Wednesday, August 02, 2017

to no one's surprise, car insurance and the Canadian govt have a huge problem. It's clearly a losing trend that's getting more expensive

a 203-page report by accounting firm Ernst and Young that says Canadian car insurance is doomed if trends continue and nothing is done to reform the system.

The report found that despite collecting higher premiums than other provinces, the insurance and banking compendium in Canada still doesn’t have enough to cover the cost of claims. If not addressed, the gap between the premiums collected and the claim costs is projected to increase to $1.1 billion annually by 2019.

Why? Millionaires and billionaires drive Ferraris, Lamborghinis, Bentleys, and Rolls Royces.
They are charged roughly the same as a Honda. They cost a fortune to repair. That isn't coming out of their premium. It's coming out of everyone's premium... but a Honda owner is actually covering the cost of their repairs in the long term, plus adding to the compendiums assets, and covering other expensive repairs.

Plus, accidents are up about 25% in the past 4 years, and the govt took money out of the insurance funds, as govts do, of course, because they are run by irresponsible millionaires playing with other peoples money in order to get wealthier, and reimburse their campaign contributors at the same time.

Think I'm wrong? See any any country wide programs being started to replace the 50 or 100 year old failing infrastructure like rusting bridges? Nope.

Reading this report is fascinating, and though I've never read one before, I find this one illuminating on how complex it is for a car insurance company of any size to plan ahead to maintain profit, without pricing themselves out of customers.

But in Canada's example, they've made some disastrous mistakes. They didn't charge high risk drivers more, and they didn't charge low risk good driving history customers less.

High-Value vehicle Surcharge

Recognizing the rapidly increasing costs to repair high-value vehicles, government recently approved a high-value vehicle  Basic surcharge of 100% on vehicles over $150,000. 

We recommend going further to achieve greater fairness in rates recognizing the extra costs being borne on the insurance system and all policy holders by expensive luxury vehicles. 

A sliding scale pricing model would apply to the same group of vehicles based on the vehicles value over the threshold. For example, applying a $1,000 surcharge to vehicles above the $150,000 threshold plus an additional $7 premium for every $1000 between the threshhold amount and the MSRP

For a $180,000 vehicle the HVV premium is $1000 + $210 = $1210
For a $575,000 vehicle the HVV premium is $1000 + $2975 = $3975

This presents a fairer distribution of premium costs among high-value vehicle owners and would increase annual revenue from this initiative. 

Not enough to change the problem, not even 1%, but it's a start

Regardless of the current or future choice of product structure, ICBC needs to change its pricing and risk model to be able to clearly identify and penalize higher-risk drivers, and conversely improve the reward system for those who drive safely. 

It is estimated that a modernized pricing and risk model could generate up to $80m in claim savings per year. 

They ought to teach this stuff in high school.

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