During the past 10 years, the Canadian automobile insurance industry’s underwriting results have changed dramatically as reflected by the significant variations in the direct loss ratio according to a special report by A.M. Best Co.
From 1996 to 1998, the industry direct loss ratio remained flat at around 75. Premiums did not grow and claims incurred remained steady. In contrast to the pattern of development that was about to occur over the next seven years, the direct loss ratio in Ontario was below the industry average at around 72. Alberta, Quebec and the Atlantic provinces were experiencing above-average loss ratios; however, the direct loss ratio in Alberta was heading in the right direction.
In 1999, auto claims incurred increased to CND7.9 billion or 5.3% over the prior year. Premium revenue increased only 1.0% to CND10.1 billion, sending the direct loss ratio up to 77.7. Claims costs would continue to rise annually by 10.3% on average for each of the next four years, reaching CND11.7 billion in 2003, due primarily to increasing healthcare costs, higher vehicle repair costs and an increase in fraud.
In Quebec, where bodily injury protection is provided by the government, the underwriting results of private insurers were not adversely impacted by medical inflation. Since 1997, the direct loss ratio in Quebec has trended downward from 78.7 to 57.4 in 2005, a 21.3 point drop.
In the Atlantic provinces and Alberta, the direct loss ratios reached highs of 103.0 and 88.7, respectively in 2001, while in Ontario the ratio topped out at 98.0 in 2002.
Between 2003 and 2005, direct premiums earned increased 22.9%, claims incurred decreased 8.4%, and the direct loss ratio decreased to 64.4, approximately 22 points below its peak in 2002.
It is difficult to compare one province versus another because of jurisdictional difference in coverages. A.M. Best anticipates that the direct loss ratio for automobile lines will level off in 2006, which should result in another good year for the industry.
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A.M. Best Co., established in 1899, is the world’s oldest and most authoritative insurance rating and information source. For more information, visit A.M. Best’s Web site at www.ambest.com.