Content courtesy from the Huffington Post Canada website.
Ontario’s 9.7 million drivers pay too much for auto insurance.
Bet you didn’t think you’d hear that from Ontario’s auto insurers. But it’s true: drivers in this province pay far more than drivers in every other province. In 2016, Ontario drivers paid on average $1,437, which is 19 per cent more for auto insurance than drivers in Alberta, and 65 per cent more than drivers in Atlantic Canada.
If you ask insurers why premiums are so high, they’ll give you two reasons — fraud sucks resources out of the system and claims settlement costs are too high.
Ontario drivers give different reasons for high premium costs. But most often, their reasons are based more on myth than reality. Here are some reasons I’ve heard from Ontarians, along with facts to set the record straight.
Myth: Ontario’s highways are more congested and have more new drivers, resulting in more accidents.
Reality: Ontario’s roads are among the safest in North America. According to a recent government report, Ontario’s 2013 auto-accident fatality rate was the second-lowest ever recorded in the province and the second-lowest in all of North America, behind only the District of Columbia. And Ontario’s auto-accident injury rate in 2013 was the lowest ever recorded in the province and among the lowest in Canada.
Myth: We get better insurance benefits in Ontario.
Reality: This is partly true. Ontario’s auto insurance system does provide some of the most generous benefits in Canada. However, claimants do not receive the full value of those benefits. In fact, according to a recent report by the province’s auto advisor, David Marshall, claimants received only $2.5 billion of $3.87 billion paid out in claims in 2013. The rest, approximately $1.4 billion, went mainly to health practitioners and lawyers. Marshall states that the amount of “leakage” threatens the very foundation of the auto insurance system.
Myth: Insurance companies are gouging consumers.
Reality: The Ontario auto insurance market is not a high-margin business. In fact, insurers regularly lose money on Ontario auto insurance as is indicated by the loss ratio numbers the industry releases annually. In 2016 as an example, the overall combined loss ratio for personal passenger vehicles in Ontario was 102 per cent. Put simply, for every dollar insurers collect in auto premiums, they pay out $1.02 in claims and operating costs.
The fact is that, in other provinces, insurers can charge much lower premiums and still make an acceptable return on their auto insurance business.
So what needs to change in Ontario?
Fraud must be rooted out and the costs to settle claims must come down.
First, let’s look at fraud. Fraudsters come in many forms — from organized crime rings that stage collisions to disreputable health practitioners who over-charge for treatments. Whatever the form, the end result is higher claims costs. According to KPMG, auto insurance fraud costs Ontario consumers $1.3 billion a year.
Research shows that when governments take up the cause, they get good results. In 2014-15, the California Department of Insurance’s Fraud Division, which acts as the primary law enforcement agency responsible for investigating automobile insurance fraud, made 354 arrests, and referred 376 submissions to prosecuting authorities.
We need that same government focus here in Ontario.
Second, how can we reduce the costs of settling claims?
According to David Marshall, claims for simple minor sprains and strains often take more than a year to make their way through the system. And these types of minor injuries account for 80 per cent of all auto insurance claims. Marshall also found that about one-third of the cost of benefits for claims for minor sprains and strains is paid out in lawyers’ fees and to experts providing competing opinions, among other costs. This money never reaches the injured parties.
Marshall makes several strong recommendations for fixing this problem, including the creation of a new regulator charged with streamlining the system. We agree with Marshall’s suggestions and my industry is keen to work with the provincial government to make it happen.
It’s time to get serious about reducing the costs of fraud and of settling claims that are driving up Ontario’s auto premiums.