March 26, 2004  
Volume 97, Issue 93  

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NEWS

Insurance profits soar despite ‘weak’ industry

By Anton Vidgen
Gazette Staff

Canada’s insurance companies raked in $2.6 billion in profits in 2003 — a whopping 775 per cent jump over the previous year — but many are slamming the industry for raising premiums after pleading financial difficulty.

Consumers such as the University Students’ Council have seen skyrocketing rates and an unwillingness by insurance companies to take on high risks such as providing alcohol coverage, said USC general manager Mark Sellars.

This has forced the USC to cut costs elsewhere and even pass the burden on to clubs in the form of higher prices for licensed events, and stricter regulations such as the Campus Alcohol Policy.
“There’s obviously insufficient competition,” Sellars said of the possible reason behind the high premiums. “I think there is a dearth of companies in the market right now.”

Sellars said he believes some companies are “gouging” consumers by charging exorbitant rates. “I suspect there are questionable practices in terms of pricing,” he said.

But John Karapita, a spokesperson for the Insurance Bureau of Canada — the group that represents the 207 companies in the industry — disputed claims that insurers were purposely hurting consumers.

“It’s important to put the profits within a certain context,” he said. “Some people have come to believe these are excessive profits, but that’s just doing business.”

Karapita said weak revenues and the sluggish economy of two years ago drastically reduced the financial security of the insurance industry, forcing them to raise premiums to replenish capital reserves. But the stronger-than-expected performance of the past year led to higher revenues from investments, in addition to the healthy draw from premiums.

“What will likely change as a result of a return to profitability is that you’ll have companies that will be more willing to take higher risks,” he said. As a result, there might be more competition, which will subsequently lead to lower prices.

If the competition increases and premiums fall, USC VP-finance Rohan Belliappa said this could bode well for clubs. “If insurance companies can reduce these rates, it will probably reduce a lot of the paperwork and procedures currently necessary to satisfy our insurance companies,” he said.

 

 

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