Charles Brindamour, CEO of Intact Financial Corporation, says he is observing “prudent” rate tempering in auto insurance in Canada.

However, he expects rates to resume rising within the next 12 months, with Canadians’ driving activity only five percentage points below pre-COVID-19 levels.

Brindamour shared his predictions with financial analysts in a conference call following the release of Intact Financial Corporation’s second quarter 2021 results.

CEO confident 

If combined auto insurance ratios stay low once driving returns to normal, might consumers view premium increases in a bad light? Brindamour is not overly worried about that.

“This market is super competitive. The industry on average has been a single-digit ROE business, and catching up with cost in a highly competitive environment has been a challenge for the industry. That’s why outperformance is the name of the game in that business, and that’s why we built a big outperformance margin in automobile insurance,” he explains.

Brindamour also believes the whole industry entered the pandemic with a lot of work to do in auto insurance. Intact has been on the job since 2016, he says.

“We put much of that work behind us. I don’t think it’s the case at the industry level. You don’t need to go back too far to see that the industry, even in 2020, had adverse development and still poor results in the first half. I think the industry is quite competitive. I think what people should be focused on is to make sure that prices are adequate when driving returns to normal, taking into account the pressure that existed in the system before COVID,” he says.

Intact’s CEO mentions that the insurer is “really well positioned” in the Canadian auto insurance market, given the work it has done on relief, its pricing position in the market, and its flexibility to achieve quick response time.

What will the new normal look like?  

Isabelle Girard, Senior Vice-President, Personal Lines, spoke about what normalcy will look like once the pandemic is over. She expects the next few months to be different from the previous landscape.

For one, the insurer closely analyzed its telematics data and made a few observations.

“While number of miles driven is one factor that changed with the pandemic, there’s also other habits that have changed,” she says. “When people are driving, where people are driving and how people are driving are examples of things that we saw some changes in during the pandemic.”

Girard also mentioned what has not returned to normal. “Rush hours and congestions are examples of things that when we look at the weekends, we’re pretty much at historical levels. But when we’re looking on the weekdays, especially for the rush-hour morning, we see that we’re still below historical levels. We also have observed that driving has been recovering faster than public transit usage. And in the last few weeks, we have seen public transit picking up,” she says.

As a result, telematics data analysis will continue to play a crucial role in Intact’s forecasting, Girard adds. “Those are examples of things that we're continuing to follow, and we believe with our data, we'll be ready quickly identify any new trends that may last post-pandemic and adapt our pricing accordingly.”

More expensive claims  

Further evidence of lingering auto insurance rate inflation is that auto claims are becoming more expensive. This is due to the increased use of technology in road vehicles, Patrick Barbeau, Intact’s Executive Vice-President and Chief Operating Officer, explains.

“Technology in cars increases the cost of parts and the complexity of the repair process, but this is not something new. And it continues to put pressure on [claim] severity,” Barbeau says.

Intact can quickly reflect this trend in its pricing, he points out, given that its price is specific to each make, model and year. “So as new models come out in the market, we leverage our claims data to price that complexity in the parts and repair process even before the claims experience actually shows it. We supported that with our actions in claims and supply chain to allow to mitigate that turnover the past couple of years. So overall, we've seen mid-single-digit increase in repair costs over the past year” Barbeau says.

How will new car prices and used car inflation affect auto insurance premiums? There is an impact, Barbeau admits. “Here, our pricing can adjust very quickly on the new cars as well as representing the depreciation patterns in older model years,” he adds.