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What Should be Done About Insurance Premiums in Ontario?
Few issues irritate motorists in this province more than sky-rocketing insurance premiums. Almost every day, I am approached by someone who has a story to tell me about the high costs of automobile insurance in Ontario.
I am sympathetic to their situations, and I think that the provincial government needs to address this issue sooner rather than later. It begs the question: Why is that here in Ontario, the largest vehicle exporter in North America, motorists pay higher insurance rates than anywhere else in Canada?
Here is a story about a 24 year-old man named Michael, whom I?ve known for many years. For the past eight years, Michael has faced huge challenges in obtaining proper insurance at a fair price. He is a very responsible young man, a University of Western Ontario graduate who has never been in any kind of trouble or otherwise.
When Michael was 16 and shopping for car insurance, the quotes came in around $8,000. The excuses from the agents were: ?We don't want young people. They have zero experience in driving; young people have to prove themselves; young people always get into accidents; they are not stable enough,? and so on.
This forced Michael to do some creative financing with his father, but he was very frustrated during this period. Insurance companies were making it nearly impossible for Michael to enjoy the privilege of driving a new car. As Michael got older, prices quoted came down, but never less than $5,000 per year, and his inexperience and youth are always obstacles to getting a fair price.
How can Michael, or any college/university students or young drivers in this province afford car insurance? Cars are a definite necessity for countless young people who are just starting out in life, but many of them can?t afford to drive.
Last week, the issue of high insurance rates once again made headlines with the release of a new consumer group study. The study concluded that Ontario drivers pay much more for auto insurance than drivers in British Columbia. The report also said that eastern Canadians have been victimized by ?outrageous premium increases? over the past three years. The same study reports that British Columbia drivers paid on average $1,324 annually for auto insurance, while Ontario drivers paid $2,383 annually.
It should be noted that in British Columbia, the government controls the insurance industry under a Crown Corporation, and different criteria exists in establishing car insurance rates in that province.
On the flip side, the insurance industry released a report last week, which informed the public that Ontario auto insurance rates have fallen some 15 percent since November, 2003. This is welcome news.
The insurance industry will argue that it?s finally making descent profits after a disastrous post-9/11. It?s true. The industry did suffer loses after the New York terrorist attacks. However, it has bounced back nicely ever since. In 2004, the insurance industry in Canada collectively made a cool $4.2 billion profit, up from $2.3 billion profit in 2003.
Profits are healthy for any sector of our economy, and I am all for it. But in light of recent consolidation within the insurance industry, monopoly pricing could easily be perceived. If insurance companies keep charging high rates, consumers will get angry. Why not, for example, introduce a lost leader pricing model that would help young people with their insurance rates? Such a gesture would go a long ways towards building life-long relationships.
Who?s fooling who here? Does the insurance industry really believe consumers accept their claim that it is charging fair rates for auto insurance? Insurance executives, please take note of the remarks I hear on a regular basis: ?Paul, my rates have gone up 70 per cent in the past year. Paul, my insurance company dropped me because I got a speeding ticket. Paul, I can?t afford to buy a new car because auto insurance rates are unaffordable.?
How are higher insurance premiums affecting our industry? It?s hard to gauge the amount of actual loss in dollars, but we do know that the problem lies with young drivers (16-25 years old), and with motorists who have experienced traffic violations and/or collisions.
Dealerships lose, on average, at least five to seven sales per month because individuals can?t afford insurance premiums. Multiply that number by 300 dealerships and that?s 1,500 lost sales. At a cost of $30,000 per vehicle, you begin to see the lost revenue as well as tax dollars. Consumers today not only put conditions of finance in their offers, but conditions of insurance as well.
Some drivers are walking away from insurance coverage altogether, which is illegal in Ontario, posing a risk to themselves and to other motorists. Many drivers pay out of pocket to have their vehicles repaired, often turning to unlicensed body shops, where quality is suspect. Collision claims have fallen about 30% in the past two years while collision incidents have remained constant.
To be fair, insurance companies cannot just raise rates arbitrarily. Insurance companies in Ontario must file rate change requests with the Financial Services Commission of Ontario (FSCO). If FSCO thinks that proposed rates are unreasonable and unjustified, it has the legal right to deny those changes from being implemented.
In 2003, New Brunswick premier Bernard Lord came close to losing the election over the issue of high insurance costs. Mr. Lord?s government introduced a bill to lower insurance rates which required insurance companies to justify new rates before a Public Utilities Board. Do we need a similar bill in Ontario?
I believe that consumers are not pleased with the present situation, and there must be a way for the government and private sector to work on a more affordable solution, which would create a win-win scenario for motorists and insurance companies.
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Paul Stern 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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