Ontario officially announced it will reduce auto insurance by an average of 15 per cent over the next two years – but those in the industry wonder how you can reduce revenues without reducing costs.
“Mandating a 15 per cent premium decrease without pairing that with an expense reduction will have a profound impact on the industry,” says Randy Carroll, CEO of the Insurance Brokers Association of Ontario. “It just doesn’t work. Regardless of the type of business that you are running, you cannot reduce revenue without implementing cost reduction measures and expect to succeed. There is an inherent danger that the result of today’s announcement will result in future availability and affordability concerns for consumers in this province.”
The Insurance Bureau of Canada issued a press release stating that Friday’s announcement does nothing to lower costs before insurers are expected to lower premiums.
“While the government has approved insurance rate reductions they still haven’t outlined how they will address some key cost reforms we need to see implemented.” says Ralph Palumbo, vice president Ontario, IBC. “Reducing costs is the only way to reduce premiums."
The announcement, which Ontario Finance Minister Charles Sousa said is aimed at protecting consumers to help them save money through the Auto Insurance Cost and Rate Reduction Strategy, will reduce auto insurance rates by an average eight per cent by the first target, set for August 2014.
According to Sousa, these targets will:
- Providing the Superintendent of Financial Services with authority to require insurers to re-file rates;
- Continuing to crack down on fraud, including licensing health clinics that invoice auto insurance companies;
- Reducing unexpected costs by making the Superintendent's Guidelines on accident benefits binding;
- Exploring other cost reduction initiatives, including provincial oversight of the towing industry and addressing collision repair practices;
- Continuing to require insurers to offer discounts for consumers with safe driving records; and
- Helping ensure that all regions of Ontario benefit fairly from cost savings.
Carroll points out that if the government were to implement the recommendations from the Anti-Fraud task force, the rate reductions could be realized.
“There are still 35 recommendations from the Anti-Fraud task force that the government has committed to implement,” he says. “If they are implemented they would result in the rate reductions that consumers deserve.”
According to the finance minister, the government’s plan is achievable.
“The government has a practical plan to protect consumers and help save them money on auto insurance,” Sousa said. “We have worked hard to reduce costs in the system and we continue to take further action to help ensure that those savings are being passed on to consumers.”
He added that the government will take further action as required and all necessary steps to achieve the 15 per cent average rate reduction target.
Although Carroll says the industry does welcome and encourage lower rates for customers, it must be done in a responsible manner.
“On behalf of the six million policyholders that our brokers represent, we welcome lower premiums in this province,” he told InsuranceBusiness.ca. “We understand that they are needed but they need to be achieved in a responsible fashion.”
IBC’s Palumbo agrees that cost reduction be incorporated in any rate reduction plan.
“The solution is clear – premium reductions need to be commensurate with additional cost reduction measures - it is definitely a necessary next step”, says Palumbo. “We look forward to partnering with the government and all stakeholders to develop and implement a program to bring affordable insurance to Ontario consumers.”
The government’s rate reduction strategy was introduced as part of the 2013 spring Ontario Budget. Queen’s Park expects a report from the Financial Services Commission of Ontario in January of next year to show an approved rate reduction of three to five per cent.
Concurrent with the strategy, the Hon. J. Douglas Cunningham has been appointed to lead a review of Ontario’s auto insurance dispute resolution system and make recommendations on transforming the current system.
