Insurance

Providing peace of mind to its policyholders is the primary purpose of Canada's insurance industry. Individuals buy insurance to help support their families in the event of an accident, death or other unfortunate incident, to help pay for health benefits, and to cover losses or damage to property such as cars and houses.

At the end of 2002, Canadians owned almost $2.4 trillion in life insurance. Nearly half this total was group insurance coverage, usually purchased through employer-sponsored plans.

Residents of Alberta tend to be the most highly insured. Of those households owning life insurance in 2002, Albertans had the most coverage with $284,000 on average. That is 18% higher than the national average of $240,000.Newfoundlanders had the lowest amount of coverage, at $192,000 per household.

A major transformation is shaking up the insurance industry. As with other parts of the financial services sector, insurance companies are consolidating and aligning with other parts of the industry. Many policyholders now find themselves being served by a company that is completely different from the company that originally issued the policy. When four large insurance companies 'de-mutualized' in 1999, a number of policyholders even received substantial windfalls.

The insurance industry is also changing by taking advantage of e-commerce to conduct business with customers. For example, many companies now offer quotations, applications and customer services over the telephone or the Internet.

Life insurance companies provide annuities to Canadians as well. Often purchased for retirement income, annuities provide investors with a source of income, usually for life. In 2002, life insurance companies paid out a total of $26 billion, almost $20 billion of which was in the form of annuity payments. The remaining payouts were for death and disability claims and other payments made to policyholders, such as surrender of policies.

General insurance, also known as property and casualty insurance, is most commonly purchased to protect against damage to vehicles, houses and other property assets. In 2002, just under half the premiums paid by Canadian consumers to non-government insurers covered automobile and commercial vehicle insurance.

The next largest category was property insurance, covering homes, apartments and commercial enterprises. For homeowners, 27% of claims were from water damage, while theft accounted for 22% of claims.

The industry’s least profitable year on record was 2002. The reason is a long-run trend of ever increasing costs in settling claims. In response to these increasing costs, the price of insurance for Canadians rose significantly over 2002, as premiums rose 29.4% while claims rose 20.6%.

The primary problem facing the auto insurance market across Canada, except Quebec, has been that claims costs are growing faster than revenue from premiums. In Canada, provincial governments mandate the specifications of the auto insurance product and insurers can do relatively little to control costs. Specifically, the cost of settling bodily injury claims resulting from motor vehicle accidents continues to increase.

Insurance coverage makes headlines when major disasters strike. The ice storm that hit Quebec and Ontario in 1998, for example, triggered almost 793,000 insurance claims for a total loss of approximately $1.82 billion.

Insurance companies are an important source of investment capital for the Canadian economy. At the end of 2002, life insurance companies had portfolio investments totaling $170 billion. They also had another $45 billion in loans, of which $38 billion were in mortgages. It is worth noting that these figures represent only the Canadian business of those insurance companies operating within Canada.