Auto Insurance Rates to Drop 15 Percent

Ontario Finance Minister Charles Sousa has announced that Thursday’s budget will propose a 15 per cent cut in auto insurance premiums.

It is also unclear when drivers will start seeing their rates drop, Sousa acknowledged Tuesday. 

“My proposal would be to maintain some flexibility, so that we can achieve those targets as quickly as possible,” Sousa said from a Canadian Tire garage in Toronto.

“But we need to ensure we have oversight and that we work collaboratively with the industry and find ways to implement those targets as quickly as possible.”

The tentative target is for the decrease to be in effect by mid-2014. Once implemented, the measure could benefit more than nine million Ontario drivers and slash a total of $1.5 billion from auto insurance premiums in the province per year, according to the government. We all know that car accidents happen and auto insurance is necessary. 

The minority Liberals’ latest pre-budget announcement is widely seen as a sop to the New Democrats, whose support is needed to pass the budget and avoid an election.

On their list of demands is a 15 per cent cut to premiums across the board within a year through Ontario’s insurance regulator.

But that’s not exactly what the New Democrats got from Sousa.

The proposed legislation will have “some teeth” so that the province is monitoring reductions in claim costs and making sure that the savings are passed on to drivers, he said.

But it’s a “complex problem” that requires that the government work with insurers.

Claims in Ontario are ten times higher than elsewhere in Canada, Sousa said.

“That’s just not acceptable,” he added. “So we need to deal with those things effectively. That may take time.”

So what does that mean for vehicle owners? Here are some key points:

The government predicts the annual premium on a fully insured vehicle in Ontario will drop by $225 on average.

Not everyone is going to see the same reduction in their rate. The 15 per cent decrease is an industry-wide average – not an absolute.

Safe drivers will have priority. The legislation requires that insurers offer lower premiums to customers with good records. The cleaner your driving history, the more likely you’ll get a better deal.

Sousa has yet to explain how the government will enforce the cut.

Insurers will be more accountable to the government. The legislation gives greater authority to the Financial Services Commission of Ontario and the Superintendent of Financial Services.

Insurers will be making less money. The legislation mandates a decrease in the rate of return for auto insurance providers.

The government will help prevent insurance fraud with stronger investigative powers for the Superintendent, and stronger oversight by the Commission when it comes to the health clinics and doctors who invoice insurers.

The move is being met with skepticism from the province’s insurance industry.

The Insurance Brokers Association of Ontario released a statement on Tuesday welcoming the measures from the perspective of fighting insurance fraud but warning against “a false expectation for consumers” when it comes to rates.

“While the proposed reforms are welcome, we are very concerned that consumer expectations for a 15 per cent reduction will be very high,” IBAO chief executive Randy Carroll said in the release.

“It’s important to underline that the reforms underlying the promised reductions will take time and must be done responsibly.”

Meanwhile, Insurance Bureau of Canada spokesman Ralph Palumbo said “the jury’s still out” on whether the 15 per cent reduction is an achievable target under the proposed changes.

“We haven’t seen the budget, nor do we know what they’re going to do down the road in terms of further reforms,” he said.

In a statement released Tuesday, the IBC argued that the lowered rates won’t be sustainable if the system remains “broken.”

According to the bureau, Ontario’s auto insurance industry lost $2 billion between 2008 and 2010 – although there was a “modest industry profit” in 2012.

“We understand why the finance minister is concerned about auto insurance rates – so is the auto insurance industry,” Palumbo said in the release.

But Windsor personal injury lawyer Greg Monforton said he’s encouraged by the proposed changes.

“For the past number of the years, the insurance industry sought to increase its profitability on the backs of the innocently injured,” Monforton said. “Citing allegedly excessive court awards … it did everything within its power to limit access to our courts.

“So I’m encouraged by what the government is doing. They’ve seen fit to shift the focus of the debate.”

Source: The Windsor Star