Car Insurance industry posts $3.676 billion profit

David Menzies

Financial Post

November 27, 2004



At first glance, the so-called "insurance crisis" would appear to be dead and buried. Canada's insurance companies are enjoying third-quarter profits of $3.676-billion, meaning that margins so far this year are up 134% over 2003 -- a year that saw profits soar by 673% compared to 2002.

But at what cost? Consumers renewing their auto insurance policies say there's a reason the industry is experiencing record profits: inexplicably large premium hikes.

Many drivers with excellent, claims-free records are shocked to discover they are being placed in the so-called "facility" insurance category, traditionally the domain of the very worst drivers -- those with multiple accident claims or impaired driving convictions.

Tales of rate woe abound. For example, an Oakville, Ont., consultant and his wife had their three vehicles insured by ING Novex via the Canadian Automobile Association.

Even though the fiftysomething couple has a perfect driving record with no claims or traffic violations, this summer they were placed in the facility market. That meant their rate soared to $9,075 from $2,637.

Incredulous, they shopped around and were finally able to find an insurance policy from RBC that had a rate more in line with their original premium. Still, no one was able to explain how they became high-risk drivers overnight.

"We have more than 30 years driving experience and we've had no accidents, no claims, no tickets -- how does a rate increase by more than 300% for absolutely no reason?" asks the consultant, who does not want his name used. (Most consumers contacted by FP Money would speak only on the condition of anonymity.)

CAA spokeswoman Pauline Mitchell says the club is powerless to stop the trend: "Anyone who didn't fall into the standard market policies [of the insurer] ends up in facility. It's been a very, very tight market."



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