Property Insurance in Alberta – What Changes Are Needed?
On September 12, 2013, I attended a meeting organized to consider issues around availability, affordability and sustainability of property insurance in Alberta. The discussion was triggered by a four-year period when insurance claims averaged $670 million annually (compared to the $100 million average from the previous 25 years). While the companies currently doing business here express a strong desire to continue to do business here, I observed a general feeling that some things have to change.
One obvious change consumers can expect is an increase in their property insurance rates. Some consumers are seeing rate increases in the range of 30 per cent. Others are seeing their deductibles increase – perhaps for everything property insurance covers, or perhaps just for specific perils, like wind or hail.
Only by having risk-sensitive pricing can consumers have sufficient information to make smart decisions.
I, personally, would like to see a pricing structure that does a better job of matching the risk with the cost. Lower prices and/or deductibles should be available for houses that have a roof made of material that resists hail damage. Logically higher prices and deductibles should reflect the higher repair costs of other types of roofing material. Similarly, technologies like sewer backflow valves are available for flood risk. Only by having risk-sensitive pricing can consumers have sufficient information to make smart decisions.
One dimension of the changes we could see would be a wider range of choices about our property coverage. As insurance companies experiment with different ways of implementing change, consumers will find it harder to keep up. For example, I can envision a base policy that has only basic coverage for storm-related damage (water and hail). Consumers would be offered a richer policy of storm coverage for a higher premium. Similarly, the base policy might include $10,000 of coverage for basements – those who need more, pay more. It is the same principle that limits the coverage now on jewelry, stamp collections and computer equipment to modest amounts that are found in an ‘average’ home.
Absolutely, more choice is good for the well-informed consumer. But choice also presents challenges to those who don't want to invest in education. A lot was said at the meeting about educating consumers to better understand the insurance they are buying. However, the lack of understanding about the insurance that Albertans easily spend hundreds of dollars on each year is just also a reminder of the lack of financial literacy in this country. I shall save that for another day.