Ontario’s auto to continue deterioration into 2008

Ontario’s auto insurance market is losing money on both the accident benefits and third party liability side, turning marginal profits into deficits moving into 2008.
Jane Voll, Insurance Bureau of Canada’s chief economist and VP policy, spoke at Swiss Re’s 23rd annual Canadian Insurance Outlook breakfast meeting, and warned of the deteriorating condition of Ontario’s auto market.
As of midway through 2007, Ontario’s accident benefits loss ratio had climbed from its 2006 level of 81% to 100%, she told about 150 people attending the event.
“Sometimes we have a situation where we’re losing on accident benefits, but we’re gaining claims savings on the other side of the product. Not so in Ontario. We’re losing from both sides of the house,” Voll said.
For every dollar of revenue they generate in premiums and investment income over the course of an industry cycle, insurers pay 66.7 cents on the dollar for claims, 14 cents of each dollar for taxes, 18.4 cents for operating expenses and almost one cent back to capital. “Not a very attractive position from a shareholder’s perspective,” Voll noted.
Moving into 2008, given the claims growth trend, “in Ontario auto we are looking at a situation now where $1 of revenue is going to equate to 73 cents of claims, 19.3 cents expenses, 8.9 cents to taxes, and insurers will be coughing up capital of 1.5 cents on the dollar in order to keep that business afloat.”
And so why not raise prices, she asked rhetorically.
Ontario auto insurance is already costing Ontario residents 5% of their disposable income. Elsewhere in the country, Canadians in other provinces are paying only 3% of their disposable income for auto insurance. “And when you decide to jack up the price of something that is already 5% of the consumer’s wallet, they notice,” Voll said.