As you may or may not know, there are changes happening in Ontario around auto insurance premiums. Here are a few key things to know about the Ontario government’s mandated reduction in auto premiums.
1. The promised rate reductions are not instant
The government has set a target to reduce rates on average over two years, ending August 2015: starting with 8% by August 2014 and another 7% by August 2015.
2. Not everyone is guaranteed a 15% reduction
- Your insurance company doesn’t have to – if they’ve demonstrated that they are unable to financially
- Depending on where you live – insurers price by territory and its claim experience; they can justify different rates depending on where you live
- Your individual characteristics – the 15% reduction is an average, some people may get higher reductions while others will get lower reductions.
You can read more below about who will and will not likely get this rate reduction.
3. You can influence the process
As a voter, you should encourage your politicians to try and fix the fraud issues (that have been identified in recent reports) in the health care clinic and towing industries. You can do this through contacting your local reps.
The rate reductions, particularly in the second year, will depend on how successful the government is in reducing the cost of fraud, mostly in health claims. The government is working on licensing health care clinics and regulating the towing industry, but this takes time.
Where is my 15% Reduction?
On June 11, 2013 the NDP supported the 2013 Liberal Budget leaving Ontario auto insurance customers expecting a 15% reduction in their premiums. Like any political promise, headlines are cherry picked and it is important to dig deeper to know exactly what to expect.
Ontario has 9 million drivers and 7.5 million passenger cars and trucks on the road and claims payments are the largest driver of the costs. Experts estimate that the value of insurance fraud in Ontario is $1.3 billion annually and 80% of the fraud occurs in the GTA where claims costs per vehicle are 4 times higher than rural Ontario. Unfortunately this has led to many drivers with good records paying excessive amounts in car insurance.
All stakeholders agree auto rates must be reduced, it is the position of the IBAO that rates must be reduced in a responsible manner to ensure the availability and affordability to all drivers in the province. In the event the government mandates a reduction they run the risk of market dislocation leaving thousands of drivers struggling to find insurance.
The Government’s Proposal
The government is proposing a cost and rate reduction strategy that would reduce premiums by 15% on average for drivers. NDP leader, Andrea Horwath petitioned for a 15% reduction within 1 year however it is important to note that no timeline has been outlined in the budget.
The Insurance Bureau of Canada referred to the 15% reduction a ‘Band-Aid’ that fails to find a solution to the real problem of fraud including, exaggerated claims and organized crime.
The Auto Insurance Anti-Fraud task force has outlined specific steps that can be implemented to help reduce premiums in a responsible manner. They include:
- Requiring insurers to provide claimants with all reasons for denying a claim
- Giving claimants the right to receive a bi-monthly, detailed statement of benefits paid on their behalf
- Requiring claimants to confirm attendance at health clinics
- Making providers subject to sanctions for overcharging insurers for goods and services and banning them from asking consumers to sign blank claim forms
Many claimants are unaware of the costs associated with their claim. These steps will allow the insured to track their claim, identify discrepancies and report them to the insurer.
While insurers have seen savings due to the SABS reform in 2010 insurers do not have a strict definition of a ‘Catastrophic impairment’. This makes it nearly impossible to set reserves and predict future losses. The government must define ‘Catastrophic impairment’ and implement a dispute resolution system to deal with thousands of cases backlogged at FSCO.
Even if all fraud is taken out of the system it is unrealistic to expect 15% of reductions outlined in the budget. The government must continue to work with the industry to set additional reforms to continue to drive down costs. Car insurance premiums have a direct correlation with claim costs; if costs continue to increase the public will continue to see increases in their premiums.
The most effective way to see long term reductions of the Ontario Auto product are to reduce them responsibly through additional reforms and tackling fraud. All Ontarians can contribute, by not exaggerating claims, keeping track of their own claim expenses and reporting those who commit insurance fraud.