How Ontario plans to reform auto insurance

Ontario’s 2022 budget has a short paragraph dedicated to “reducing the cost of auto insurance,” including creating more choice for consumers, cracking down on auto insurance fraud and “enhancing fairness,” which would include new guidance on territorial rating.

Exactly how the government proposes to create more choice in the auto insurance product is left vague in the budget document. The government says only that “the current mandatory insurance product may not offer the choices Ontario drivers deserve. This is why the government intends to propose changes that over time would provide consumers with more options when purchasing automobile insurance.”

Of the concrete measures cited in the document, one is to allow drivers to opt out of the purchase of not-at-fault property damage coverage (also known as Direct Compensation – Property Damage).

“This is an important change the government is making to give drivers more options,” the budget document states. “For example, for those who own older cars that are worth less than the cost to insure them.”

On the accident benefits side, which accounts for a significant portion of the cost of Ontario auto premiums, the government is investigating access to both workplace insurance benefits and auto accident benefits.

“[A]s drivers are required to use workplace benefits prior to making a claim through their auto insurance provider, the government will review how drivers access benefits when extended health care plans are involved to ensure the system remains modern and works well for accident victims when they need it most.”

On the topic of fairness, the government is discussing new guidance on territorial ratings. Again, the document is short on specifics.

“The Financial Services Regulatory Authority of Ontario (FSRA) is implementing a new strategy for reforming the regulation of automobile insurance rates and underwriting,” the budget document reads. “As part of the new strategy, FSRA will be developing a new framework for ensuring fairness in rates that would replace outdated guidance, including existing guidance on territorial rating.”

While some in the industry have expressed openness to recategorizing some of the territories, the P&C industry has been generally been opposed to doing away with postal codes altogether as a means of dealing with rating risk in specific territories.

Politicians of all stripes typically invoke the example of Brampton, where drivers generally pay higher premiums than drivers in other Ontario territories. The reason why is that statistics show there are more crashes – and hence higher claims costs for insurers – in Brampton than in most other parts of Ontario.

The industry has argued in the past that eliminating territorial rating distinctions would unfairly cause others in safer communities to pay higher premiums, so that those in higher-risk areas can pay lower premiums. In other words, safer communities would effectively be subsidizing the rates in higher-risk communities.

As for clamping down on auto insurance fraud, the government is proposing to be the caretaker of fraud statistics.

“The government is proposing amendments to the Insurance Act that, if passed, would require insurers to provide fraud information to FSRA on an ongoing basis,” the budget document says. “This would hold insurers accountable for managing, tracking and reporting fraud.

“FSRA will also be consulting on the implementation of a fraud reporting service tool that would better prevent, detect and ultimately deter fraud. This is an important step to crack down on fraud and its associated costs. FSRA will be consulting further on proposals for combatting fraud through fraud management plans and removing identified fraudsters through excluded provider lists.”

Canadian Underwriter is currently collecting industry comments and reaction to the Ontario budget proposals and will follow up with industry reaction in a forthcoming article.

Feature image courtesy of iStock.com/Altayb