PERSONAL AUTO ENVIRONMENT
The 2015 Ontario budget contained a number of reforms to Ontario automobile insurance intended to reduce fraud and claims costs in the system, and reduce the premiums paid by consumers. A number of changes took effect in June 2016, the impacts of which will be realized gradually over 24 months in our underwriting performance. Significant changes address the definition of catastrophic injury, along with the cost of medical, rehabilitation and attendant care benefits. In anticipation of the cost reductions, the Financial Services Commission of Ontario mandated additional rate reductions coincident with the legislated changes in coverage, and there are other minor changes that impact revenues for insurers. The budget measures did not offset the rate reductions or increase the overall profitability of Ontario personal auto.
We continue to see deterioration in the current definition of catastrophic injury and increasing medical claims severity since 2014 when the recent budget changes were first conceived. There is a significant risk that future medical costs could be higher than expected if the 2016 reforms are not implemented appropriately, or that the reforms may not be sufficient in light of changes in the market. The Ontario personal auto market is very dynamic from many perspectives — political, regulatory, and consumer. We continue to actively participate in industry and government consultation and respond appropriately.
Insurers operating in Alberta continue to experience increases in claim costs relating to automobile bodily injury claims. Like Ontario, persons injured in motor vehicle accidents in Alberta by a third party can only sue for damages for injuries that are considered non-minor. Recent court decisions have limited the scope of the Minor Injury definition, thereby increasing the number of claims reported under the bodily injury liability coverage and thereby increasing the claim costs for this coverage as well as greater occurrence of pain and suffering awards. In addition, as claims take longer to settle in the courts, there are higher awards for prejudgment interest. These trends are increasing claim costs on bodily injury claims and putting pressure on profitability in this line of business.
For the past several years, we have seen deterioration in the British Columbia personal automobile environment. Insurers operating in this province face strong competition with the Insurance Corporation of British Columbia (“ICBC”), which is a government run monopoly. Insurers are only permitted to offer optional automobile coverages, most notable of which is third-party liability coverages, which provides coverage in excess of the basic $200,000 coverage provided by ICBC.
British Columbia is a full tort legal environment, and claims costs in the province have been escalating due to a larger frequency of liability claims and increasing court awards. The trends in loss costs are significant for ICBC who cover all liability claims from the ground up, but for insurers who cover losses in excess of the $200,000 minimum, the loss trends are even greater as they pay the full increase of costs over the limit on the policies that they write. The British Columbia government is putting pressure on ICBC to cap premium increases but the increase in claims costs must be controlled to do so. We continue to implement corrective actions to address the deterioration on the auto excess liability product while monitoring and assessing the political pressures on this issue in the province.