Ontario auto rates up 0.76% in Q2: FSCO

Approved rate increases for auto insurance in Ontario were an average of 0.76% in the second quarter of 2017 for insurers representing slightly more than half the market, the Financial Services Commission of Ontario reported recently.

FSCO said that for filings reviewed between April 1 and June 30, “approved rates increased on average by 0.76% when applied across the total market.” FSCO approved rates for 22 insurers representing 54.9% of the market based on premium.

This compares to an increase of 1.24% on average for the first quarter of 2017.

In Ontario, insurers must submit proposed rate changes, along with actuarial data, to FSCO for approval.  “FSCO and its actuaries review this data and insurers’ assumptions regarding claims costs, expenses and investment income to ensure that, as required by law,” notes FSCO, which must review the rates to ensure that they are not excessive but will also not impair an insurer’s solvency.

Four years ago, the province changed the Ontario Automobile Insurance Rate Stabilization Act to establish an “industry-wide target reduction” by 15%, by 2015.

That mandated 15% reduction “never happened,” noted Joel Silverthorn, senior financial analyst at A.M. Best Company Inc., eight months ago during a presentation in Toronto.

“It got to around 7% and they realized that there were a lot of issues around this that the industry and the regulators have to work together on,” Silverthorn said Nov. 10, 2016 during Insurance Market Briefing Canada, an annual event held by the Oldwick, N.J.-ratings firm.

The 15% reduction was meant to be of the average of the authorized rates that may be charged by insurers for private passenger auto in Ontario.

In March, 2013, Ontario’s ruling Liberals held only a minority of seats in the legislature.

Politicians from the New Democratic Party were claiming at the time that the Ontario auto insurance industry made an “extra $2 billion in profits” in 2011, due in part to reforms (including a reduction in mandatory accident benefits coverage and a new minor injury guideline) implemented in 2010.  Insurance Bureau of Canada reported earlier that in 2010, insurers lost a combined total of about $1.7 billion on Ontario auto. In 2011, there was an underwriting profit of less than $300 million – hence $2 billion in “extra profits.”

In May, 2013, the Liberals promised to mandate a 15% rate reduction, securing the votes of NDP members in favour of the 2013-14 budget. As a result, the government survived a confidence vote. The following year, neither the NDP nor the Progressive Conservatives would support the proposed 2014-15 budget, resulting in the defeat of the Liberal government, which in turn resulted in an election that returned the Liberals to power with a majority.

Since then, Finance Minister Charles Sousa has brought in several changes intended on reducing auto claims costs.

Among the changes that took effect in June, 2016 was a reduction in mandatory coverage, both for catastrophic and non-catastrophic injuries, though insureds can buy optional additional coverage. Also the definition of catastrophic impairment was changed.

Until June, 2016, there were two separate $1 million limits – one for medical and rehabilitation coverage and another for attendant care. Now the mandatory accident benefits coverage has a $1-million limit. For non-catastrophic injuries, the mandatory coverage until 2010 was $100,000 for medical and rehab benefits and $72,000 for attendant care. That was reduced in half in 2010. It was further reduced in 2016, with the mandatory coverage now being $65,000 for medical, rehab and attendant care.

In 2014, Ontario passed Bill 15 – the Fighting Fraud and Reducing Automobile Insurance Rates Act – into law. Among the changes were the move of the accident benefits dispute resolution system, as of April 1, 2016, from FSCO to the Attorney General’s licence appeal tribunal.

Bill 15 also reduced, from 60 to 15, the number of days that a vehicle can be stored after an accident without giving notice to the owner and other persons. Tow and storage providers are now required to publish their rates, accept credit card payments and provide itemized invoices before receiving payment.

Also with Bill 15, the prejudgment interest rate, for non-pecuniary loss, for auto accident victims is the Bank of Canada rate instead of 5%.

On April 11, 2017, the Ontario finance department released Fair Benefits Fairly Delivered: A Review of the Auto Insurance System in Ontario. That report had 35 recommendations from David Marshall, former chief executive officer of the Workplace Safety Insurance Board, the province-run no-fault workers’ compensation system.

On April 27, in its budget document for 2017-18, the government said it is “reviewing” the recommendations from the Marshall report “and will be hosting consultations in the coming months.”

In Ontario, auto insurance claims costs “continue to rise” but neither the behaviour of personal injury lawyers nor “excess profits” of insurers are to blame for this, Marshall said in the report.

“Many insurance companies, however, are not incented to see their role as providing medical care to clients,” Marshall wrote. “Rather, they are incented to close their liability with as little cash cost as possible and hence they introduce the practice of negotiating cash settlements with claimants in lieu of medical treatment, future wage and other future benefits under the SABS.”

One of his recommendations is the Ontario change the auto insurance regulations “to include only broad principles and entitlements for benefits.”

Ontario should also establish an “arms-length regulator with a skills-based board” to oversee auto insurance, Marshall adds.

“In many ways, the need to have lawyers involved to negotiate settlements in what should be a straightforward, no-fault, accident benefits system signals a failure in the system,” Marshall said. “There should not be so much uncertainty that neither accident victims nor insurers are confident as to what constitutes fair benefit.”