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15. Mandatory Filing of Insurance Rate and Underwriting Manuals

Automobile insurance rate manuals are currently filed with the Board. Rate and underwriting manuals for property and liability insurance are not filed, nor are these filed elsewhere in Canada.

The Government could require insurers to file their personal property, commercial property, and commercial liability rate and underwriting manuals with the Board – essentially a file and use system of regulation. Manuals could be available to the public.

This action could bring more discipline to the insurance rating process by requiring the premiums charged by insurers to be published in a manual. The rate manuals would help Government monitor rate changes, identify and monitor trends, help in the resolution of rate disputes. Access to manuals could also be of assis tance to the Insurance Consumer Advocate particularly if the Board’s recommendation charging the Insurance Consumer Advocate with responsibility for both maintaining a complaint database and for a dispute resolution process is adopted. It would also be he lpful to those members of the public that wish to better understand how their premiums are determined. The Board believes that this may also increase competition.

However, because of the manner in which commercial property and liability insurance premiums are calculated for individual risks, these possible benefits would not be achieved in this portion of the market. Simply, most insurers do not have rate manuals for commercial property and liability. Risks are individually rated.

It is also argued that disclosure of underwriting guidelines, whether for homeowners or commercial insurance, are proprietary and their disclosure could lessen competition.

16. Publication of Rate Profiles

Government could develop rate profiles for typical risks in Nova Scotia that insurance companies would complete as their rates change; and the rating profiles could be displayed on the Board’s website. While there would be costs involved in maintaining up-to-date profiles on the website, the publication of rating profiles could serve to increase competition and help stabilize premiums.

This is not practical for commercial property and liability insurance because of the manner in which premiums are calculated.

Recommendation 15 IMPACT: Affordability-Positive Availability-Positive

The Board recommends that:

Government require insurers to file with the Board for public disclosure, their homeowners rate manuals, excluding proprietary underwriting rules or guidelines.

Recommendation 16 IMPACT: Affordability-Positive Availability-Neutral/Positive

The Board recommends that:

Government require insurance companies to submit homeowners insurance rate profiles to the Board for posting on the Board’s website.

17. Homeowners Policy Form

The insurance coverage that is provided by an insurer, and the duties and responsibilities of the insurance company and insured, are set forth in the policy forms and endorsements of the company. Personal property insurance policy forms used by insurers are based on the policy forms and policy language developed by IBC. But while based on the IBC forms, the policy forms are not standard; there is variation in policy language and coverage provided among companies.

Insurance companies take the position that variation in policy language and coverage benefits customers, as customers can shop around for the coverage and premium that best meets their needs. They state that brokers are responsible for identifying and explaining differences in coverage.

The Board is of the vie w that differences in policy language and coverage make it more difficult for customers to comparison shop insurance coverage. Insurance policy language is difficult to understand, even with the assistance of a broker. Some of the companies that were asked to identify how their policy differed from the IBC wording were not readily able to do so. However, the Board’s review, which was not comprehensive, did indicate that many differences were merely stylistic or that changes that were made provided better coverage for the insured, such as increased dollar limitations.

The Board also found that during the soft market, companies tried to attract consumers by offering broader and broader coverages. These are reflected in the IBC standard forms. Many consumers are unaware of the coverage that is available under their policies, such as lock replacement if one’s keys are stolen.

Consumers in today’s market think of insurance as protection for major events – fire, windstorm, and theft - and have learned that making a small claim will impact their premiums. Brokers have even sponsored a television campaign telling the public not to make small claims. Those concerned with the cost of insurance may be willing to accept less extensive coverage. This can be offered in a variety of ways, perhaps a move back to the Broad Policy instead of the Comprehensive Policy, or indemnification for partial losses

That being said, there does not appear to be a public concern about the wording of the insurance policy, and likely most consumers do not read their policy until a claim is made. Industry efforts to provide standard policy wordings have been effective. Further, the formal standardization of the homeowner policy would not likely impact on affordability.

18. Broaden the Range of Lower Cost Products

Today’s insurance policies have “all the bells and whistles.” Most homeowner policies are comprehensive and also provide replacement cost coverage or gua ranteed replacement costs. This means that an insured receives a replacement property for damaged property, with property that is of like kind and quality. Depreciation of the damaged property is not taken into account nor is the market value of the dama ged property. Some members of the public indicated that they did not need this extensive type of coverage. For example, seniors may prefer homeowner policy coverage that only provides market value as they may not wish to rebuild a home, preferring a cash settlement which would allow them to retire and would provide immediate cost savings from lower premiums.

If insurance companies offered lower cost products with more limited coverage, such as a product that allows homes to be insured for market value and claims being settled on an actual cash value basis, this would help address the affordability of insurance coverage.

Recommendation 17

IMPACT: Affordability-Neutral-Positive Availability-Neutral

The Board recommends that:

No action be taken at this time to mandate a standard policy form for homeowners insurance.

However, consumers may not fully understand the more restrictive coverage that they purchase, and could lead to an increase in disputes when claims are filed.

Recommendations - Commercial Insurance Only