When the COVID-19 crisis kept Canadians at home, the amount of traffic on the roads and the number of kilometres driven both declined significantly. As a result, there was an unprecedented drop in the number of collisions, and auto insurers experienced fewer claims. This meant their loss ratios improved and their profits were higher than they had been in the loss-heavy years leading into the pandemic.
With many Canadians feeling a financial pinch from the COVID-19 pandemic, reports began to swirl about windfall profits in the auto insurance sector, which left many consumers bemused and disgruntled after experiencing year-after-year of significant rate increases.
Mark White, CEO of the Financial Services Regulatory Authority of Ontario (FSRA), said the regulator took action in 2020 after observing the changes in auto insurance brought about by the pandemic. FSRA established a use-and-file emergency rate reduction framework in 2020 to enable auto insurers in the province to voluntarily and quickly provide consumers with immediate rate reductions.
“We also used existing regulatory tools to support relief and worked with government to confirm that non-discriminatory rate rebates could be used to provide consumer relief,” said White at the 2022 FSRA Exchange. “FSRA also, on the other side, was actively engaged with insurers to assess what consumer relief should reasonably be available by each insurer, and we worked to encourage insurers to provide and maintain rate reductions and other consumer relief.
“Using all these pathways, insurers made more than a billion dollars in consumer relief, available through rate reductions, rebates and other means. And as rates are also set prospectively, policyholders who renew at a lower emergency rate, continue to pay that lower rate for the balance of their term.”
Auto insurance profits may seem high, White acknowledged, but he also said that’s a “matter of opinion”. FSRA approves insurers’ rate filings in Ontario based on historical data and strict guidelines. Insurers are permitted to include up to a 5% profit provision in their pricing, but White stressed that any gains are a “function of profit and loss”.
“The truth is, ultimate costs won’t really be known for several years because of the nature of injury claims,” the CEO commented. “While this trend may not continue indefinitely, I’m very pleased that it has been widely reported from multiple sources, that Ontario insurance rates declined materially in 2021, including declines on average across the province, and in many big markets like Toronto and Brampton.”
Auto insurance in Ontario, and in other provinces across the country, has long been an issue of contention. Despite the efforts of regulatory bodies like FSRA, consumers complain of unfair practices, unattainable pricing, and arbitrary risk selection and underwriting rules.
“We are committed to strong consumer protections related to auto insurance,” White stressed. “We want to make sure that insurance is available to eligible consumers, that rates are just and reasonable, and that underwriting rules are fairly applied. We monitor complaints closely, we look at market practices, and we try and identify [if there is] consumer harm going on. If so, we want it remedied, and if [they do not remedy it], we will take enforcement action.”
In recent years, some consumers have complained that they cannot access auto insurance in Ontario, or they’re not being offered coverage at the lowest available rate. In response to this, FSRA issued “Take-All-Comers” guidance to the industry to help prevent activities that preclude or frustrate consumers’ efforts to purchase or renew their auto insurance when they would otherwise qualify for a quote or renewal.
“This is a hidden harm, because consumers are likely not aware that there was an absence of a quote from an insurer that may have given them the benefit of a lower rate,” White explained. “It’s an example of how FSRA has to be that voice for consumers where they can’t see what’s going on because of lack of transparency.”
The “Take-All-Comers” guidance, issued on November 15, 2021, reiterates that auto insurers are required by law to provide all Ontario consumers with timely auto insurance quotes at the lowest possible price. Insurers are obliged to accept all business that meets the FSRA approved underwriting criteria.
“There are examples of insurers not offering coverage to […] consumers who had an accident, to consumers resident in certain locations, or to consumers that just have short histories of obtaining insurance,” said the FSRA CEO. “Another example of a breach […] is an insurer not responding with a quote on a timely basis, so, of course, the customer then goes off and chooses from the quotes that are on the table.
“While some of these breaches may have been inadvertent or an attempt to reduce insurance fraud, which is an issue, FSRA is actively supervising insurers on this issue. We’re requiring them to review their practices, we’re requiring them to report on this review later in 2022 and to establish remediation plans for any practices where there are breaches.”
