Modest returns on equity for private passenger auto insurers over last two years: IBC

Private passenger auto insurers saw marginal net returns in 2012 and 2011 after recovering from a severe loss situation prior to the 2010 auto reforms, Insurance Bureau of Canada (IBC) reports.

IBC commissioned J.S. Cheng & Partners Inc. (JSCP) and KPMG to analyze Ontario Private Passenger Automobile Insurance from 2008 to 2012. Both independent firms used publicly available financial data.

KPMG determined that private passenger auto saw a return on equity of 0.2% in 2011 and 3.3% in 2012, while JSCP found a 2.6% return on equity in 2011 and a 4.9% return on equity in 2012.

“This compared to losses and negative returns in equity in 2008 to 2010 for total Ontario Auto,” the KPMG report reads. (Separate data for total Ontario auto and private passenger insurance was not available prior to 2011, as it was not required to be reported separately).

Private passenger auto insurers saw a net income of $294 million in 2012 as compared to $17 million in 2011, reports KPMG. JSCP reported a net income of almost $492 million in 2012 and $132 million in 2011 for private passenger auto insurers.

“Despite the improvements in results, return on equity remains well below the 12% permitted in FSCO’s pricing model, and well below returns on equity that would be expected in most businesses,” KPMG says.

The system in Ontario is broken and needs to be fixed, Ralph Palumbo, vice president for Ontario at IBC, said. “We know that the price of auto insurance in Ontario is too high,” he said.

“Consumers deserve a competitive auto insurance system that delivers affordable premiums for all drivers and fair benefits for injured collision victims. This can only be achieved with a commitment to real reforms that address costs and create a better system for drivers.”

“It’s quite simplistic for the NDP to call for a rate cut without a plan,” Palumbo added. “But do the math – a straight 15% cut to premiums would turn a modest profit in 2012 to another potential $1 billion loss across 90 insurance companies that sell auto insurance in Ontario and sets up the possibility of insurers leaving the market or becoming insolvent.”

In Ontario, the P&C industry employs 63,000 people and insurers paid $2.2 billion in taxes and health levies to the Ontario government.

“We urge everyone to work with us to develop workable solutions to the complex problems that plague the current auto insurance product,” Palumbo said.