Brokers face new availability issue

Brokers already face a potential availability issue related to Ontario’s proposed new 15% auto insurance rate cut, but a new power for the regulator to enforce the rate cut brings a broader, long-term systemic risk factor into the mix…

An “underplayed” aspect of Ontario’s auto insurance reforms could potentially lead to availability issues for brokers and the industry in the future, a representative of Facility Association (FA) told the Canadian Insurance Financial Forum in Toronto on May 22.

Shawn Doherty, chief financial officer of FA, a market of last resort for high-risk drivers who can’t find insurance in the voluntary market, outlined several aspects of new legislation to establish the province’s 15% rate cut and anti-fraud reforms. One of these aspects has been “underplayed,” but may be the source of an availability issue if it is not qualified in some way, he suggested.
Specifically Doherty was referring to Bill 5, amendments to the Automobile Insurance rate Stabilization Act, 2003, which would give the province’s insurance regulator the power to force insurance companies to file for rate changes.
“The superintendent [of the Financial Services Commission of Ontario] would be able to order an insurer to file new rates before a certain [date], as well as order the insurer to begin using the new rates as of a specific date,” according to Willie Handler of Willie Handler and Associates. “An insurer's rates would be presumed to be not ‘just and reasonable’ if in the superintendent's opinion they do not contribute to the 15% rate reduction target.  
“In addition, the superintendent would be able to refuse a rate filing if the proposed risk classification system is not reasonably predictive of risk, the proposed rates would impair the insurer's solvency or the proposed rates are excessive in relation to the insurer's financial circumstances.”
FSCO’s additional power is required so that it can enforce the 15% rate reduction contained in the government’s budget. But it’s a slippery slope between the regulator acting as “rate reviewer” and “rate setter,” said Doherty. (continued.)


“The one [amendment] that sticks out to me, which could potentially affect availability, is that a superintendent can require a filing if the current rates are excessive in relation to the applicant’s financial circumstances,” said Doherty. “I don’t know exactly what that means. 
“Does that mean if you have [an insurance company] making money in commercial [lines], the superintendent could say: ‘I want some of that money, so I want you to review automobile rates for private passenger in Ontario.’
“That’s a big question. I’m not saying the superintendent would do that. The issue is that the [new] power is with the office and not with the person…So when there is a change in regime, you could effectively get someone who has a different view of what is an ‘excessive’ financial circumstance.”
This could, in turn, contribute to instability in rate-setting. For insurers, the possibility exists of a company being required to make a rate cut when actuarial information suggests that the cut is unjustified based on the company’s loss results. If profitability becomes an issue, insurers may withdraw from underwriting unprofitable classes of business or raise driver’s rates.
For brokers, this leads to what Doherty called an “availability issue,” as insurers withdraw from the market. Availability of coverage in the future has already been raised as a key issue during the public debate around the proposed 15% rate cut.

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