The recent redefinition of “minor injury” at the third reading of a bill to reform Nova Scotia automobile insurance has left insurers fuming and brokers quaking. One broker went so far as to predict 25% of general insurers would be forced out of business!

Bill 1: An Act to Amend the Laws Respecting Automobile Insurance, passed October 30. Now brokers are predicting total commission losses of between $18 million and $25 million.

“We are disgusted!” exclaims Jamie Reid, managing partner at A.P. Reid Insurance Stores. He is offended that he put so much into the consultation process held before the decision only to have all of his input ignored. George Cooke, President and CEO of Dominion of Canada, sent out a release that said much the same.

Mr. Reid calculates the change will cost his company $300,000, with $100,000 going to rebates on previous commissions and $200,000 coming out of future commissions. Overall, he says, the provinces 100 or so brokerages will together face an $18 million decrease in commission income.

Brokers will also pay for much of the administration that will go into evaluating and providing the rebates, Mr. Reid says. In his company alone he expects to process about 10,000 endorsements.

Not necessarily, reports Claude Dussault, president and CEO of ING Canada. He says his company will take on that task itself, easing some of the costs to its brokers.

Mr. Reid adds that his ability to do business will be reduced if insurers leave the province, or even just stop taking new business, such as Jevco, an insurer that specializes in motorcycle coverage but is still required to make the 20% cut.

The price freeze is a ticking time bomb with a twelve-month fuse, he warns. Mr. Dussault agrees. “Clearly all the gap that has been created will have to be caught up,” he says. “In the last couple of years what happened was that the markets fell behind in maintaining rate adequacy.” Mr. Dussault says that happened because of price competition.

“This time it is because rates are being capped, so we are kind of falling in the same spiral.” Mr. Dussault says that means the province will find itself with the same problem again next year. “I think they always hope they’ll find a solution in the meantime…[but] I think it is going to be a challenge.”

Richard Bishop, vice-president at brokerage Jack and Co. predicts the situation is “going to be a nightmare.” With Dominion and Portage not taking new business, and ING considering it, his capacity to do business is much reduced. “It will be devastating,” he says.

Stephen Greene, executive director for the Insurance Brokers Association of Nova Scotia (IBANS) agreed. “We hate it!” he stated emphatically when asked for the IBANS position on the change. “It precipitates the insurance crisis in the province!”

Mr. Greene said consumers will be pleased in the beginning, “but what will happen is that it will be more difficult to renew.” He added that consumers are trading higher potential benefits on minor injuries forever for a single cheque now.

The situation is exacerbated by the fact that many general insurers have 60% to 70% of their business generated from auto insurance sales. A lucky few have a more even distribution of home insurance to auto insurance sales. Mr. Reid points out that auto is a very low to zero margin product for many insurers and just serves as a means to sell home insurance.

Ontario, a prominent market from which insurers simply cannot withdraw, announced changes similar to those in New Brunswick in September. Just a few days after the Nova Scotia announcement, Albertan Prime Minister Ralph Klein announced a rate freeze that could last up to 18 months.

“For God’s sake this isn’t a lot of rocket science.” Mr. Klein commented. “What we want to achieve is reasonable premiums for the population; reward good drivers, punish bad drivers and fairly compensate those who are injured.”