It seems of late that whenever an election looms, auto insurance becomes one of the big issues. Last year, to try and prevent an election we saw a promise of a 15 per cent premium reduction, permitting the government to stay in power for another year.
There’s no question, Ontario has the most expensive insurance system in Canada due to over-regulation and massive fraud.
Many of my views on insurance are shaped by my several years on the board of Norfolk Mutual. In addition to Norfolk, we have Cayuga Mutual, WABISA, Erie, and Townsend Farmers’ Mutual. Many of the 40 mutuals in Ontario have been around for well over 100 years. They are well-run, not-for-profit companies and are shareholder-owned.
This mandated 15 per cent cut is a significant intervention in the marketplace. Normally price is a function of supply and demand.
In 1998, New Jersey promised to cut rates by 15 per cent. Many companies left the market at the time, making auto insurance very difficult for people to obtain. While rates did come down by 15 per cent over two years, the lack of availability led to a spike of 27 per cent two years later. Again that economic law — when supply goes down, price goes up.
In Ontario, for companies to reach the 15 per cent target, bad drivers are getting the biggest discounts. The biggest winners are those with non-standard insurers — the worst drivers, including those with multiple accidents and drinking and driving convictions.
One way to cut insurance costs is to cut fraud. The Official Opposition wants to establish a special unit of the Crown Attorney’s office to investigate and prosecute fraud. A fraud unit worked in New Jersey and in Britain. It can work here!
Here’s an example. Vehicles involved in collisions may be taken to storage facilities that will begin to charge the owner of the vehicle immediately. The problem is that the owner may not be aware these costs are accumulating. Current legislation allows a facility to hold the vehicle for 60 days before notifying the owner. This means facilities can, and do, increase their revenues by waiting until the 60-day period has expired before notifying the owner.
Fraud is estimated by KPMG to range from $768 million to $1.56 billion. That’s $116 to $236 per premium paid in Ontario. In the GTA, the problem is much more severe.
Fraudulent health clinics in the GTA have also been cited a key driver of insurance costs. Sometimes these clinics are nothing more than fronts and part of larger organized crime rings. Some are part of the “car accident business.” They stage accidents and use phony health clinics to overbill insurance companies for phony treatment.
It’s also important to encourage competition and reduce unnecessary bureaucracy. This will also cut costs.
Bill 171, An Act Respecting Insurance System Reforms and Repair and Storage Liens has been referred to the Standing Committee on General Government. I encourage all to have their say.
We need a fair, competitive marketplace for auto insurance – one based on trust between the insurance industry and the people who are paying the premiums, like we see locally with our mutual insurance companies, served by small-town main street brokers.