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.