have a series of port authorities coming in. I am just curious, and I will take my cue from the committee, regarding the Town of Canso and Mayor Frank Fraser, do you feel we should try to work him in before May, if we can? His issue may be more timely. Mr. Epstein.
MR. EPSTEIN: That is exactly right, Mr. Chairman. I think given the serious problem in the Town of Canso, we put the town on the agenda for exactly that reason. If it is at all possible to find a time that representatives of the town could come to meet with us earlier on, I certainly would be in favour of that. Perhaps we could ask Mrs. Henry to consult with them and to see if she can come up with a couple of suggested dates and then perhaps shop it round to the members of the committee.
MRS. HENRY: All right.
MR. EPSTEIN: I am not sure I understood what the problem was up until May. Oh, it is just because we had other meetings?
MRS. HENRY: Just other scheduling. The committee meets every two weeks so I am just trying to fit the port people in and then the Town of Canso. We can go the next week if you want to meet right after and we can go for the . . .
[11:15 a.m.]
MR. CHAIRMAN: I don't think we can do that, quite honestly, with various commitments if we continue on our present tradition, so to speak, of every other week. That would be fine and I think that's the disposition of most committee members. Would it be agreed then that we would try to bring in Mr. Fraser for the next committee meeting after we've heard from the Sydney Port Authority on March 19th which would be what date?
MRS. HENRY: April 9th.
MR. BOUDREAU: On a point of order, Mr. Chairman. Isn't it very clear that the Town of Canso - is this what we're talking about, the Town of Canso?
MR. CHAIRMAN: We're talking about Mayor Frank Fraser of Canso requesting to come in. His first meeting was postponed because of a snowstorm.
MR. BOUDREAU: But if I understand the situation, he indicated by letter, I believe, that he felt this was an emergency situation for his town.
MR. CHAIRMAN: Yes.
MR. BOUDREAU: So I think we should reflect those thoughts when we pick a date. I believe that we should get him in here as quickly as possible, even if it means that we have to change our schedules.
MR. CHAIRMAN: Like I say, I'm at the whim and wish of the committee. Our next scheduled meeting is March 19th. Ordinarily, we would meet again in two weeks and that date would be April 9th. However, if the committee wants to deviate from that . . .
MR. CORBETT: I propose March 26th.
MR. CHAIRMAN: Any thoughts on March 26th?
MR. BOUDREAU: March 26th would be fine, but the problem I have is it's three weeks away, almost four. In all fairness to the mayor down there, he has indicated to this committee that he feels this is a very important issue and he wanted to get here as quickly as possible so that this committee can have some kind of understanding of what his situation is. I would suggest that we ask him to come in here next week. I believe we have to respond to the mayor as quickly as we can.
I am not sure what the issues are in Canso, but I know the reputation of the mayor down there and I believe he's very capable of presenting those facts here to this committee and I'm eager to try to assist, as all members are I'm sure, the mayor in Canso in whatever means that we can. Again, we have to get them in here and he has indicated verbally and in writing that he feels that his town is in an emergency situation so I feel that we should bring him up here as quickly as next week if we have to.
MR. CHAIRMAN: I do note that today we somewhat strayed from our standard schedule and met on a Thursday, so it wouldn't be out of the ordinary to meet previous to March 19th if we can schedule it with Mr. Fraser. According to Mr. Boudreau, it's a pretty dire situation and I think by all media accounts it is. Again, I'm at the . . .
MR. CAREY: Is our next scheduled meeting March 19th?
MR. CHAIRMAN: Yes, it is. We have the ports - actually, I don't believe I can attend that one, but nonetheless, it's the Sydney Port Authority in from 1:00 p.m. to 3:00 p.m. on March 19th.
MR. EPSTEIN: What about March 7th?
MR. CHAIRMAN: What about March 7th? Would it be agreed that we try to bring him in then? Anybody around the table have any concerns about March 7th (Interruptions)
Darlene, would we try for the morning, 9:00 a.m. to 11:00 a..m., if possible? (Interruptions)
So it would be tentative. Okay, that deals with that. I'm not sure, Mr. Boudreau, if I can make that one, but as vice-chairman, I will notify you, and the same with the Port of Sydney, I think I'm going to be out. So that's March 7th, 9:00 a.m. to 11:00 a.m.
Now, also in your package, we have correspondence to the Minister of Agriculture and Fisheries. We made a motion, you might recall, back in September last, regarding the formulation of an all-Party committee to support our agriculture industry, whether it's drought - the issues that come up. Darlene has drafted up another letter to Minister Fage about the all-Party committee - or, I guess, the lack of an all-Party committee - and I have signed the letter and I think Mr. Epstein. So what we're asking is that honourable members would sign the letter, subsequent to perusing it and whatever. It is basically reinforcing our position on, I believe, the all-Party committee. (Interruptions) I guess everybody has signed except Mr. Dooks, Mr. Langille and Mr. Downe.
Now, is there anything further? Anything else anybody would like to bring up?
MR. CHIPMAN: Motion for adjournment.
MR. CHAIRMAN: A motion to adjourn is always in order. We stand adjourned.
[The committee adjourned at 11:22 a.m.]