How low can Ontario auto insurance rates be slashed?

The Ontario NDP’s proposal to lower auto insurance rates by 40% may be a little high, but a 25% to 30% cut in total premiums is possible, says financial management consultant David Marshall.

In its platform released before the upcoming provincial election on June 2, Ontario NDP Leader Andrea Horwath said if elected Premier she would lower auto insurance rates by 40% and investigate a new system for auto insurance that could include a public or partially public system. She also vowed to end the practice of using different insurance rates based on customers’ postal codes (where places like Brampton can see higher rates than other parts of the province).

In his recent auto insurance report from the C.D. Howe Institute, Time for a Tune-up: Reforms to Private-Sector Auto Insurance could Lower Costs and Add Value for Consumers, Marshall notes Quebec offers lifetime medical care (including catastrophic) for a medical premium of $137 compared to $951 in Ontario. As well, in Ontario, there is only coverage for five years, typically up to $65,000 ($1 million for catastrophic injuries).

So, the medical part of the auto premium could be cut substantially, resulting in a possible 25% to 30% cut on the total premium, suggests Marshall, the author of the 2017 report Fair Benefits Fairly Delivered. Marshall has also served as a senior advisor to the provincial government on auto insurance and pension funds, and was previously the president and CEO of Ontario’s Workplace Safety and Insurance Board.

The NDP’s plan is to strike an Ontario Auto Insurance Fair Pricing Commission, led by insurance experts, affordability advocates, and experts in public auto from provinces that use such a system. Among others, the commission would explore full public no-fault systems like those in Manitoba, Saskatchewan and British Columbia, and Quebec’s hybrid public-private model (where the government pays compensation for bodily injuries and private insurers handle vehicle damage claims).

NDP Leader Andrea Horwath answers questions from the media, after announcing their plan to lower auto insurance rates by 40 per cent if elected, during a campaign stop in Brampton, Ont., Wednesday, May 11, 2022. THE CANADIAN PRESS/ Tijana Martin

“You can’t argue with that,” Marshall says, adding that he would be open to testifying in front of the commission. “You should look at it. As part of that process, hopefully you get good input and good advice, and then you make up your mind.”

But Marshall disagrees with abandoning postal codes as a rating factor, saying it will just spread the cost from places like Brampton to everybody else in Ontario, who will “subsidize” those in jurisdictions with high insurance premiums. He says telematics can better help consumers reduce their premiums rather than getting rid of postal codes as a rating factor.

Insurance Bureau of Canada (IBC) agrees, saying proposals to freeze auto rates and end the use of territory as a rating factor do little to address the underlying cost pressures in the current system. (The NDP says it will ban rate increases for 18 months while the expert commission investigates a new auto insurance system.) “Instead, these proposals would result in drivers across the province being unfairly penalized, and forced to subsidize the cost for high-risk drivers in other regions,” IBC says.

Marshall and IBC also point to the costs associated with establishing a new government bureaucracy.

But Marshall believes a lot can be done without making the system public. For example, in his C.D. Howe Institute report Marshall recommends, among other things, that private sector auto jurisdictions:

Remove open-ended commitments in the insurance product and replace them with clear entitlement and benefit criteria
Abolish lump-sum cash settlements
Restrict lawsuits to only the most serious cases
Substantially increase the no-fault entitlement for catastrophically impaired accident victims
Reduce regulatory burden to allow the private sector to compete on innovation, price, and value.

Feature image by iStock.com/Wako Megumi