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.

Going Away For A Few Days? Do You Know What You’ve Agreed To Do With Your Insurer?

Your arrangements are finalized, your bags are packed, and you've arranged with someone to pick up the mail and clear the snow from the front walk.  You’re all set to leave, or perhaps as I’ve done many times, you've headed up north for a couple nights and it quickly turns into four or five.  Such are the realities of living through a Canadian winter.  Everyone looks for a break from the bitter cold and dampness.

What most people don’t know, and many people in the insurance industry don’t tell you, is that you’ve made a promise to your insurer that you’ll do certain things in the event you leave home for four or more days.  It’s important to note that unlike automobile policies, there is no uniformity amongst property insurance policies.  That being said, I have yet to see a property policy without a warranty along the lines of the following:

“… We cover damage caused by water (they then go on to define what water damage is), but we do not insure loss or damage caused by freezing during the usual heating season, of any part of a plumbing, heating, or air conditioning system or “domestic water container” within a heated portion of your “dwelling” if you have been away for more than four (4) consecutive days…”

It will go on to say, “… However you would still be insured if you:

·     have arranged for a competent person to enter your “dwelling” each day you were away to ensure the heating was being maintained; or

·     shut off the water supply and had drained all the pipes and “domestic water containers”; or

·     if your heating system is connected by a monitored heating alarm to a station providing twenty-four (24) hour service...”

In essence, if you’ll be away for more than four days, you need to take some steps to ensure your insurance policy remains in force.  Ideally, you need to have someone come in and check the heating of the home on a daily basis, or, alternatively, you need to drain all of your “domestic water containers” which include your hot water tank and toilets.  You would also have to drain all of your pipes.  If we’re being honest about it, I personally don’t take the second option. I just am not comfortable messing around with the plumbing system in my home.  The third option above is the one that I see used the least.  A monitored heating alarm is an additional expense and isn’t practical for most home applications.  It is more common in a commercial setting when the business operation is a temperature sensitive one (food processing facilities comes to mind).

The easiest and most practical option the insurer gives you is the first one.  Arrange for someone to check the property to ensure the heating is operating properly.  The key is you need to plan it, and be able to show you’ve taken the necessary steps if required to.  If the person you’ve made the arrangements with doesn’t follow through and the unmentionable occurs, then your policy would still respond (if worded as above), but your insurer would be in a position where they might be able to recover a portion of the damages from the person you made your ‘arrangements’ with.

The insurer puts this clause into the contract to protect themselves from a property being unwatched for days on end.  The longer water flows the more it will cost them in the end.  If a situation is discovered and promptly dealt with, it works out better for everyone involved.  I would suggest you get your insurance policy out, review the water damage section and the statutory conditions section to verify what your exact situation is.  If you’re unsure, contact your insurance advisor and verify exactly what your obligations are, and follow up in writing. A conversation and some planning ahead of time can be your best defense against a very stressful situation later.

Holiday Shopping & Theft From Your Vehicle...

It’s that time of year again. The mercury is dropping, the daylight hours are shorter and many people find themselves shopping more and more as the holidays near. Though each of us may or may not celebrate a specific holiday at this time of year, most of us do celebrate in the sales and promotions that retailers make available to us. 

Interestingly enough, honest people are not the only ones celebrating.  For the criminal element the holidays represent parking lots full of goodies just ripe for the taking, and almost all of it is brand new, and some of it is even gift wrapped!

The holidays can bring out the best and the worst in some people.  Most of us spread cheer and joy and are in a gift-giving mood; other individuals might wish to exploit the opportunity provided by an unoccupied vehicle loaded with items.  If you find yourself to be a victim of a theft of items from your vehicle where do you make your claim?  Is it your car insurance?  What about your property insurance?  The correct answer:  Both.

In order for you to receive coverage for your vehicle, your policy will need to include a “Comprehensive” or “All Perils” clause.  These optional coverages will respond to the break-in to the vehicle and the damage caused by the forced entry.  It is important to note that Section 7.2 of the Ontario Automobile Insurance Policy (Loss or Damage We Won’t Cover) states, “We won’t pay for loss or damage to contents of automobiles and trailers other than their equipment”.  The automobile policy was designed to insure vehicles only.

It only stands to reason that your property policy will cover those personal possessions which were stolen.  You will need to make an additional claim under this policy.  Both policies will require you to report the theft to the police.

Also remember that owning a home is not a condition of having property insurance; condominium owners and tenants can also obtain this coverage.  Speak to your insurance advisor if you’re unsure.

In the above example you have one occurrence but two claims to make under two policies.  You will also have a deductible applied to each policy.  In some cases you may find yourself dealing with two separate insurers as well.  A simple remedy to this type of hassle can be to insure your property and automobile with the same insurance company.  In most instances if an insurer covers both claims they will only apply the higher of the two deductibles, rather than charge you twice.  You will also have the benefit of only having to deal with one insurer rather than find yourself caught between two companies each stating that a particular item is the responsibility of the other.

In the end it is best to avoid this situation altogether.  Try and park in well lit areas, and avoid storing items in your vehicle then returning to the mall for more shopping.  If the thieves are watching you, they have all that they need to make your holidays that much more difficult.  If you find that you need to drop off some items to your car, get in and relocate it to another area of the parking lot.  The thieves will think you’re leaving and will move on to some easier prey.

Always remember why you went shopping in the first place.  You intended to have an enjoyable experience and make the holiday season brighter and happier for yourself, your friends and family.  A little caution and foresight can help keep it that way.

What to do Post Superstorm...

Superstorm Sandy is upon us, it's a storm that's been widely anticipated on the north eastern seaboard of the United States. It's trajectory will bring a great deal of wind and rain into Ontario as well. The insurance industry has been watching this storm closely as well, and many insurers in Canada have suspended the writing of new property insurance policies until the storm passes.

For the moment, it may be too late for you to secure loose items such as patio furniture, various decor items, or any other loose items you may have on the premises of your business or home. If as you read this it is safe to go outside and secure such items, it is highly advisable that you do so.

High winds and rain typically cause flooding in low lying areas, or in older areas with older storm water infrastructure. For the GTA this storm hits at a rather inopportune time, I say this because we've had rain for several days now, and the ground is likely already saturated, making flooding more likely. Should you be in a situation where you need to leave the premises, it is best if you turn off the gas, water and electricity before you do so. Keep an eye on water levels and be sure to keep children and pets away.

If you find yourself with downed trees, power lines, or other types of damage do what you can to prevent further damage from occurring. Check your policy to be sure you have coverage for what has happened, if you're unsure, call your Broker or Insurer and ask. If you're able to, take lots of pictures they could be helpful to have after the fact. Do your best to stay safe and calm, so long as it's property damage, it's just damaged stuff, and that we can get through together.

Parking A Vehicle For An Extended Period Of Time?

When parking a vehicle for an extended period of time, you have three main options. In the insurance world an extended period of time would be anything longer than 45 days. The first option is to do nothing, pay your premiums as you normally would and leave well enough alone. 

The second is what we call a suspension of coverage. In this case the policy is endorsed with a coverage suspension start and stop date, the endorsements are Ontario Policy Change Form 16 & 17. With this option road coverages are removed but liability coverage remains in force (at a slightly discounted premium). The advantage is that if a vehicle is stolen and an accident results the liability coverage will respond if the registered owner is sued.

The third option is to delete all coverages other than the Comprehensive (theft) portion. This saves the most premium dollars, but it also removes liability coverage. In the example above, if the vehicle is stolen and is involved in an accident, a third party could launch a suit. If the liability coverage has been removed entirely, the policy would not respond and it would be the registered owner’s responsibility to defend themselves in court, a costly proposition.

It's a bit of a catch 22. Personally, I prefer suspending coverage if you're going on an extended vacation and know exactly when you'll be leaving and returning. You don't save as much now, but you won't find yourself sleepless because you're being sued due to someone else having stolen your vehicle. It's always better to pay an affordable amount now, rather than having to deal with a larger unknown later.

Theft & Your Property Insurance Policy...

During the summer months we’re all out and about a bit more and while protecting yourself against theft is always a good idea, it’s good to know where your insurer stands on the issue. To be clear, theft is the taking of property without the owner’s consent and with the intention of depriving the owner of its use. As I’m sure most people are aware, it is a criminal offence. In its most basic form property insurance policies exclude or limit coverage for theft that results from 5 items.

The first type of theft excluded is Conversion. For example, one may lend a snow blower to a neighbour, who begins to use it as if it was their own, and over time the neighbour fails to return the snow blower to the rightful owner. This is where property has been entrusted to an individual and that individual ‘converts’ the property into their own over a period of time. This term is often used as a matter of convenience and may not appear in the policy wordings.

Mysterious Disappearances are also not covered. These are instances where the item cannot be located and it’s absence can not be explained. If you’re running a business and the loss is uncovered while taking inventory, the implication is that the stock was stolen. Most property policies do not cover this type of loss, though some insurers may allow the option to purchase the coverage on certain items.

Coverage for a Theft from a Vehicle or a Break In is often only covered if there is physical evidence such as signs of forced entry. This condition is often accompanied by a requirement that the incident is also reported to Police. These measures are used to combat fraud by requiring a party to offer physical proof of the loss along with running the risk of being charged by Police if they report a theft that never was. Damage to the premises caused by thieves is often not covered by a basic policy, but if a business has coverage for loss of stock, coverage is often extended to include damage to the building regardless of whether the thieves were successful or not.

Lastly Theft by Trick is not covered. People are often defrauded by an individual who offers to buy something from them. A deal is struck, property changes hands, and payment is made either by a dishonoured cheque or a fraudulent or counterfeit instrument. From an insurer’s standpoint it is often difficult to know for certain if both parties were involved from the outset, and as such this type of loss is often excluded.

Property policies are not uniform, what one policy covers another may not, so it is important to review yours to see how your policy treats certain circumstances. If you are unclear, consult your insurance professional for guidance.

A Ticket & It's Effect On Insurance...

What does a ticket do to your insurance? The ticket itself does nothing. The ticket is formal notice of a charge against you that you have contravened one of the rules of the road, more than likely the Highway Traffic Act. What will have an impact your risk profile to an insurance company is whether or not you are convicted of the offence you’ve been charged with. The charge carries two main options – plead not guilty, or plead guilty to the offence.

If one pursues the ‘not guilty’ option and is successful, the charges will have no impact on how they are classified by their insurer. On the other hand if they either plead guilty or are found to be guilty, then the charge will be registered as a conviction on their driving record. Insurers use the number of convictions one has as a means of assessing their risk. Section 6 of The Ontario Application for Automobile Insurance asks the applicant to, “Give details of all convictions of the applicant and any listed driver arising from the operation of any automobile in the last 3 years.” It is clear – all convictions registered against an applicant will have an impact for a period of 3 years. The 3 year period commences on the date of conviction, not from the date of the offence.

Convictions are grouped into 3 categories: Minor, Major and Serious/Criminal. Minor offences are those such as, Failure to Yield, Failure to Carry Insurance Card or Speeding no more than 49km/hr over the posted limit. Major offences are ones for which a summons is immediately issued, and the individual must answer for themselves in court, G1/M1 offences are typical of this class. Serious/Criminal offences are just that, serious and possibly criminal. This class includes Impaired Driving, Failure to Remain at the scene of an accident or Failure to Stop for a Police Officer.

Many insurers do not charge more for a single conviction, though the conviction might result in the loss of a ‘conviction free’ discount, the net result of which would be an increase in what the individual pays. If the individual accumulates over 3 minor convictions most insurers will cancel their coverage on renewal. Most standard insurers will also decline to insure anyone with a Major or Serious conviction on their record. For those individuals with multiple convictions or with Major or Serious convictions purchasing insurance will be an expensive endeavour, there are very few insurers willing to take such risks on. To learn more about how a specific conviction may impact your rates, call your agent or broker and ask. The conversation doesn’t impact your rates, but your driving record does – and you’re in full control of that.

You're Crazy If You Think Your Insurance Will Get Cheaper...

That’s right, I said it. Let me clarify. All things being equal, you driving the same car, living in the same house, never getting a ticket or having a claim, your final premium will increase more often than it will decrease.

The obvious question is why? Most people believe that their rates should go down annually if they don’t have any claims. This is a somewhat flawed way to think, after all, if you have no claims and you get a discount every year, eventually, you’ll be paying close to nothing. In order to understand what’s going on with your premiums, we must understand how premiums are calculated from an insurance company’s perspective. Insurance is a funny thing, in that the insurance company has to decide what it will charge before they know what their costs will be. Imagine if a restaurant operated that way…

In order to fulfill it’s promise to pay the claims of it’s clients, the insurance company must have enough money on hand. They must also be able to cover their own expenses and be able to make a profit. The premium charged takes into account what is needed to pay current and ongoing claims. An insurer will forecast trends in costs, and will apply those factors to this year’s claims in an effort to more accurately predict what next years claims will cost. The insurer must also take into account their expenses related to acquiring the business, this could take shape in the form of commissions to brokers and agents, advertising and promotional costs, or a combination of sorts. The insurer also has to cover it’s own administrative expenses such as rents and salaries. Finally, after all of these items have been paid, the end result has to be a profit.

Each year, all of the costs mentioned are escalating, claims are more expensive to settle, employees earn more, medical costs and car parts are more as well. Just as your life is more expensive to live this year than it was 5 years ago, so too is the cost of running a company. So much like a prudent person plans for their cable and gas bills to rise next year, I would suggest you plan for an increase in your insurance premiums, somewhere in the neighbourhood of an average of 3-5%.

Should Insurer's be Allowed to Access Credit Reports?

Across the country there has been much discussion on this topic. Insurers argue for the need to use credit scoring to assess risk, and consumer groups lobby against. The insurance industry has long held that an individuals credit worthiness is indicative of the risk they pose in filing a claim. Interestingly, though an individual may not file a claim, does that mean that an incident that may have given rise to a claim had never happened? Insurers have typically maintained that an occurrence is an occurrence regardless of the severity, in which case a person's likelihood of filing the claim shouldn't be the focus, but rather that if the incident occurring in the first place. At the same time, most people if confronted with an individual who's credit was completely used and had several mortgages on a home, which also just burned, would consider the fire to suspect at best. Consumer groups have consistently held that a credit score is not indicative of anything and bluntly it isn't a lender's business, not to mention that the proceeds of a payout would not have to be repaid, so how would the person's repayment history be a factor?

In Ontario the use of credit scoring to determine auto insurance premiums has been prohibited. No decision has been made regarding homeowner policies at this time, and consequently some insurers still use it and others do not. Depending on the product in commercial lines it may be used.

As this debate continues, I have no idea on which side of the debate I sit. In what is a rare instance for me, I remain an observer on this issue. I wonder if perhaps there isn't a way around this, for instance, Class A lenders only lend to individuals of a certain credit worthiness, Class B does the same and so on. Why not rate the lenders, and use that instead. In a situation such as this no one's credit report would be accessed, and yet because of the lender a person uses the insurer would inadvertently have a sense of where someone's finances are.

What do you think?