Everyone has heard the media reports about auto insurance rates in Ontario going down, but what most people don’t realize is that they shouldn’t expect to see a straight 15% reduction in their premiums. As is often the case, you can only trust so much of what you hear in the news. Many Ontarian’s have received their renewals and are left wondering what the heck is going on! While I am certain that it isn’t what most want to hear, I will do my very best to give an accurate explanation of what a 15% overall reduction really means!
Our most recent Liberal minority government mandated that all insurer’s take an overall average rate reduction of 15% on their automobile products by August 2015. They were required to do this in 2 phases, the first round (which was split into 2 groups) was required to be filed with The Financial Services Commission of Ontario (FSCO) by August 2014 with an overall reduction of 7%, the second round will be due into FSCO by August 2015 with the final 8%. Here is the catch, because each insurer has different loss experience in the many different territories of Ontario (most often broken down by postal code), they can’t all just reduce their rates by a flat 7% – the insurer’s themselves must act responsibility, but just as important, FSCO can’t approve rate reductions that may jeopardize the sustainability of that insurer either! So, in order to achieve this overall reduction, the insurer’s take a look at their book of business by territory. Territories that have a favourable loss ratio – meaning the premium collected in that area are adequate to cover the losses – will see a larger reduction, territories that have an average loss ratio will see small or no reduction and those territories that have an unfavourable loss ratio may actually see an increase in their rates. So, at the end of it all, while some are up and some are down based on the actual experience – it does average out to be 15%.
As I mentioned before, each insurer uses their own data to file their rates with FSCO, so it is difficult as a broker to say which territories will see a large decrease or which will see a large increase, but what we can tell you is what is driving these insurance premiums up so high! FRAUD! Insurance fraud is the single largest reason for the current rates in Ontario. Staged accidents have become a large issue for all insurance companies. The government is currently working with recommendations put forth by the Auto Insurance Anti-Fraud Task force to help reduce the amount of and effect of fraud on our system. From the regulation of tow truck operators and medical clinics to investiagation of known fraud rings, they continue to work to improve the claims process. Ontario’s automobile coverage is the richest product in Canada in terms of the benefits it offers, however, in order to keep those benefits at a price Ontarian’s can afford, the government must find ways to control the fraud within our system.