Saturday 30 March 2013

NDP Raise The Profile Of Auto Insurance As Ontario Gets Closer To An Election

At the Ontario legislature, Wednesday was set aside as Opposition Day which is a day the opposition parties are allowed to set the agenda.  Not surprising given the attention it has received, auto insurance was placed on the agenda.  Jagmeet Singh, MPP for Mississauga–Brampton South, on behalf of the NDP introduced a motion that FSCO mandate a 15% reduction in auto insurance premiums within the next 12 months.

The Liberal minority government supported this non-binding motion and perhaps not coincidentally on the same day the NDP voted in favour of the Throne Speech and Bill 33 - Supply Act, 2013.  Both votes were critical to the survival of the government.

The basis for the NDP motion is that according to data from the General Insurance Statistical Agency (GISA), the insurance industry's benefit costs dropped by $2 billion following the 2010 auto insurance reforms without any corresponding reduction in premiums.  The NDP contend that there is capacity in the system to drop rates.  In addition, the NDP note that a study was conducted by FSCO on profits in the industry following recommendations made by the Auditor General in 2011. That study has not been released and the NDP is concerned that profits in the industry are too high which is contributing to higher premiums paid by drivers.

The industry counters that rates are high because of fraud in the system and the mediation backlog at FSCO.  They would support rate reductions if both these issues were addressed as well as a number of other changes to the system.

The numbers do not lie.  There was a drastic reduction in benefit costs following the 2010 reforms.  Those reforms targeted abuse and fraud in the system.  So although fraud is a problem in the auto insurance system (as it is with every insurance system) it is likely not the problem is was prior to 2010.  The industry contends that the fraud costs the system $1.6 billion a year although they have not substantiated that figure post 2010 reforms.

So there probably is capacity to lower premiums although 15% may not be the right number.  Prior to the 2010 reforms, rates in the province were inadequate and many companies were carrying underwriting losses.  FSCO also has a statutory requirement to ensure that rates are adequate and therefore cannot approve rates that would create solvency problems for an insurer.

But the bottom line is that this is all political posturing leading up to provincial election expected within the next 12 months.  The government's public commitment to reduce premiums by 15% over the next 12 months could be interrupted by the election.  Whether it ever happens is very much up in the air.  However, auto insurance will become an election issue unless the government addresses the proposed premium reduction before the writ is dropped.  Auto insurance premiums are not paid to the government so a premium reduction does not impact on the provincial budget.  The government's only concern will have to be any reductions do not impact on solvency and the availability of insurance.

Monday 4 March 2013

Would The NDP Really Trigger An Election Over Insurance Rates?

Andrea Horwath grabbed headlines last week when she threatened to trigger an election if the Liberal government does not provide Ontario drivers with a 15% cut in the auto insurance rates.  So would the NDP leader actually go through with her threat?

Maybe.

On the surface it doesn't seem to make a lot of sense that the NDP would trigger an election over auto insurance premiums.  The promised 15% reduction would translate to $270.00 annually or $22.50 monthly for a driver that was paying $1,800 in annual premiums.  It seems hardly worth triggering an election that will cost taxpayers approximately $100 million for these types of savings.

So why would she consider going through with her threat?

Well as long as Tim Hudak continues to carve out the political right for his party, the Liberals and NDP will be battling for voters on the left and centre.  Premier Wynne has already made some inroads at the expense of the NDP by making peace with teachers in the province.  A recent Forum Research poll suggests that the NDP support may have peaked and has begun to drop. So strategically a spring election may be something that the NDP may now want.

The NDP would not be campaigning solely on their commitment to cut auto insurance rates.  They have also called for $30 million to eliminate homecare waiting lists, a guarantee that no seniors would have to wait more than five days for homecare, closing a $1.3 billion in corporate tax loopholes and spending $200 million to create jobs for youth. 

It is likely that pocketbook issues will be the focus of the next election campaign in Ontario.  Reducing auto insurance premiums puts money back in the pockets of voters without dipping into provincial tax revenue.  It comes out of the pockets of insurance companies.  There is some political appeal to making promises that cost the government nothing.

The NDP suggest that $2 billion was saved by the industry following the 2010 reforms but with no corresponding rate reductions.  The industry cites other issues such as fraud, uncertainty over the sustainability of the 2010 reforms and rising third party liability claims as the reasons why premiums have remained high in Ontario. 

The Liberal government has stated that addressing fraud is the most effective way of reducing costs in the system and passing saving on to consumers.  The recent Ontario Throne Speech included a commitment to implement the recommendations of the Auto Insurance Auto-Fraud Task Force and work to reduce auto insurance premiums.

How this will play out will become more apparent after the Wynne government presents its budget to the Legislature later this spring.


see news video here.

Sunday 3 March 2013