Québec automobile insurance industry posts solid results
Insurance
Québec City – The Autorité des marchés financiers (AMF) today released the 2006 annual report on Québec automobile insurance rates. The report confirmed that the auto insurance industry continues to post significant earnings and this situation can only benefit consumers, given that it generates increased rate competition.
The analysis of insurance rates in this report, which was tabled today in the National Assembly by Minister of Finance Monique Jérôme-Forget, reveals that earnings posted by insurers as a group were equal to 17.4% of the premiums earned in 2006. This is the industry’s second highest level of annual earnings since 1983. Excellent loss experience in the industry combined with noteworthy investing activities helped boost earnings. Based on ten- and twenty-year periods, these performances (9.6% and 7.2%) are outstanding and may even exceed the targets set by some insurance companies for overall activities. The 2006 performances represent a continuation of the positive trend noted over the past six years. Returns in the Québec auto insurance industry are also expected to reach historical highs in 2007.
The downward pressure on rates in 2006, for a fourth consecutive year, includes an average decline of 2.8% for passenger cars and is a sign of the market’s efficiency. Given the significant earnings reported in 2006, competition over rates in the Québec auto insurance sector is expected to sharpen over the next several years.
As well, numerous product offerings continued to be available to Quebeckers in 2006 (through 101 firms), even though the auto insurance market was still dominated by a small number of insurers or insurance groups. Despite this concentration, an analysis of the auto insurance market reveals that it has remained both diversified and competitive. Moreover, insurers established in Québec dominated the auto insurance market in 2005 with a 64% market share, up from 62% in the previous year. The market share of direct insurers also rose, from 48.7% in 2004 to 51.6% in 2005.
In addition, more changes were made to rate manuals in 2006 than in previous years. The increase was notably due to substantial growth in recreational and other vehicle sectors, which prompted insurers to make numerous adjustments to classification and rate criteria. This is another indication of the greater number of insurance offerings and a reflection that the Québec auto insurance market is competitive and constantly evolving.
Requests to consult rate manuals were again numerous in 2006. The rate manuals of insurers established in Québec were consulted in 74% of instances.
A study of the changes made to rate manuals illustrates that insurers offering auto insurance in Québec are increasingly relying on credit scores to determine premiums.
Lastly, total claims for insured vehicles fell 1.3% from $1.744 billion in 2005 to $1.721 billion in 2006. Consequently the claims/premiums ratio stood at approximately 58% in 2006. This is the second best ratio reported over the past twenty years, and partly explains why insurers overall were able to generate significant earnings in 2006.
Consumers are well advised to take full advantage of the competition, primarily by comparing price and service offerings among insurers. In addition, competition in the industry is being stimulated by the increasing number of consumers who are seeking more information and shopping for the best buy.
The 2006 annual report on Québec automobile insurance rates is available (in French only) on the AMF website.
The Autorité des marchés financiers (AMF) is the regulatory and oversight body for Québec’s financial sector.
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