Auto insurers in Ontario refute “profitable” label

Published: April 10, 2019

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Auto, home, and commercial insurance companies in Ontario are refuting a recent claim the province’s auto insurance system is profitable.

A recent Property and Casualty Insurance Compensation Corporation(PACCIC) report suggested the auto insurance market in Ontario is profitable for insurers. “Importantly for insurers, Ontario’s private passenger auto insurance market remained profitable with a loss ratio of 73.0 percent,” wrote Grant Kelly, PACICC’s chief economist and vice president of financial analysis and regulatory affairs.

Private insurance companies in Ontario wholly disagree. The Insurance Bureau of Canada (IBC), there representative group for private insurers, said the auto insurance system in Ontario is unsustainable.

“The current trends are unsustainable for both drivers and insurance companies,” Insurance Bureau of Canada vice president of Ontario Kim Donaldson wrote in an emailed statement. “Ontario drivers are paying too much for auto insurance, and it’s critically important that we continue to work with the government to obtain relief for drivers. Ontario auto insurance is not in any meaningful way ‘profitable.’”

IBC says loss ratios used in the report don’t paint a complete picture of the Ontario market.

“For one, they don’t account for the cost of doing business,” Donaldson added. “Using the Financial Services Commission of Ontario (FSCO)’s conservative estimate, operating costs for auto insurance add 25 percentage points to the ratio of claims costs to premium. The combined loss ratio for Ontario auto is then 98%, which leaves little room between the profit and loss lines.”

Donaldson points out return on equity (ROE) on auto lines in the province have steeply declined by nearly 6% over a four-year period between 2014 and 2018.

“The General Insurance Statistical Agency reports that the return on equity (ROE) for Ontario auto insurance has been steadily declining: from 10.1% in 2014, to 7.6% in 2015, to 6.6% in 2016, to 5.4% in 2017. For 2018, Insurance Bureau of Canada estimates that the ROE will be a meagre 4.4%. Insurance companies should not be expected to continue to accept a profit level that falls far short of historical standards.”

“The statistics that the Licence Appeal Tribunal compiled paint a dark future for Ontario claims costs,” she said. “They indicate that the number of active accident benefits disputes under appeal grew by 91% last year to 6,881 cases by the end of 2018. These stats point to an increase in litigiousness and new cost pressures within the long-troubled accident benefits system, which account for one-third of the province’s total claims costs.”