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Fleming, James.

Markham (Ont.), Viking, c1986, 409pp, cloth, $22.95, ISBN 0-670-80759-1, Distributed by Penguin Canada. CIP

Grades 10 and up
Reviewed by David Chadwick

Volume 15 Number 3
1987 May

The title of this book neatly summarizes its thesis, namely that the industry seldom works to the benefit of consumers. The author, a Globe and Mail business reporter, has done a thorough, understated analysis and critique of the Canadian insurance industry.

He depicts an industry that, for the most part, has successfully gouged naive consumers for decades. In the last two years, liability insurance rates in particular have increased spectacularly, with vastly reduced protection. According to the industry, the sudden increase in premium rates is solely due to high court awards and some expensive international disasters. Fleming convincingly lays to rest this myth, citing studies showing that, while the Canadian industry lost $3 billion in underwriting from 1970 to 1983, their income from investments during that same period totalled over $7 billion. Similarly, in the United States, average awards for malpractice increased by less than four per cent annually from 1981 to 1984.

Fleming blames the crisis in liability insurance rates solely on companies that ignored the dangers of high interest rates and practiced cash-flow underwriting backed by reinsurance rather than their own assets. The drop in interest rates meant that companies could no longer count on profits from investments to cover the reinsurance problems.

Fleming also notes the larger problems that the industry has got itself into with the firms branching into other financial services, becoming parts of conglomerates and the resulting questions of self-dealing, interlocking directorships, and actual collapses of some overextended firms. The book is highly topical and will be an excellent resource for many high school and post-secondary students who want a readable, factual account of the Canadian industry.

Clearly, the industry needs greater self-regulation and regulation by the federal and provincial governments. If the book does have shortcomings, it is in the cursory examination of automobile insurance. The private insurers have recently been embarrassed by the much cheaper rates offered by provincial government plans and have been forced to respond to public complaints that the rates are too high. Whether more provinces set up their own provincial auto insurance plans remains, to be seen. In the meantime, this book will be seen as an excellent primer on the insurance industry.

David Chadwick, Winnipeg, Man.
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