Proposed premium cut creates false expectations

Ontario’s 2013 budget last week promised to “legislate an average auto insurance premium reduction of 15% within a period of time to be prescribed by regulation.”

 

The opposition NDP is pressing the province’s minority Liberal government to place a short timeline on the 15% reduction as a pre-condition for NDP support for the budget. It remains up in the air if the NDP will support the budget, or force an election by defeating the budget in a vote in late May. If the budget passes, legislation proposing new anti-insurance fraud measures would be introduced immediately.

 

Insurance Brokers Association of Ontario CEO Randy Carroll said brokers are in the frontlines explaining to consumers that an average 15% rate reduction would not translate into each and every individual driver in Ontario receiving a 15% premium reduction.

 

“We have to be responsible about the message to consumers, so that they understand what we’re trying to do [with auto insurance reforms] and how long it’s going to take,” said Carroll. “I’ve had brokers this week sending me emails that they had received from their customers saying, ‘So when do I expect my cheque?’”

 

Ralph Palumbo is the vice president of Ontario for Insurance Bureau of Canada, which represents Canada’s home, auto and business insurers. He agreed that the opposition NDP’s insistence on a strict timeline for the rate reductions, a precondition for the opposition to prop up the minority Liberal government, has created a false expectation on the part of consumers.

 

“I think most people just believe now that they, each individual policyholder is going to get a 15% decrease in premiums,” Palumbo said. “Well, that’s not going to happen. (continued.) 

 

"You and I both know that if you have a bad driving record – if you’ve been in collisions, you run stop signs and speed – you are not going to get a 15% rate decrease under any system.”

 

The current minority Liberal government has not committed to a specific timeline for the 15% reduction, instead choosing to forge ahead with new legislative measures to combat auto insurance fraud.

 

Insurers have urged these reforms to reduce their auto insurance claims costs, which they say would allow them to reduce premiums for Ontario’s 9 million drivers. [Auto insurance in Ontario represents approximately a quarter of the country’s insurance premiums.]

 

Auto insurance reforms have been studied, proposed and implemented over the course of the past decade in Ontario. The problems are systemic and will take a long time to fix, brokers and insurers say.

 

“As the [budget] is written, as the legislation is proposed, there is no timeframe,” said Carroll. “Nobody is saying this has to be done within 12 months. Everybody is just agreeing that the target is 15% and it needs to be done…

 

“The concerning part to me is making sure the consuming public doesn’t get left with a false expectation in regard to what may or may not transpire over the course of the next 12-24 months. We have a system problem. We have a system that’s broken. And the system is the responsibility of the government.”

 

The government is implementing reforms required to bring down premiums, but these reforms will take time, Palumbo said. 

 

Even within the narrow scope of the government’s anti-fraud measures, Palumbo said, some proposals require whole new regulatory regimes. For example, the government is proposing to regulate the province’s towing industry and rehabilitation clinics. Introducing new regulatory regimes for these industries would require legislation, public consultation and a new commitment of resources. 

 

Palumbo said other measures are required to bring down insurers’ costs and thus help bring about a 15% premium reduction. For example, the province’s definition of a catastrophic injury – which determines when an insurer’s payout limit increases from $50,000 to $1 million – needs to be tightened. Also, a backlog of arbitration cases, whittled down from 30,000 last year to 12,000 in 2013, needs to be further reduced to keep legal fees and expert fees under control, he said.

 

“The government can’t fix things overnight,” Palumbo said. “It’s going to take time. But I do think people should understand that premiums aren’t coming down 15% on June 1st if that legislation is passed…. The government recognizes that you can’t wave a magic wand and magically transform the system.”