Ontario automobile pricing and product reform: Something has to give

The Insurance Brokers Association of Ontario (IBAO) has come out in favour of Bill 171, the Fighting Fraud and Reducing Automobile Insurance Rates Act. The IBAO’s position, as quoted in their press release, is that unless Bill 171 is passed there will be no way for Ontario to deliver the promised 15% average rate reduction by August 2015. The Auto Insurance Cost and Rate Reduction Strategy, which was introduced as part of the 2013 Ontario Budget, calls for an average 15 percent automobile insurance rate reduction within two years. As an interim goal, an average eight percent reduction is targetted for August 2014

The imposition of politically-motivated reductions in the cost of Ontario automobile insurance is putting financial pressure on insurers. In releasing its financial results for the first quarter of 2014, Co-operators General Insurance Company commented that the mandated reductions which are to be imposed on Co-operators General and COSECO cannot be sustained or actuarially justified.

There is no question that something needs to change if insurers are to have any hope of writing automobile insurance at a profit following a 15% cut in price. Given that Ontario automobile premiums account for approximately 25% of the entire Canadian property and casualty insurance market, the bottom line of most national insurers is to a very large extent tied to the fortunes of their Ontario automobile insurance portfolio.

The minority government is under political pressure to reduce the cost of automobile insurance for Ontario consumers/voters. As things stand, the average automobile insurance premium in Ontario is almost 50% higher than in Alberta and is almost twice as high as in the Maritimes. There are a number of reasons for this disparity but one that stands out is the fact that, since the introduction of no-fault automobile coverage in 1990, Ontario has offered the highest automobile insurance benefits in North America. This has not only driven up the cost of settling claims for Ontarians who have been legitimately injured in an automobile accident, it has also attracted the attention of fraudsters. As the name of the Bill implies, the intention of the proposed legislation is to address the issue of fraud as a means of justifying a reduction in automobile insurance rates.

Bill 171 proposes to amend a number of existing Acts. Among other things, the Bill limits the ability of claimants to turn to the courts with respect to disputes over statutory accident benefits. In addition to reducing the prejudgement interest rate on general damages, the Bill will implement a recommendation of the Automobile Dispute Resolution System (DRS) Review to appoint a public sector administrative tribunal for dealing with automobile insurance disputes. As noted in the IBAO’s press release, the Bill will also protect consumers from untrustworthy repair and storage shops and it will help implement health clinic licensing. The press release ends with a quote from IBAO CEO, Randy Carroll, that the faster fraud can be combatted, the faster premiums can be lowered.

Insurers cannot be expected to swallow a 15% reduction in the premium they collect for automobile insurance unless something is done to reduce the cost of providing the coverage. Bill 171 may not be enough to cover the total reduction in premiums mandated by Ontario’s Auto Insurance Cost and Rate Reduction Strategy, but it should make the pill easier to swallow.