Buffett foresees auto insurance disaster - is Canada at risk?

A Canadian insurance expert discusses whether or not a dangerous new precedent in the U.S will find its way northward.

Risk Management News

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Brokers should be advised: troublesome market conditions may be just around the corner, if a disturbing trend in the U.S. starts becoming more prevalent domestically.
 
A new report reveals that auto collisions in the U.S. will cause more than 40,000 fatalities this year, a number that hasn’t been surpassed since 2007, according to the Wall Street Journal. This unexpected 14% spike in traffic-related deaths has forced many of the country’s largest insurers to raise their auto insurance premiums in order to counteract the growing number and severity of claims.
 
While Allstate has already sought approval to raise auto insurance rates by 3.9% in some states, experts believe that this is just the start of many more incremental price increases. A report issued by financial analysts at Nomura states that although insurers “are already reacting aggressively with rate increases, we expect that multiple rounds may be necessary just to catch current trend.”
 
The issue is particularly worrisome since it undercuts a multiyear decline in auto fatalities that had resulted from the development of safer cars, wider adoption of safety belts and a crackdown on drunk driving. Since these conditions are so favorable to drivers, Warren Buffett attributes the mortality rate to mobile phones and distracted driving.
 
“If cars are better—and they clearly are—drivers must be worse (adjusted for mileage),” Buffett told the WSJ.
 
Allstate’s Canadian counterpart is uncertain whether this trend is being mirrored in Canada, but its latest statistics are disheartening nonetheless.
 
“While our data doesn’t speak to an increase in road fatalities or the causes for collisions, Allstate Canada data has shown collisions have been on the rise,” said Ryan Michel, Senior Vice President and Chief Risk Officer, Enterprise Risk Management, Allstate Insurance Company of Canada. “Our data shows the summer of 2015 (June, July, August) has seen the number of collisions on Canadian roads go up noticeably compared to the average number of collisions over the last 18 years during the same time period.”
 
Michel says that it’s unclear whether this rise in collisions is due to distracted driving, but recognizes that it’s a “legitimate road safety concern.” In addition to Allstate Canada’s “Just Drive Canada” campaign, he’s appreciative of the government’s efforts in helping to discourage unsafe driving habits.
 
“We’re encouraged to see provincial governments have all taken this problem on by enacting laws against distracted driving behaviours and in some cases, increasing penalties in an attempt to curb this behaviour,” Michel said. “Hopefully this can lead to a change in how people drive and help lower the amounts of collisions we’re seeing.”

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