Jan. 6, 2020 — CANADA’s p&c policyholder protection provider has approved a new three-year strategic plan that recognizes the systemic risk posed by earthquakes as a “permanent priority issue” until a mitigation mechanism is adopted.

The Property and Casualty Insurance Compensation Corp. said in the latest edition of its Solvency Matters quarterly newsletter that systemic contagion driven by a large earthquake remains the largest single risk facing the Canadian p&c industry — despite sustained efforts by insurers to find a solution.

PACICC and the Insurance Bureau of Canada have proposed a federal backstop mechanism, the development of an alternative assessment mechanism and a compensation fund adequacy review.

“Work on this file is ongoing and will remain a crucial objective,” PACICC said in the newsletter.

“However, timing of resolution is not under our control given the key role played by the federal government in reaching a positive outcome.”

Other priorities for the next three years include expanding PACICC’s resolution toolkit in 2020, followed by contingency planning and desktop simulation in 2021 and an evaluation of PACICC branding in 2022.

Meanwhile, PACICC says it has approved changes to its coverages and benefit levels that had been under review for more than a year.

At its latest board of directors meeting, PACICC approved an increase for the claims limit for personal property policies from $300,000 to $500,000 per policy, an increase for the claims limits for both auto and commercial policies from $250,000 to $400,000 per policy and an increase for the  unearned premiums rebate from a maximum of 70% of $1,000 to 70% of $2,500 per policy.

Grant Kelly, PACICC’s VP, financial analysis and regulatory affairs, and chief economist, said in the newsletter that two steps remain before the board-approved changes can be implemented.

PACICC needs to obtain unanimous approval for the changes from every provincial insurance regulator and then member insurers must formally approve the new benefit levels.

“While the process is not yet complete, we remain on track for formal ratification of these significant enhancements at PACICC’s annual general meeting in April,” Mr. Kelly said.

The proposed changes to coverages and benefit levels are the result of significant work by industry stakeholders.

PACICC established an industry working group to kick things off and the effort was then expanded to include a formal process involving  consumer focus-group testing, a national poll of Canadians, a member survey and direct consultations with the Insurance Bureau of Canada and the Insurance Brokers Association of Canada.

Their work was supplemented by the results of a comprehensive survey of industry claims patterns — based on a sample of 400,000 claims — which enabled modelling of the impact on member insurers from a range of increased benefit levels.

Mr. Kelly said member insurers were fully aware that in the unlikely event that a member insurer does fail, the resulting assessment was estimated to be between 10% to 12% higher with increased benefit levels.

On the other hand, he said, regulators and brokers stressed that PACICC benefit levels had not changed for more than a decade.

They noted that inflation has significantly eroded the protection offered to consumers.

And they also noted that even a $500,000 claims limit might not be fully adequate to prevent ‘undue’ hardship for homeowners in Vancouver, Toronto, Calgary and parts of Saskatchewan.

“The percentage of claims that are covered by PACICC is in fact quite high, although it varies by line of business,” Mr. Kelly wrote in the newsletter.

“If a PACICC member insurer was to fail in 2019, the survey data indicates that 98.2% of open auto claims, 94.2% of open commercial liability claims and 98% of commercial property claims would be fully covered by PACICC’s new claims limit of $400,000.

“The same data would indicate that 99.1%  of open personal property claims would fall below PACICC’s new $500,000 policy limit.”

But Mr. Kelly noted that if a medium-sized or larger PACICC member was to fail — particularly if due to a natural catastrophe event — several thousand claims would likely exceed PACICC’s claims limits.

“More than half of these would be auto or property claims,” he said,

“Having a large number of claims that receive only partial payment creates the potential for significant, negative media attention and a possible reduction of consumer confidence in Canada’s p&c industry.”

PACICC has also been working on a policy for managing hardship claims to ensure that all such claims in the future can be adjudicated efficiently, consistently and fairly.

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