Last July I read an article that suggested high auto premium was making it difficult for motorists to buy new cars and that insurance was perhaps approaching monopoly pricing status. An Insurance Bureau of Canada spokesperson wrote a rebuttal, pointing out that insurance rates were down 10 percent from November 2003. He discounted the perception of monopoly pricing, saying there were more than 150 insurance companies aggressively competing for business in Ontario.
The rebuttal made me curious. Why would the IBC need to respond so strongly to this article? If the majority of drivers were paying lower premiums, wouldn't they know that the comments were wrong? Since reading the article I've been doing a little research of my own. I started off with the easy-to-find information first. I counted every single insurance company that was licensed in Ontario and then checked how many actually wrote any auto premium. The number is far less than the 150 claimed by the IBC; in fact, the number is closer to 50.
I then reviewed premium for affiliated groups and individual companies. Last year in Ontario, 90 percent of the reported $9.61 billion auto premium was shared by 17 companies and, of these, five companies' share was more than 50%. Given that these four affiliated groups and one individual company accounted for half of the insurance pie, the comment about monopoly pricing may not be too far off the reality.
For information about rates, I went to the Financial Services Commission of Ontario website at www.fsco.com where I could track all of the rate changes they approved. Since their formation in 1998 and up to third quarter of 2003, FSCO had approved sixteen rate increases resulting in premium growth from $5.54 billion in 1999 to $9.5 billion in 2003. The rates started to decrease in the fourth quarter of 2003. An important note about FSCO is that while they report to the minister of finance, they are actually an arms length agency and their funding comes from the financial sector they regulate, such as insurance companies, banks, credit unions, and others.
I then checked what the provincial government was saying about rate reductions, especially in view of the Liberal rate stabilization plan implemented in 2003 and their other cost saving measures. On February 23, 2005, Minister of Finance Greg Sorbara announced that Ontario auto premiums had come down by 10.6% and in view of insurance company profits he expected to see even more dramatic decreases in rates. In his 2005 throne speech, Premier Dalton McGuinty claimed that the Liberal plan was working and auto rates were 13 percent lower thanks to his government.
The Insurance Bureau of Canada, which speaks on behalf of private insurance companies, made several comments about how lower rates were reducing premium. In a media release dated January 18, 2005 which is available on their website at www.ibc.com, they claimed that the savings in 2004 were unprecedented, that the average premium had declined more than 12% from $1,499 to $1,319 and that total savings would exceed $900 million. In another media release dated July 19, 2005 they announced that almost two hundred thousand drivers had moved from the Facility Association, which insures high risk or accident prone bad drivers, to the regular market and they were now paying lower premiums as insurance companies aggressively competed for business.
So, what was the result of the rate stabilization plan, the reduction in rates and the aggressive auto market? Ontario auto premium reached $9.69 billion in 2004 and $9.61 billion in 2005, both higher than in 2003!
Auto insurance unlike any other product purchased in a competitive market, is mandatory and protected by the government through the penalties that are invoked and enforced. After several years of paying increased premiums, drivers are no longer shocked by the price and consequently complain less. The NDP, Conservatives, and Liberals have each had a hand in creating this convoluted Ontario No-Fault System and so it is not surprising that there has been deafening silence in the legislature on this subject.
Next week: Fault and the single vehicle and how to appeal fault determination decisions.
Susan Saksida, CIP is an insurance consultant who has held senior positions in insurance companies and brokerage firms. She is currently conducting research into the root cause of consumer misunderstanding of the insurance industry. If you have an auto accident-related story please email it to insurancecompliancematters@rogers.com
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