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Industry responds to trial lawyers’ report on auto insurance

May 2, 2018   by Greg Meckbach

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The Ontario Trial Lawyers Association has updated a three-year-old report suggesting that the Ontario auto insurance industry is far more profitable than the industry thinks – an assertion that insurers say is “simply false.”

Released Tuesday, the report, Price Regulation and Possible Premium Overpayments: Automobile Insurance Companies in Ontario, concluded that “cumulative premium overpayments might have been as high as $9.2 billion since 2001.” Commissioned by OTLA, the report was written by Schulich School of Business professor Fred Lazar.

Insurers have been quick to respond, saying the OTLA report’s numbers are skewed based on “some very inaccurate claims and assumptions.”

“OTLA falsely claims insurers are making excessive profits,” Insurance Bureau of Canada (IBC) spokesperson Steve Kee told Canadian Underwriter Tuesday. “Let me be clear – this is not true. GISA, the Financial Services Commission of Ontario (FSCO), and the government’s independent auto insurance expert David Marshall have all reviewed insurer operations and agree that profits are not significant.”

But for OTLA president Claire Wilkinson, it’s frustrating to explain to clients injured in an accident that their benefits have been reduced and their premiums are on the rise. People injured in auto collisions “come into my office and I have to be the one that tells them, ‘You can’t get compensation for a number of things,’” Wilkinson told Canadian Underwriter Tuesday.

She was referring to several changes made to Ontario auto accident benefits, including the reduction in 2016 of catastrophic impairment. These cuts were made “presumably to bring premiums down,” Wilkinson said.

But several major carriers, including Intact, Economical and Aviva, have indicated recently that they are raising rates. This reflects that the fact that total claims costs have increased on average by 4.5% annually, or by 19% between 2012 and 2016, Kee said.

The OTLA report released Tuesday is an update to Returns on Equity for Automobile Insurance Companies in Ontario, released in 2015 and written by Lazar and York University finance professor Eli Prisman.

In that report, Lazar and Prisman said Ontario motorists “may have overpaid for auto insurance by between $3 and $4 billion for auto insurance over the period 2001 to 2013.”

In Lazar’s update release May 1, 2018, Lazar concluded that “cumulative premium overpayments might have been as high as $9.2 billion since 2001.”

Lazar’s conclusions raise the issue of how ROE is used to measure profitability.
For one thing, trial lawyers and insurers clearly disagree on the final numbers. While Lazar claims the “average industry Return on Equity (ROE) for Ontario for auto insurance companies in 2016” was 15.9%, IBC says the actual figure is 6.6%.

To calculate return on equity, Lazar said he estimated several figures, including the portion of the total shareholders’ equity of each company that is allocated to its auto insurance business in Ontario, the total net investment income of each company that is attributable to the auto insurance subsidiary or division operating in Ontario, and the operating expenses for their auto insurance business in Ontario.

A different way to measure underwriting profitability is the combined ratio, in which claims costs are divided by premiums earned. Figures over 100% represent a loss.

“Insurers paid out $1.03 for every $1 earned in auto insurance premiums,” Kee observes. Economical Insurance, which actually met the Ontario government’s “stretch goal” of a 15% auto rate reduction, reported in February that its combined ratio in personal auto Canada-wide was 121.5% in 2017.

Calculating profit “is not simple and straightforward,” Wilkinson said Tuesday in an interview. “Even with the GISA data, we needed to hire this professor to do the calculation in order to understand with the profits really are.”

Wilkinson is calling for “a more straightforward way” that data on insurers’ Ontario auto profits could be communicated to the “person on the street,” so that the industry, personal injury lawyers and the general public could talk “apples to apples.”

Ontario auto has been on the radar screen of A.M. Best Company Inc., an Oldwick, N.J.-based research firm that advises investors on the financial health of life and property and casualty insurers. Canada-wide, the auto personal accident loss ratio “remains a concern,” A.M. Best said in Canadian Property/Casualty and Life Remain Stable as Economy Rebounds, While Housing Market Bears Watching, released in the summer of 2017.

Finance Minister Charles Sousa has pointed out in the past that dozens of companies write auto in Ontario and consumers should shop around for the best deal.

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8 Comments » for Industry responds to trial lawyers’ report on auto insurance
  1. Bill Gray says:

    My vehicle insurance came due and the carrier wanted 23% more to insure. There were no negative items to put up the premium. 13% of the increase seems to a change of territories, even though I had not moved. I was switched into a more urban territory ,so the higher rate.
    I went on line to get quotes off the computer. It’s relatively simple to designate vehicles, designate drivers and click a few more boxes. The quote comes back . If I wanted to change companies I could save $400.00 with Economical or for a saving of $200.00 I could go with Aviva, or save $100.00 with Aviva (I don’t know why Aviva can’t come up with one price). I should also add that if I moved all my insurance I could save even more.
    I think there must be too much profit if these companies can advertise on tv as much as they do.

  2. Scott says:

    I dont know why the trial lawyers are taking on an issue they seem to know little about and one in which they are a major contributor to the problem. I would be more interested to know why anybody cares about a 160 or so auto insurers sharing a measly profit when the banks each declare quartlerly profits in the billions. Which is the bigger issue? If the insurers were doing so well the stock market would reflect that but it doesnt. In fact in comparison to the banks stock values insurance companies are almost penny stocks.

  3. Azey says:

    Lower the accident benefits and come back the next day to raise the premium … Insurance company in Ontario the most legal scam.

    ” She was referring to several changes made to Ontario auto accident benefits, including the reduction in 2016 of catastrophic impairment. These cuts were made “presumably to bring premiums down,” Wilkinson said.

    But several major carriers, including Intact, Economical and Aviva, have indicated recently that they are raising rates. This reflects that the fact that total claims costs have increased on average by 4.5% annually, or by 19% between 2012 and 2016, Kee said “

  4. Kath says:

    There are 11,000,000 vehicles insured in Ontario.
    9 billion “overpayment” since 2001 divided by 15 years divided by estimated 5,000,000 personal vehicles.

    Some time ago the IBC estimated a personal lines auto policy profit of $0 .83 per document.
    Say you pay $1000. That’s under 1%. What business operates with less than 1% profit?
    It’s easy to talk about billions of dollars but when you break it down its pennies per person.
    And when the personal accident benefits were overhauled, it was because customers wanted to pay less. You can’t get something for nothing; but if you want more, the option is there to pay more to get more.
    Ontario has the most generous benefits in the country, options are provided and still people complain.
    *University professors eliminated data that contributes to the results.

  5. Frank Cain says:

    The whole point has been lost here; the OTLA should be lashing out at the insurance legislators, not the insurers who are simply following orders and going by approved rules. And it’s not a matter of juggling premiums and percentages but if you want to do that, good luck to you. Every insurer wants your business and they’re doing their part to get it.

    The real issue here began in June of 1990, the onset of so-called “no-fault” (if nothing else, that moniker is at fault – you are still at fault, you just can’t sue at lower levels) spelled disaster for trial lawyers. Just ask them. But what was supposed to reduce the costs of every-day type losses and injuries, hasn’t proved itself. What had been a legitimate force in insurance of seeking out the best results for the injured by learned lawmen has been transformed into a public free for all with scam artists, swindlers and crooks. It is the absence of probity and rectitude from many corners that has caused the present auto problem in Ontario.

  6. Jill says:

    There are several problems with Auto insurance in Ontario, Insurer profits are the least of them. This is just another gratuitous OTLA slur against the insurance companies to gain consumer favor. Other provinces give very little to similar clients with similar severe injuries and yet they cope. It would be interesting to see the OTLA profits who actually claim a % of insurance proceeds that should go to the insured on top of 15% cost. Both parties need to be accountable for their contribution to the confusion, fraud ridden state of Ontario auto insurance. The courts as well as regulators (#FSCO, #IBC) should also encourage transparency for the consumer first. There are still too many differences in AB premium, in a regulated market between insurers. Monthly insurance payments should be the norm for Ontario auto owners, (for those able less frequent options) offering service through email should also be the norm to insure consumers get timely notices.
    The courts need to stop looking at individual citizen and company purchased policies as a means to an end depending on the severity of the injury but instead uphold the law of the Province not change it at whim. Otherwise we might as well, like Quebec let the Ontario government handle the bodily injuries and kill the cash cow.

  7. Geoff says:

    The TLA and prior 2015 reports are quite flawed in some of their assumptions. Curiously, an economics professor was consulted and not an actuary. Profit is hard to determine by province unless the insurer provides more information, but total combined ratios (benefits & claims + expenses) divided by premiums, all net of provincial taxes, are relatively easy to calculate. There are a few reasonable and well-established ways to allocate expenses. Most insurers have have TCRs above 100% for years. This is not sustainable in the long term, but is in the short-medium term due to investment earnings and surplus (accrual of past profits, net of dividends to shareholders). When viewed this way, the personal lines auto industry in Ontario is not very profitable. Indeed, the equity markets do not think so either. As one post said, we should look at the banks with fee gouging. You can shop around for auto insurance, you can even go without a car in most cities by using transit and ride-sharing services, but you can’t avoid the banks and they know that. That is why the big 6 national banks are virtually the same. It’s a waste of time to whine about the non-existent “over-profitability” of the auto insurers. However, arguing for a different regulatory environment as to coverages, benefits, controls, legal issues, etc. is perfectly valid. Take that up with FSCO (now, FSRA). I’m guessing the insurers would welcome a more open market for their products. I’d argue they deserve to be more profitable, not less, and let a truly competitive market determine premiums.

  8. Kevin says:

    The insurance industry has lobbied the Ontario government for years. All new laws/changes completely favor Insurance companies over consumers are ‘trapped’. My wife just got hit by a driver who ran a red light on the highway. Literally pulling out from a dealership where she had just got a quote on trading it in for a new one. $12,000 damage to a $19,000 SUV. They’re insisting on repairing it. Her vehicle is now worth thousands less, injured and off work for at least a week. Here’s what Co-operators insurance has told her:
    – $400/week for lost wages (but only after a 1 week ‘waiting period). So basically $10 and hour (not even close to minimum wage..)
    – They don’t have to pay health costs until we ‘exhaust’ our own paid employee benefits. And even then, they are only required to cover up to $3,500.
    – No compensation for the lost value of the car she can no longer trade in. The Adjuster actually called that ‘depreciation’.

    So basically she feels she’s been victimized twice now. Once by the driver who didn’t want to stop for a red light. And now by the insurance company who we’ve been paying more and more to each year, even though she has a perfect driving record.

    All these changes like ‘no fault’ have done nothing but add to record profits for insurance companies. We pay more that almost anywhere else for less benefits than anywhere else. How’s this fair?

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