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High Car Insurance Premiums Are Hurting Our Industry
On January 20th 2004, while travelling in the US, I received an upsetting call from my 19 year-old daughter, Lisa. She called to say that she had been involved in an auto accident. Fortunately, only the car was hurt. ?What do I do, Dad?? she asked.
As a new driver with only two years of experience, but no speeding tickets or insurance claims, what should she do? Does she make a claim and risk sky-high insurance premiums upon renewal? Or pay a few thousand dollars in repairs to keep her record ?clean?? Her decision was made easier because her uncle and Dad co-own a body shop.
It?s no exaggeration to say that auto insurance premiums in Ontario are out of control. Insured drivers in Ontario have never been more terrified of receiving speeding tickets and making insurance claims. I hear horror stories all the time about drivers whose insurance rates have doubled and tripled ? sometimes for receiving a single speeding ticket.
Daily, in our body shops, drivers are willing to pay thousands of dollars to have their vehicles repaired, rather than submitting a legitimate claim to their insurance companies. In the last 18 months, collision claims in Ontario have fallen 30%. It?s a sad state of affairs when drivers can?t afford to make claims on their own vehicles.
How have sky-high insurance rates affected our industry? From 2002 to 2003, new retail car sales in Ontario dropped 7.4% (the rest of Canada only dropped 2.9%). Of course, insurance isn?t the only reason for this decrease. Still, every month, all new car dealers have to refund deposits on new vehicle purchases after the customers discover that their new purchases are too expensive to insure.
No doubt, thousands more potential purchasers do not even bother to venture into a showroom to look at new vehicles. Entry level buyers aren?t purchasing cars because they can?t afford the expensive insurance premiums, and some existing drivers aren?t upgrading to new vehicles because they can?t afford the increases in premiums.
More affordable car prices, combined with increasing incentives, have made car ownership more affordable than ever, but inflated insurance premiums often negate this benefit. In many cases, the monthly insurance premium is HIGHER than the car payment. Yet, home and car insurance companies in Canada continue to earn windfall profits: $2.7 billion during the first three quarters of 2004 (which surpasses a record $2.2 billion profit in 2003).
The insurance industry must feel partially vindicated as a result of a recent report by the Financial Services Commission of Ontario. The report indicated that the cost of auto insurance in Ontario actually declined by 4.22% for the end of the first three quarters of 2004 (compared to the same period in 2003). That 4.22% reduction contrasted sharply with a 19.43% increase experienced in the first three quarters between 2002 and 2003.
If auto insurance premiums are decreasing, as the Report indicates, why are so many drivers afraid to process insurance claims? Why are more and more vehicles being driven without any insurance at all?
Vehicles are going unrepaired following accidents because the owners can?t afford to pay higher premiums. Our roads are being travelled by these vehicles that are unsafe. Hit-and-run accidents are on the rise.
Insurance companies argue that premiums are a direct result of the increasing number of settlements that they are forced to pay to victims of auto accidents, and because of increased medical costs. If that?s true, why do their profits keep soaring?
I am sure that insurance companies have their issues. There should be legislation in place that makes insurance companies less vulnerable to outrageous and fraudulent claims. Government run insurance is definitely not the answer, but the government needs to be involved with solutions to the insurance problems faced by all Ontarians.
Auto insurance is mandatory for all drivers in Ontario. Politicians insist that consumers must purchase insurance, yet they sit and do nothing while the price of that product goes through the roof.
Premier Dalton MGuinty made an election promise to address the issue of rising auto insurance premiums. Aside from a temporary price freeze on insurance rates in October 2003, and some proposed regulation amendments, auto insurance premiums remain high. This begs the question: When will insurance premiums become affordable again?
If you are concerned about the high cost of auto insurance, I urge you to write to your Member of Parliament. Let him/her know that the government must take action to reduce insurance premiums in this province.
Ken Shaw Jr. is President of the Toronto Automobile Dealers Association and is a new-car dealer in Toronto. E-mail comments to president@tada.ca
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