The insurance industry is lashing out against the Ontario’s government’s plans to push a 15% cut in auto insurance premiums, saying that it’s not doing enough to address the cost side of the equation.
The provincial government said Friday it aims to cut auto insurance premiums by 8% over the next 12 months, and 15% in the next two years by cracking down fraud, among other measures, and exploring various other ways to cut costs. (See Investment Executive, Ontario plans 15% cut to auto insurance rates, Aug. 23, 2013.) However, the Insurance Bureau of Canada (IBC) maintains that the plan “does nothing to lower costs before insurers are expected to lower premiums.”
“While the government has approved insurance rate reductions they still haven’t outlined how they will address some key cost reforms we need to see implemented.” said Ralph Palumbo, vice president Ontario at the IBC. “Reducing costs is the only way to reduce premiums.”
The IBC says that the government’s commitment to combating fraud is a good first step, but it stresses that it will take time before it has the effect of reducing costs. It also welcomes the government’s pledge to implement further reforms to resolve long-standing problems in the Ontario auto market. However, it notes that there are concerns about how the push for lower premiums might impact certain insurers and consumers.
“The solution is clear — premium reductions need to be commensurate with additional cost reduction measures — it is definitely a necessary next step”, said Palumbo.
Similarly, the Insurance Brokers Association of Ontario (IBAO) warns that insurers might be forced out of the market if these cuts aren’t achieved responsibly. “Insurers may exit certain segments of the market which would have unintended consequences for consumers,” it says.
It calls on the government to adopt recommendations of the Ontario Anti-Fraud Task Force, including the licensing of health clinics and tow truck regulation, and that rate reductions will then follow.
“Our expectation of today’s announcement was that we would see progress made in identified cost reductions resulting from fraud but what we heard were more promises of change and not enough action,” said IBAO CEO, Randy Carroll. “There is an inherent risk that the result of today’s announcement could result in future availability and affordability concerns for consumers in this province. Regardless of the type of business that you are running, you cannot reduce revenue without implementing cost reduction measures and expect to succeed, it just doesn’t work.”
“The affordability of auto insurance for our customers is of prime concern to the IBAO,” added Carroll. “IBAO is urging the Ontario government to enact the Anti-Fraud task force recommendations and implement them as soon as possible.”