Keeping You Informed About Auto Insurance Rate Reductions

On August 23, 2013 the Minister of Finance announced a targeted 15% average rate reduction on Ontario auto insurance premiums.  While this announcement was made in an effort to keep the public informed of upcoming changes, we at Stevenson & Hunt would like to take this opportunity to ensure that you, our client, understand the actual impact and process involved in a mandated rate reduction on insurance.  We also want to ensure that you understand the factors impacting rate reductions.

The auto insurance rate reduction has been proposed to take place over a two year period. Currently, the Financial Services Commission of Ontario (FSCO, the governing body for insurance companies and insurance rates under the Ministry of Finance for Ontario) is mandating that an average reduction of 8% be applied to auto insurance premiums by August 2014, with the remaining 7% reduction to be applied the following year.  
However, FSCO has stated that it will not force insurance companies to apply the full targeted reduction if it would be financially irresponsible to do so. Some insurance companies have already implemented rate reductions of 4-5% overall, while others have implemented reductions of up to 9%; some of the insurers will be applying the reductions as early as spring 2014, while other companies will not have rate reductions until summer 2014. 

It is important to note that rate reductions, particularly in the second year, will vary depending on how successful the government and insurance companies are in reducing the cost of fraud, specifically in health claims.  And while the government is actively working on the licensing of health care clinics and regulating the towing industry, it will take time for these regulations and their impact to take effect

Insurance in Ontario is largely offered by private companies that, while regulated by the government, must also run a profitable business to meet shareholder expectations.  If an insurance company can prove that it would be financially irresponsible to reduce its rates, it will not be forced to do so by the government.  Being financially irresponsible would include not collecting and retaining enough premiums, as calculated by actuaries, to pay for expenses and most importantly, claims. 

Factors Impacting Auto Insurance Rate Reductions
There are many factors included in the pricing of auto insurance and as the media and government have implied, Ontario insureds pay some of the highest rates in all of Canada.  When comparing average claims costs between Ontario and other Canadian provinces, it is obvious that Ontario claims are significantly higher than other provinces.  This is as a result of exaggerated claims and fraudulent claims.  

Fact:  In 2012, the average insurance payment for a no-fault injury claim in Ontario was $26,863.00.  In Alberta, it was $3,628.00 and in Atlantic Canada it was $7,713.00.

Fact:  In 2012, the average insurance payment for a non-minor injury* claim in Ontario for which the driver was at-fault was $157,133.00.  In Alberta it was $50,964.00 and in Atlantic Canada it was $49,454.00.

Fact:  Ontario insurance companies are not making huge profits in Ontario.  Companies must file their quarterly rates each year with the Ontario Government, with a normal profit margin planned of 12%. This is not a guaranteed profit; if claims or expenses are higher than expected, they may not reach their profit margin, or in fact, not reach a profit at all.  Between 2008 and 2010, Ontario Auto Insurance Industry lost $2 billion.

*non-minor injury category is considered one that is more serious than a sprain, strain or whiplash (minor injury), but less serious than a catastrophic injury which includes paralysis, serious brain impairment or loss of sight, for complete definitions, please click here.

**Figures used in the above examples obtained from FSCO and IBC.