Ontario’s private market auto insurance system offers generous first‐party benefits and the right to sue for injuries sustained in an automobile accident when injuries exceed the verbal or monetary threshold. Insurance is mandatory for all drivers, and therefore consumers need to have access to an affordable product that suits their needs. Insurers must be able to provide the auto insurance product in a manner that is fair and efficient to consumers, and must sell insurance at prices that are viable in the long run. However, the analysis presented above and in Section 4 clearly indicates that these objectives for a well‐functioning insurance market are not being met in Ontario.
Even with a take‐all‐comers rule in place, we find some evidence in Table 2 and Table 3 that there are availability concerns. Given the mismatch between losses incurred and premiums charged as evidenced in the fairness measures in Table 2, and the graph of loss ratios (Figure 17B), we anticipate that these availability concerns, especially in the GTA, will increase in the future. Service quality is also an
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Total Loss Per Vehicle
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issue, as evidenced in Table 3. Additionally, Insurance Bureau of Canada notes that currently there are 30,000 unresolved claims in Ontario awaiting dispute resolution services.24
A 2012 survey by InsurEye Inc., however, found that drivers in Quebec, Saskatchewan, and Ontario were the most positive about the quality of auto insurance in their provinces. In spite of the high cost, Ontarians were in general happy with their claims experience. Drivers in British Columbia and Manitoba had the lowest consumer satisfaction with auto insurance, and in particular drivers were unhappy with their limited choices for auto insurance.25
Auto insurance reforms over the past two decades in Ontario have been aimed at reducing the cost of insurance. But now the average premium in Ontario is over $1400, and as can be seen in both Figure 3 and Figure 16, past reforms have been ineffective at reducing premiums. Reform policies in Ontario appeared to affect outcomes in the short run, but in many cases inflationary trends quickly reappeared, especially in the GTA. Two exceptions to this are in bodily injury liability claim severity and disability income claim frequency. Trends in these cost elements appear to have been affected over the longer term by the auto insurance reforms.
The high premium cost in the GTA is particularly problematic; however it is important to emphasize that premiums are not being driven by insurer profits, as can be seen by the high loss ratios in Figure 17B. There are many insurers operating competitively in Ontario. High premiums stem from the fact that Ontario claim frequency and severity are higher than in other provinces in almost all cases and all years, and especially across the GTA. The higher claim severity may be due to higher cost‐of‐living in
24
http://www.canadianunderwriter.ca/news/claims‐costs‐for‐ontario‐auto‐insurers‐still‐out‐of‐control‐ ibc/1001413525/
25http://www.canadianunderwriter.ca/news/quebec‐drivers‐most‐satisfied‐with‐auto‐insurance‐b‐c‐drivers‐the‐ least‐survey/1001353834/
the GTA and more generous benefits in the Ontario auto product, but this cannot be determined with certainty from the comparisons here. Moreover, the increases over time in both claim frequency and claim severity have been substantially greater in Ontario than in other provinces. An equally problematic observation is that compared with the other provinces, Ontario has a lower frequency of reported collisions, making the higher frequencies for first and third party bodily injury and property damage claims difficult to reconcile. These underlying claims pressures threaten the entire provincial auto insurance market.
A further insight obtained from this analysis is that the auto insurance product is sustainable across most of Ontario. Total losses per vehicle have been relatively flat across all parts of Ontario (except for the GTA). It is the GTA that is creating sustainability issues and the GTA is being subsidized by drivers in the rest of the province. The impact of decades of prior approval rate regulation has led to a supposedly risk‐based pricing system that no longer adequately separates insureds by their accident costs. To ensure affordability, changes to differentials for rating variables have been capped increasing cross‐subsidization across different risk profiles of insureds.
Most concerning is that there have been no successful cost containment measures within the GTA from any of the previous product reforms. This contrasts with the experiences in the tort provinces, where there have been sustainable reductions in the frequency and severity of bodily injury liability claims, and therefore premiums, since enacting reforms. These trends highlight the reality that regulatory reforms may address today’s most easily observable problems while masking larger systemic issues. Some current proposals for solving Ontario’s auto insurance problems are susceptible to this criticism. In 2012, three bills were introduced by two GTA members of parliament in the Ontario legislature: Bill 43 “Insurance Amendment Act (Elements in Classifying Risks for Automobile Insurance)”; Bill 45 “Insurance Amendment Act (Risk Classification Systems for Automobile Insurance)”; and Bill 71 “New Drivers'
Insurance Rate Reduction Act.” The aim of all these bills was to reduce the price of insurance in the GTA by removing various risk‐based rating variables such as territory, age, and gender of driver. The discussion of pricing mechanisms in Section 3.4 of this report, and the evidence presented here regarding higher claims costs in the GTA relative to the rest of Ontario, demonstrate that these proposals address only the symptoms of the problem and will not improve outcomes for the auto insurance system.
More thoughtful reforms are needed. Gambrill (2009) sums up the problems succinctly: “The system is too complex, nobody understands or wants to fill out the paperwork, there are too many health professionals’ assessments for minor injuries, most of the insurers’ money is propping up the system (including cottage industries for assessment) rather than going to the claimants, the system disproportionately caters to minor injury claimants, etc. etc.” (p. 26).