April 9, 2019 by David Gambrill
Canada’s home, auto and business insurers are objecting to a recent characterization of Ontario’s auto insurance regime as “profitable.”
“The current trends are unsustainable for both drivers and insurance companies,” Insurance Bureau of Canada vice president of Ontario Kim Donaldson wrote in an emailed statement to Canadian Underwriter. “Ontario drivers are paying too much for auto insurance, and it’s critically important that we continue to work with the government to obtain relief for drivers. Ontario auto insurance is not in any meaningful way ‘profitable.’”
Donaldson was responding to a published report cited in a recent Canadian Underwriter online news item, in which the Property and Casualty Compensation Insurance Corporation (PACCIC) stated that: “Importantly for insurers, Ontario’s private passenger auto insurance market remained profitable with a loss ratio of 73.0 percent.”
This comment appeared in the March 2019 edition of Solvency Matters, a quarterly report published by PACCIC. The article noted that loss ratios in auto markets other than Ontario are increasing. “Auto loss ratios in New Brunswick, Nova Scotia and Alberta are unsustainable,” the report noted.
But loss ratios don’t tell the whole story of Ontario auto’s overall poor financial health, IBC contends.
“For one, they don’t account for the cost of doing business,” Donaldson wrote in her email. “Using the Financial Services Commission of Ontario (FSCO)’s conservative estimate, operating costs for auto insurance add 25 percentage points to the ratio of claims costs to premium. The combined loss ratio for Ontario auto is then 98%, which leaves little room between the profit and loss lines.”
Donaldson goes on to note that return on equity (ROE) in Ontario auto lines has plummeted by about six percentage points between 2014 and 2018.
“The General Insurance Statistical Agency reports that the return on equity (ROE) for Ontario auto insurance has been steadily declining: from 10.1% in 2014, to 7.6% in 2015, to 6.6% in 2016, to 5.4% in 2017. For 2018, Insurance Bureau of Canada estimates that the ROE will be a meagre 4.4%. Insurance companies should not be expected to continue to accept a profit level that falls far short of historical standards.”
Worse, she points out, the situation is not getting any better when it comes to escalating auto accident benefits claims costs in the province.
“The statistics that the Licence Appeal Tribunal compiled paint a dark future for Ontario claims costs,” she wrote. “They indicate that the number of active accident benefits disputes under appeal grew by 91% last year to 6,881 cases by the end of 2018. These stats point to an increase in litigiousness and new cost pressures within the long-troubled accident benefits system, which account for one-third of the province’s total claims costs.”
Generally speaking, the upshot of higher claims costs for insurers is an increase in auto insurance rates for consumers. FSCO, which, as Donaldson, notes, “isn’t known for its lenient attitude toward insurers,” approved rate increases of 8.8% over 2018. And Ontario drivers already pay among the highest premiums in Canada.
“Ontario drivers will not continue to tolerate rising costs for mandatory auto insurance,” Donaldson said. “Ontario’s high premiums are partly due to its high cost per vehicle for injury claims (bodily injury plus accident benefits). In 2017, it was $351 in the Atlantic provinces, $493 in Alberta and a whopping $582 in Ontario.”