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Toronto City Council asks province to consider ‘limits’ on property insurance premium increases


August 27, 2014   by Greg Meckbach, Associate Editor


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A motion Tuesday from Toronto City Council, asking the Ontario government to consider regulating property insurance premiums, shows “a lack of understanding” of insurance as a “risk transfer mechanism,” an official with the Insurance Bureau of Canada (IBC) says, while the provincial brokers’ association is concerned such a measure could affect the availability of home insurance.

“It’s good to see that Toronto City Council is concerned about the increasing costs of insurance associated with property claims arising from extreme weather events like the ones Toronto has experienced recently,” IBAO CEO Randy Carroll stated in an e-mail to Canadian Underwriter.

“As claims cost rise, premiums to insure the risk will also be affected. Making changes to the system or adding additional red tape or regulation without addressing the root causes will do no more then create an availability and affordability problem for consumers.”

However, City Council voted Tuesday to ask the province to “review the setting of property insurance premiums in Ontario, similar to its review of auto insurance premiums, and consider legislation to establish limits to premium increases” in Ontario.

For its part, the provincial finance ministry, which regulates auto insurance, has not specifically said whether or not it would regulate property rates in the future.

“The Ministry of Finance welcomes receiving any comments, suggestions or motions from any of our municipal stakeholders,” a ministry spokesperson wrote in an email to Canadian Underwriter

“Ontario has a competitive property insurance marketplace with a large number of insurance companies providing coverage for property owners and renters. These companies offer property insurance at competitive rates and we encourage consumers to shop around for the best coverage and price.”

The motion Tuesday by Toronto City Council was tabled after residents raised concerns about rising home insurance premiums.

“Home insurance rates are a reflection of the growing claims experiences, both in increased frequency and values,” in the greater Toronto area, stated Ralph Palumbo, IBC’s vice president for the Ontario region, in an e-mail to Canadian Underwriter. He added that Tuesday’s motion “demonstrates a lack of understanding of the characteristics of insurance as a risk transfer mechanism and complexities of the insurance business.”

A summary of the motion, posted to the City of Toronto website, alludes to the fact that industry-wide insured losses due to severe weather, in Canada in 2013, were $3.2 billion.

“In the wake of these disasters, insurance companies have seemingly been looking to recoup their costs for loss coverage,” according to the summary of the motion, tabled by Ward 37 Councillor Michael Thompson and seconded by Deputy Mayor Norm Kelly. Thompson added that in the first quarter of this year, personal property insurance rates were 7.5% higher than in the same period in 2013.

“Many Toronto homeowners have raised concerns with the substantial increases to their property insurance premiums and/or changes to their insurance policies upon renewal,” Thompson wrote in the motion.

In private passenger auto, Ontario insurers must submit proposed rate changes — along with supporting actuarial data — to the Financial Services Commission of Ontario (FSCO) for approval. FSCO and its actuaries then review the data and insurers’ assumptions regarding claims costs, expenses and investment income to ensure that the proposed rates are not excessive but are also not going to impair a company’s long-term solvency.  Last year, the province mandated “an industry-wide target reduction,” by 15%, of the “average of the authorized rates that may be charged by insurers” for private passenger auto, with a two-year target.

But the City of Toronto is asking the province to go further. Council voted Tuesday to ask the province to review the “practice of considering place of residence as a factor” in assessing auto rates.

“If you are in a specific postal code, it appears, according to the residents, that the (auto) insurance rate is vastly different,” Thompson said in an interview. “I had one situation where someone said they moved from Scarborough to North York and their rate dropped considerably — something like $300 to $400 less than they were actually paying  — and it was not a very far distance that they moved. We have had those types of complaints from residents.”

Thompson added residents have had a variety of complaints about home insurance.

“I have heard people say, ‘I made a claim and all of a sudden my rates went up dramatically,'” Thompson said in an interview. “My intention is not to beat a flag on my chest saying, ‘the insurance industry is bad.’ What I am actually saying is there seems to be some irregularities that are taking place. It’s just that people feel it’s not something they can just continue to accept. My effort is on bringing attention to the matter. Like everything else, it’s always appropriate for folks to talk and have discussions and recognize what some of the problems are, to find out solutions.”

Both Thompson and IBC suggest they are interested in further discussion on property insurance rates.

IBC is “offering to meet with the City Council to provide a comprehensive briefing on property insurance, how it is priced, recent pressures on premiums, etc., which would allow for an informed discussion,” Palumbo stated.

“This is a matter that we want to explore further with interested parties and stakeholders in order to try to come up with some answers and address some of the questions and concerns that have been raised by residents,” Thompson told Canadian Underwriter.

“I come from business to government. I recognize the need for businesses to make a profit. I have had some experience in the insurance industry, having many years ago worked with New York Life Insurance Company, so I do recognize some of the challenges, but it’s an important discussion that must take place in order to address the concerns that are being raised by residents.”

IBC noted the July 8, 2013 rainstorm in the GTA resulted in more than $900 million in insured losses.

“The insurance industry continues to study the impact of severe weather on our communities and advocate the need to update infrastructure, to engage consumers on how to protect themselves and their properties and to work with all three levels of government to help develop, promote and implement adaptation measures,” Palumbo wrote, adding that the Federation of Canadian Municipalities (FCM) has identified a $55 billion shortfall in infrastructure funding.

IBAO echoed those concerns.

“The IBAO and the industry have been urging all levels of government to upgrade their infrastructure to help their constituents avoid the costs associated with these types of claims,” Carroll wrote. “If we want to fix the problem everyone needs to do their part to fix the problem and stop looking for Band-Aid solutions.”


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