Huella de la mujer

Nova Scotians have not been immune to what has been happening worldwide on the insurance front over the past several years. The following excerpt from an August 2004 Export Development Canada paper explains,

“Business and consumers in many countries, have struggled to cope with steep premium rate increases of 25-50 per cent and beyond for property & casualty (P&C) insurance, and even more severe increases in sectors such as liability insurance.” [1a]

The Board, while examining property and liability insurance issues in the Province heard various concerns by homeowners, volunteer organizations, small businesses and others. Just as the Board heard, an article on insurance in the July 26, 2004 issue of MacLean’s Magazine [2a] suggests that the concerns of Nova Scotians regarding insurance, particularly for homeowners, were indicative of what was happening across Canada.

When it comes to matters of insurance events such as global investing, weather related disasters such as hurricanes in Florida, forest fires in British Columbia and ice storms in Quebec, acts of terrorism in North America and other continents, as well as large litigation cases elsewhere in Canada and the United States, all impact the world insurance industry. This includes our national market, and consequently Nova Scotia, which cannot be isolated from these conditions.

Of all these events, global investing is one over which the insurance industry chooses to participate in; they invest or choose not to invest depending on market conditions. In this context the Board learned that the insurance industry experiences soft markets and hard markets referred to as insurance cycles. The soft market occurs when investments are returning a large income and the hard market occurs when investment returns decline.

The available insurance information indicates Canada experiences similar insurance markets or cycles as the United States, although it is suggested not as pronounced. The Board is of the view that these national cycles significantly affect provincial markets.

These insurance cycles are intens ified by the behavior of insurers as investors. During the good times, that is, during periods of high interest rates or very high returns on equities, insurers cut policy premiums below what is actuarially justified. Coverage is under-priced, and insurers invest the increased funds from a larger market share. In this environment insurers take on higher risk clients in order to gain more funds for investment. This latest soft market came to an abrupt halt in late 2000 and was further affected by the terrorist attacks of September 11, 2001.

After the economic events of this period (September 2000 – December 2001), insurers were sobered to find that underwriting losses were now out of control. Over the next few years, insurers, in many cases without appropriate notices or satisfactory explanations, began to dramatically increase premiums in an attempt to restore overall profitability. The increased premiums were combined with restrictions on coverage and withdrawal of coverage leading to availability problems as well.

It is the Board’s view that the insurance industry did a poor job of consumer relations during the hard market that occurred after 2001. Because insurance companies had not explained what they were doing with customer’s premiums during the soft market, and the benefits the consumer received at that time, the industry was seen as very unfair in their subsequent practices as they attempted to restore profitability.

Of homeowners, tenants, non-profits and small businesses, based upon the presentations made to the Board, the Board believes that the non-profit sector has suffered the most, and

obtain. For a number of volunteer groups with fund-raising activities involving the serving of liquor (as well as for the hospitality industry and of course, insurers) liquor liability has become a serious issue. And, in the recreation sector, there appears to be a lack of appropriate assessment of risk.

The Board heard from many in the small business and non-profit sectors that their insurance premiums were skyrocketing and risk coverage was being restricted despite few or no claims having been filed. This is in part due to the very small impact the Nova Scotia experience has on the establishment of rates. Claims and events outside the Province have a much more significant effect on commercial insurance than the Nova Scotia experience. Many Nova Scotians want a better understanding of this situation and why it is so.

The insurance industry has been remiss in its communications efforts with the public, leading to confusion and frustration on the part of the consumer. The industry referred to consumer attitude and a growing propensity to litigate, as well as the use of insurance as a “home maintenance” program. The Board recognizes that insurance is designed to cover unexpected losses of some magnitude and it should not be used as a “maintenance” fund. The Board anticipates that consumers today, having been through such a hard insurance market, will be more inclined to use insurance only for larger claims.

The Board believes that property and liability insurance has grown in importance to homeowners and organizations of all types. Mortgages for home and business ownership require property insurance; businesses need insurance for financing and participating in various partnerships including those with Government; and non-profits need insurance for protection of assets and volunteers, and in many cases Government funding of non-profits calls for various insurance coverages. Property and liability insurance is as essential as automobile insurance.

The insurance industry, consumer groups and Government have a role to play in ensuring that insurers provide affordable, accessible and effective insurance programs that are respected by the consumers and in which consumers have confidence. The Board hopes this report, its findings, and recommendations will assist with improvements to this objective for Nova Scotians, and will help consumers to have a better understanding of the factors affecting both affordability and availability of insurance in Nova Scotia.

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Appendix-Exhibit 1 – Glossary of Insurance Terms