Auto Insurance

Ontarians overpaid $5 billion for car insurance because insurers don’t pass on savings: report

By: Jessica Mach on May 4, 2018

Ontario drivers may have overpaid a staggering $5 billion in auto insurance premiums over the last five years, said a report released this week by York University professor Fred Lazar.

The report, commissioned by the Ontario Trial Lawyers Association, claimed that while average claims costs per vehicle declined by 15.5% between 2010 and 2016, average premiums per vehicle only fell by 4.8% within the same period.

Lazar suggested that insurance companies may have been pocketing this difference. Between 2012 and 2016, he said, Ontario insurance companies have seen a 57% increase in pre-tax profits — or a jump from $935 million in 2012 to $1.5 billion in profits in 2016.

In September of 2010, the Ontario government introduced a series of auto insurance reforms, including caps on certain expenses for minor injury claims. According to Lazar, insurers seemed to have taken advantage of these reforms to lower the costs of claims — in 2011 alone, the average claims cost per vehicle had fallen by a substantial 27.2% from the previous year.

So if insurers were saving that much money, why did premium costs remain virtually unchanged? One answer might be that insurers started pouring money into operating expenses. But, because Ontario insurance companies do not make their financial data publicly accessible, pinpointing a specific cause is difficult.

“Hence, the need for estimates,” Lazar noted.

Some critics have taken Lazar to task for his estimates-based analysis. Steve Kee, a spokesperson for the Insurance Bureau of Canada, claimed that the York professor’s report contains “some very inaccurate claims and assumptions.” Among the inaccuracies is the claim that the auto insurance industry’s return on equity is 15.9% — the number is actually 6.6%, said Kee, citing an IBC report published in 2017.

“We do agree with OTLA that the insurance system needs to be reformed for the benefit of consumers, but to claim that excessive insurer profits is the cause is simply false,” Kee told on Tuesday.

Lazar’s report arrives a month ahead of the Ontario election, for which high auto insurance premiums are a hot topic. The province continues to boast some of the highest auto insurance rates in the country, despite also having low accident rates.