Ontario government will mandate 15% reduction in auto premiums within 2 years

The Ontario government says it will mandate insurance companies reduce auto premiums by 8% within one year, and a further 7% reduction in the second year.

The NDP had demanded the 15% cut in one year in exchange for supporting the minority government’s budget, but Finance Minister Charles Sousa says his plan is more practical.

Sousa says the government will appoint a watchdog to make sure industry savings from regulatory changes introduced in 2010 are passed along to consumers.

Read: Liberals vote to support 15% cut in auto insurance rates

However, the insurance industry is not so certain this is a “practical” plan.

The Insurance Brokers Association of Ontario (IBAO) says that though it supports lower premiums, the government needs to ensure these changes are achieved in a responsible fashion. Otherwise, it says, insurers may exit certain segments of the market which would have unintended consequences for consumers.

“Our expectation of today’s announcement was that we would see progress made in identified cost reductions resulting from fraud but what we heard were more promises of change and not enough action,” said IBAO CEO Randy Carroll in a press release on Friday. “There is an inherent risk that the result of today’s announcement could result in future availability and affordability concerns for consumers in this province. Regardless of the type of business that you are running, you cannot reduce revenue without implementing cost reduction measures and expect to succeed, it just doesn’t work.”

Read: Cuts to auto insurance rates could mean trouble for industry

“The affordability of auto insurance for our customers is of prime concern to the IBAO,” added Carroll. “IBAO is urging the Ontario government to enact the Anti-Fraud task force recommendations and implement them as soon as possible.”

Last fall, the Ontario Anti-Fraud Task Force presented 38 recommendations in their report. The key recommendations still to be implemented include the licensing of health clinics and tow truck regulation. IBAO believes that when these recommendations are implemented, rate reductions that consumers deserve will follow.

The Insurance Bureau of Canada (IBC) also released a statement saying it will need to see more steps taken to reduce costs for the industry before premiums can be cut by 15%.

“While the Government has approved insurance rate reductions they still haven’t outlined how they will address some key cost reforms we need to see implemented,” said Ralph Palumbo, vice-president Ontario, IBC.  “Reducing costs is the only way to reduce premiums.”

Read: Rate reduction won’t fix Ontario auto problems, says IBC

The Ontario Government’s commitment to combating fraud, such as licensing health care clinics and providing clear direction around the 2010 reforms, is a good first step however it will still be some time before these measures are in place producing savings, states the IBC release.

In recent years, the industry has been modestly profitable but not all firms are in the same financial position.  Recent public statements from some insurers raised concerns over how this might impact their businesses and consumers.

“The solution is clear – premium reductions need to be commensurate with additional cost reduction measures – it is definitely a necessary next step,” said Palumbo. “We look forward to partnering with the government and all stakeholders to develop and implement a program to bring affordable insurance to Ontario consumers.”

With files from The Canadian Press 

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This story was originally published by Canadian Insurance Top Broker.