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Newfoundland homeowner insurance:
- less than 1% of the average household expenditure
- price of insurance in NL is similar to Atlantic, which is lower than the rest of Canada
- taxes on insurance are higher in Atlantic
- analysis shows that customer are shopping around to get the lowest premium
- premium growth followed housing prices and home replacement costs
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Homeowner’s insurance issues:
- in 2000-2003, insurers did not renew some policies to decrease exposure by geographic area. This resulted in a slight availability issue, but not price increase
- hard to place risks: industry voluntarily set up a an innovative program to solve this
- electrical wiring: only need certified electrician’s report, possibly minor modifications
- oil tanks: if meet standards, insured; other require changing the tank; communicate risks
- galvanized plumbing: some companies insure if used only for waste lines
- student housing: coverage is available in the non-standard market
- wood stoves: coverage is provided, if installed and maintained properly, and certified
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Flaws in MOW’s analysis
- used all personal property data from OSFI, but homeowner’s loss ratio is 6% higher
- data used didn’t include all relevant liability claims (+17.5%)
- ROI assumption of 5% is too high for current environment; 4% more reasonable
- expense ratio of 35% is average across Canada; should use personal property ratio
- also expense ratio not adjusted to reflect higher premium tax in NL
- after adjustments, COR is 100.1% instead of 81%
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ROE in NL homeowner industry
- must account for possibility of catastrophe (2001 tsunami wiped out next 3 years’ profits)
- insurance is cyclical, so one good year of return must not provoke over-reaction
- 5-year return is less than many other industries, including banks, hardware stores, etc.
- even 1 year 18% return is slightly lower than same year’s financial services return of 20%
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