Ontario Auto Insurance Rates Beginning to Come Down Slowly

The first full quarter (4th quarter of 2013) of rate approvals following the government's announced rate reduction strategy have now been released by FSCO.  The regulator has been able to squeeze 3.98% in rate reductions from 66.55% of the market.  That's an average of 5.98% per insurer of those that filed in the quarter.  That is better than the 3rd quarter results in which only a 0.65% reduction was achieved.  Combined 98.95% of the market has refiled their rates and as the government reports, approved rates are down 4.66%.

The government is committed to bring down rates by 15% over a two-year period which likely makes no one happy - neither consumers or insurers.  Considering that it can take up to a year until new approved rates appear on renewals (depending when a driver's policy renews), consumers could wait up to 3 years to see the full 15%.

The question that remains is how successful will the government be in bringing down rates to the targeted level?  The regulator squeezed less that 5% out of rates so far and that was the easy part.  Those numbers reflect company projection of future benefit costs, investment returns, overhead costs and a profit margin.  Perhaps with interest rates set to increase there will be some wiggle room to lower rates further.  As well, if the benefit costs continue to remain stable as they have for over 3 years, insurers may adjust their reserves which might allow rates to come down.  The severe winter in Ontario means claims have likely been higher so I doubt there is much room there anymore.  Overhead costs don't change much so all that is left is a smaller profit margin.  Perhaps this is part of the motivation for State Farm to get out of Canada.  After all, they haven't been profitable in Canada in a number of years. 

The insurance industry is holding out for further changes to the auto insurance system which might change the cost structure enough to bring down rates further. The government has announced a few initiative which they hope with achieve that:

• The province will propose legislative amendments in the spring session based on recommendations of the Dispute Resolution System Review
• The province is consulting on the development of a province-wide system to oversee the towing industry and reviewing vehicle storage and collision repair practices
• Work is progressing on enabling health service provider licensing so that only licensed providers can get paid directly by insurers.

 The final 10% is going to be a challenge for the industry and the government.