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Insurers' profit picture mixed, with some gainsJames Daw
Money Talk
Property insurers – the folks who cover damage to our homes and autos and bodies – have enjoyed another record year.
They were not as profitable as the banks; nor were they substantially better off than 2005. Several of the biggest companies even saw profits fall, and total industry revenues did not grow as fast as one world expect with growth in population and general price inflation.
But the industry as a whole still had profit gains, which would normally be good news for consumers. Rising profits should augur well for future premium reductions, or for opportunities to shop for lower premium rates.
That may be the case for buyers of commercial insurance. There is lots of capital chasing that business. Unfortunately for Ontario homeowners, losses due to weather in the first few months of the year could ruin their chances of rate reductions, warns George Cooke, president of Dominion of Canada General Insurance Co.
Last year was an unusually good one, with far fewer disasters from severe rain and wind-storms, floods, mudslides and ice build-up than in the previous three years.
This year, however, has started out differently, at least in Ontario. Insurers are noticing more multi-vehicle crashes and many claims for leaking roofs due to ice damming, says Cooke.
As for auto insurance, “I don’t expect competition to drive rates down in Ontario,” warns analyst Joel Baker of MSA Research Inc.
“There was an uptick in losses, which makes companies wary,” he said.
Motorists are starting to get more comfortable with reporting minor fender benders, after many vehicle owners swallowed their losses in recent years. They may be encouraged to have seen the average premium per vehicle fall by 15 per cent since late 2003.
Also, first-accident forgiveness has become more meaningful and available.
At the same time, injury claims are becoming more expensive, says Mark Yakabuski, Ontario vice-president of the Insurance Bureau of Canada.
He admits the data to support this observation is not hard and fast. Health-care providers and insurers have another 10 months to adapt to new requirements to file injury claim reports to a central electronic database.
Yet an internal study suggests health-care providers are adapting to government-imposed caps on professional fees and the pre-approved framework for the appropriate treatment of minor whiplash-associated disorders.
Some care providers are simply bypassing the treatment framework negotiated with leaders of the medical community , or are billing for more treatments per patient than is considered useful in most circumstances, according to Yakabuski, Depending on the tactic, billings for each whiplash injury are $2,000 to $4,000 more than expected, he says.
Across all types of injury, the average cost of medical rehabilitation was $30,000 in 2005, nearly double the average in 1998. Health-care costs could now account for more than 24 per cent of the average vehicle premium, which was $1,278 in Ontario in February, says Yakabuski.
Total industry profits – excluding Lloyd’s Underwriters, which follows an odd accounting system, and reinsurers that have yet to report – were about $4.8 billion last year, up from $4.6 billion in 2005, according to a tally of 196 companies by MSA Research.
Profits were buoyed by soft weather, one-time gains on the sale of securities, and the release of $878 million in reserve funds thanks to prior claims being less expensive than expected, said economist Jane Voll of the Insurance Bureau of Canada.
While total profit was higher, the return on the industry’s increased levels of capital fell to about 17.5 per cent from 19.3 per cent. That was better than at Canadian Imperial Bank of Commerce and Toronto Dominion Bank but far less than the 19 per cent or more at the other four largest banks.
The profit picture was decidedly mixed among the largest insurers of automobiles in provinces without government monopolies.
Profits were down 78 per cent at Pilot Insurance Co., an Ontario-only company, 11 per cent at Co-operators General Insurance Co., 24 per cent at Economical Mutual Insurance Co., 22 per cent at industry leader ING Insurance Co. of Canada.
At State Farm Mutual Automobile Insurance Co., which paid a policyholder dividend in New Brunswick and most American states but not in Ontario or Alberta, profits were down by 38 per cent.
Aviva Insurance Co. of Canada doubled its profit, but a spokes-person said pre-tax profit would have been flat if not for several years of capital gains being reported before a pending change in accounting rules.
The company’s claims and operating costs consumed 97.3 per cent of premiums, well above the industry average of 91.4 per cent.
If you are with any of these companies, don’t count on any premium reductions. Check out the results of all companies at www.msaresearch.com.
James Daw, CFP, appears Tuesday, Thursday and Saturday. He can be reached at Business, 1 Yonge St., Toronto M5E 1E6; at 416-945 8633; 416-865 3630 by fax; or by email at: jdaw@thestar.ca.
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