Car insurance study sparks industry controversy

Published: April 13, 2015

Updated: July 24, 2018

Author: Callum Micucci

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A study that says Ontario drivers have overpaid as much as $3 or $4 billion on their car insurance from 2001 to 2013 has sparked controversy in the industry.

The Ontario Trial Lawyers Association (OTLA) commissioned a study by professors Fred Lazar and Eli Prisman of York University that calls for lower return on equity (ROE) levels for Ontario auto insurance companies.

However, groups such as the Insurance Bureau of Canada (IBC) and the Insurance Brokers Association of Ontario (IBAO) say that the study “deceives Ontario consumers” and reaches “completely misleading conclusions about the insurance industry profits.”

The study by Lazar and Prisman concludes that the return levels of the majority of Ontario insurance companies (they discount companies with negative ROEs) have cost consumers $3 to $4 billion in the period of 2001-2013.

They conclude that in 2013 alone, Ontario consumers have “likely overpaid” by $840 million.

However, the IBAO argues that the methodology of the study (such as removing companies with negative ROEs) is faulty, as the study itself states that “at an aggregate level, ROEs for Ontario auto insurance companies have been quite low – negative on average between 2001 and 2011, and positive in both 2012 and 2013.”

Furthermore, the IBAO argues that the study doesn’t account for the 40 per cent contingency fees that “many OTLA members currently benefit from.”

The IBAO said in a release that, “the report completely ignores that excessive legal fees and overzealous litigation are helping to drive up the cost of auto insurance. Currently, contingency fees are costing the system $500 million dollars per year.”

The report also fails to mention a key reason for the higher Ontario insurance premiums: the rampant fraud and abuse.

"Real reforms to the auto insurance product have been ongoing and continue and are reducing the cost of auto insurance in Ontario," said Ralph Palumbo, Vice-President, Ontario, IBC, in a press release.

"If the lobbyists and well-heeled lawyers want to know who is driving up insurance costs, they need to take a look in the mirror,” Palumbo said.

“Personal injury lawyers and their sky-high fees are putting justice out of reach for too many Ontarians.  Perhaps it is time that lawyers also reduce their fees to further reduce costs to consumers."