Premier Doug Ford’s government recently announced its intention to tackle the multibillion-dollar car insurance industry. The move is critically important to Ontario’s economy.
I’ve written before about why the Progressive Conservatives should focus on insurance policy. Ontarians pay the highest rates in Canada, despite the roads being among the safest in the world. The Ministry of Transportation recently reported that Ontario’s traffic fatality rate is the second lowest in North America and the lowest it’s been since 1944.
So why is car insurance so expensive in Ontario?
Insurance companies tend to point to distracted driving and the increased cost of repairing later-model vehicles. But these issues are the same everywhere in Canada.
In fact, high Ontario rates are driven in great part by fraud, which follows from the legislated no-fault insurance system.
Past Ontario governments created excessive red tape for claimants, all in the name of reducing scam.
But industry insiders say fraud accounts for almost one-third of all claim totals paid by insurance companies. That statistic has gone unchallenged by government.
Despite industry-friendly changes that frustrated many legitimate claimants, the reported rate of fraud only seems to increase.
Prices won’t decline until fraud is dealt with. The industry has a pretty good idea where the leakage occurs and has targeted those areas with higher prices. That has drivers up in arms; they claim postal-code discrimination.
An MPP in Ford’s government has introduced a private member’s bill to tackle the problem.
Companies could easily focus on serving neighbourhoods deemed more profitable in their phone or online marketing. Forcing an end to postal code discrimination pricing is more likely to result in companies making buying policies much more difficult for people in some regions where insurance companies feel fraud is a problem.
Insurance companies could also balance their vulnerability by raising insurance premiums in communities deemed low risk. But that would spark outrage from most of the ridings represented by the Progressive Conservative government’s MPPs.
Other possible changes, such as using credit scoring or employing in-car GPS to better analyze accident causes, would do little to tackle fraud. Nor would implementing the recommendations of 2017 Marshall Report make a real difference. These measures may slow the rising tide of insurance costs but won’t lower them.
However, there are two measures that would be very effective.
The first is to recognize that the only way to make auto insurance more affordable is to induce greater competition between insurance companies. The government needs to promote auto insurance being made available through independent brokers as opposed to the insurance companies’ own call centres or online.
Large call centres owned by banks and credit unions have been given unfair advantages by the Financial Services Commission of Ontario. Those advantages include government-approved lower expense loadings. This has to end so independent brokers can compete with the giant banks.
The second measure is to limit or eliminate no-fault insurance in Ontario.
Consumers only need look at Detroit to see the devastating result of no-fault insurance. Too many accident victims there are left without money for rehabilitation.
In New Jersey, however, consumers can purchase a no-fault policy or a policy that gives them the right to sue if injured in a crash. This should be considered in Ontario as part of a gradual transition back to a pure tort system, in which victims can sue at-fault drivers.
If one-third of all premiums are due to fraud, then a tort system that requires a claimant to prove their case in court would go a long way toward reducing Ontario car insurance costs.
Buying better cars and taking greater care at the wheel, drivers have already made Ontario roads among North America’s safest. They should should be rewarded with among the cheapest car insurance rates.
Can the government deliver the meaningful savings Ontario drivers deserve?
Maddie Di Muccio is a former town councillor in Newmarket, Ont., and former columnist with the Toronto Sun.
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