The stars seem to be aligning for auto insurance providers and consumers after the Government of Ontario unveiled in its Fall Economic Statement that it will examine reforming the province’s auto insurance regulations. Related initiatives will include the passing of legislation that will end auto insurance rate discrimination based on drivers’ addresses as well as a review of Ontario’s auto insurance rate regulation system, conducted jointly with the Financial Services Regulatory Authority of Ontario. The promotion of innovation in auto insurance through a regulatory framework that would make electronic proofs of insurance, usage-based insurance, and full electronic commerce viable was also mentioned in the government’s statement.
If successful, the proposed changes will bring relief to a product that’s been plagued by escalating costs and low profitability. The silver lining, however thin, is that insurers can still make rate changes, Donna Ince, SVP of personal insurance for RSA Canada, told Insurance Business, but that doesn’t mean it’s an easy process.
“It’s a significant amount of work that we need to do to get the regulator comfortable with the rate change,” she said. “There are also restrictions around how much rate you can take, and there’s a lot of controversy now about whether you can rate based on territory because it’s become politically sensitive depending on what part of the province you sit in.”
Meanwhile, with technology becoming part and parcel of many vehicles, physical damage is another driver of rising auto insurance costs.
“Because of where the damage happens and that’s where all the electronics are in the car – so let’s say it’s at the front grille or even a side mirror – there are stories out there about total losses where you can’t repair it without going over the actual value of the vehicle,” explained Ince. “We can’t get enough rate to compensate [for] the escalating cost on the physical damage because of the technology.”
The promise of automated vehicles bringing down the number of accidents has yet to come to fruition, though a new report from the Insurance Bureau of Canada (IBC) states that “automated vehicles are coming to Canada’s roads,” and laws governing insurance and vehicle safety need to be updated accordingly. Nonetheless, we’re still a few years away from fully automated vehicles and in the meantime, auto insurers are caught between a rock and a hard place.
“These technologies were supposed to prevent accidents and reduce bodily injury, and even death, and that was always the thought about why we needed to have them,” said Ince, but today, “distracted driving is eroding the mitigating technology that’s in the vehicle and you’re still having the same kind of result, where you have the accident, and people can’t respond fast enough because of the distracted driving.”
Only when we see Level 4 or 5 autonomous vehicles on the roads will distracted driving cease to be as widespread of an issue, added Ince.
Brokers are seeing the escalating auto insurance costs have an impact on their clients as they get squeezed from both ends. Ince points to Alberta, where insurance companies have had to take measures and mitigate against the crushing weight of lacklustre profitability.
“You don’t see that glimmer that things are going to improve, i.e. with some kind of reform or rate regulation change, so what ends up happening is companies have no choice but to pull on levers that we never want to pull on,” she explained. “We have to tighten up underwriting or we have to work within the confines of how we’re supposed to operate, so you’ll have reactions from insurers that make it very difficult for brokers, whether it’s more work and you have to do something manual whereas before [the application] could just go through.”
Companies also might have no choice but to pull back their capacity because they can’t be expected to sit for three years and not make a profit, explained Ince.
“If you were a regular manufacturer, you’d just stop producing product,” she said. “That’s where we make it really difficult for brokers – they can’t offer their customers the best price and then those customers may go through the direct channel or they might change a brokerage.”
In Ontario, Ince sees more light at the end of the tunnel with the new government, though there’s been a “perfect storm” of rate inadequacy in auto insurance this year combined with natural disasters, which has put strain on the property insurance business. In fact, the SVP calls 2018 “one of those watershed years,” though she’s optimistic the industry will make it through these challenges.
“We’re all paddling up the same river,” she said. “No-one seems to have the secret sauce, [but] we’re all working really hard and we need our brokers to come with us.”