Wednesday, May 1, 2013

Ontario Government's Insurance Reduction Not All It's Hyped Up To Be...

Yesterday, our Provincial Government announced that they would be introducing legislation that would reduce auto insurance premiums in our province by 15% "on average." Yay! It sounds great, and if we had an election today, it would certainly buy votes. But will it work? It may, but for the average consumer in the GTA, this will actually make things worse in my opinion. There are a couple of things at play, one being the rules by which policies are issued, and the other item is the word "average."

Insurers issue policies in accordance with the rules they have filed with the Financial Services Comission of Ontario (FSCO). If insurers find themselves forced to reduce their overall premiums by 15%, they will almost certainly become more selective about the risks they do take on. "Good Drivers" will find themselves being redefined. Leeway for 1 or 2 speeding tickets will almost certainly disappear. A third conviction will likely see your insurance policy cancelled. If you run a business, with numerous drivers, you'll find yourself paying much higher premiums for every little infraction your employees have whether they occur on your time or not.

Ontario's Insurers will also tighten up on administrative issues. Often times an ownership is requested, or various other types of paperwork are required. If an individual does not submit the paperwork in time, where currently the insurer calls and asks for it a second or third time, they will likely just cancel the policy. Where presently very few vehicles are insured by the Facility Association (Ontario's insurer of last resort) I anticipate a rise in the number of people being forced to purchase their policies from the most expensive place in the province.

The word "average" is also thrown about, and it must be considered. This allows the insurer to increase their premiums in their higher risk areas such as the Greater Toronto Area, while decreasing their premiums in the lower risk areas such as rural Ontario. So long as the net result is a decrease they would be within the 15% average decrease. GTA residents who are likely to want a decrease may actually see themselves paying more under this plan, while those individuals in outlying areas will enjoy a rate decrease.

On another note, we need to see the recommendations of the Anti-fraud task force implemented.  Currently there is an estimated $1.6 Billion being spent by companies due to fraudulent activities. The health care clinics and towing operations require legislative changes and are such changes are essential for companies to reduce costs and pass those savings on to consumers.

We should also consider what a 15% revenue reduction will mean for foreign owned insurers. It is quite plausible that many foreign parent companies, will make the decision to leave the Ontario marketplace. If this were to occur, it would result in fewer auto insurers in Ontario and the net result would be upwards pressure on the premiums we all pay.

Someone is going to have to offset the reduced premium revenues this plan calls for, and it's likely going to be the very people in the GTA who would tend to support the idea that will be bitten.