As rumours of a spring election in Ontario circulate, brokers and insurers alike have viewed the opposition's call for a 15% auto rate decrease as nothing more than political posturing.
Ryan Guthrie of Guthrie Insurance Brokers in Toronto views the suggestion as political gamesmanship, with opposition parties jockeying for an edge against the province's minority government.
Guthrie quipped that the insurance industry might be more ready to negotiate a 15% auto rate decrease if politicians were willing to reciprocate by agreeing to a 15% pay cut.
Guthrie was responding to the news that the leader of Ontario’s official opposition party, Andrea Horwath, called on the province’s new premier-designate, Kathleen Wynne, to give the regulator a mandate to reduce auto insurance rates by 15%.
Officially, brokers and insurers have responded by calling on the NDP to help lobby the current minority Liberal government to implement all 38 recommendations contained in a recent report to the Financial Services Commission of Ontario (FSCO). Submitted by the Ontario Auto Insurance Anti-Fraud Task Force, the report notes that insurers’ claims costs have elevated for several reasons, but one big one has to do with fraud.
Accounting firm KPMG estimates that fraudulent auto insurance claims cost Canadian insurance companies as much as $1.5 billion a year. That amounts to between $116 and $236 per average premium paid in Ontario in 2010. The average annual premium for Ontario motorists is approximately $1,400 to $1,500, suggesting that fraud accounts for between 8% and 17% of an Ontarian’s average premium.
“The best way to reduce auto premiums right now is to tackle fraud,” IBAO CEO Randy Carroll told Insurance Business. “The government has just released the Auto Insurance Anti-Fraud Task Force report. If the government would implement the report and its 38 recommendations, we believe it could help achieve the 15% reduction [Ontario NDP leader Andrea] Horwath is calling for.”
The Insurance Bureau of Canada (IBC), a trade organization representing Canada’s property and casualty insurance companies, agrees fighting fraud should be a top government priority. They also note a number of other areas in which insurers’ claims costs might be contained.
“The key to lower premiums is lowering costs,” said IBC vice president of Ontario Ralph Palumbo. “That is why we support the need for auto insurance reform in bodily injury claims; the mediation and arbitration system; and a clear and science-based definition of catastrophic impairment.”
Nationally, insurer’s loss ratios were better in auto lines in 2012 Q3 than they were in 2011 Q3. (Ontario accounts for approximately 25% of the entire premium collected by Canadian property and casualty insurers.)
For example, federally regulated Canadian and foreign insurance companies reported loss ratios in 2012 Q3 of 71.55% and 87.3%, respectively. In 2011 Q3, loss ratios for Canadian and foreign federally regulated insurance companies were 72.73% and 113.9%, respectively, with the latter figure showing a loss.
Looking at insurer’s loss ratios over the past year, Guthrie said he couldn’t see much fat to be trimmed from insurer’s results. Ontario’s auto insurance industry made a $233 million profit on Ontario auto in 2011, as opposed to a $1.6 billion loss in 2010 and an $824-million loss in 2009, the IBC reported.
The NDP did not return an email asking for clarification about how the 15% would be achieved.
