With Ontario and Canada facing growing numbers of distracted driving, DUIs, and speeding; high risk driving is becoming more common. However, there are many aspects of the high-risk market that can be best described as misconceptions. ShopInsuranceCanada spoke to Malek Smith, Senior Vice President for Easyway Insurance, a high-risk specialist, about some of the misconceptions and the general state of auto insurance in Ontario.
Judging the thoughts and reports of many, the auto insurance market in Ontario is broken. Sky-high premiums, rife fraud, and rising cases of speeding, DUIs, and distracted driving. Insurance companies are expected to lower rates, but have often lacked the regulatory support to do so.
The government has pushed a policy to reduce rates by 15%. This goal was originally pledged to be reached by August 2015, but was missed. Despite this, the liberal government in the province continues to reform the market in the hope of reducing rates. This includes a potential new regulatory body called the Financial Services Regulatory Authority (FSRA), which will replace the Financial Services Commission of Ontario (FSCO).
Smith says insurance companies and regulators must work together, but best efforts have so far had negligible impact, especially for insurers:
“As was very well publicized, the government made a pretty concerted effort to reduce auto insurance premiums by 15%,” Smith says. “I don’t think they quite got to that level. Certainly, in the non-standard side of the market, premiums were reduced by more than 15%. We saw a direct impact in all the markets that we deal with of more than 15%.
Standard companies are probably between 5% and 12%,” he adds. “We never saw the cost reduction in the system. We are continuing to see rising claims costs, average pay-outs continue to rise, fraud in the system continues to rise. So, the premium is reduced but the results have not been seen in costs.
So, what we are seeing now is the profitability of the underlying business deteriorating in Ontario. Insurers are not making wild profits. The profit range is between 0% and 5% for most, on average, and it continues to deteriorate.
I certainly understand the frustration of the average consumer, saying ‘hey, why didn’t I get my rate reduction?’. It wasn’t an across-the-board rate reduction, they picked territories, with some getting rate increases and others getting rate reductions. It is tough to regulate a risk-based industry, so we need to keep working with regulators to better understand what’s driving the cost in the insurance market.
The average premium for a clean driver in Toronto is around $2,500. Communities in the north pay half that. There is more risk in Toronto and more fraud in Toronto, but I definitely sympathize with the average consumer trying to pay a bill.”
Easyway Insurance is a non-standard insurance specialist that provides solutions to high-risk customers. As well as covering commercial and homeowner’s insurance, the company provides an insurance path for people with accidents, DUIs, and missed payments.
With distracted driving rising and costing lives, and the ever-present threat of drunk driving, it is easy to think these are problems that high risk insurance companies focus on. However, despite the misconception, Smith points out that most of Easyway’s clients are considered high risk because of a patchy payment history:
“We see a lot of impaired driving, but it is certainly not the leading source of business for us,” Smith points out. “It is definitely a big segment, but really a lot of people come to us with non-payment issues. That’s probably our number one cause, which is kind of counter intuitive if someone has payment issues with their current insurer they get cancelled and have to pay more money to get insurance again.”
Missing payments is an increasing problem in Ontario. In Toronto and other parts of the province, customers are paying too much for their homes. The Royal Bank of Canada recently published a report that shows people in Toronto are spending more than 70% of their income on their homes, while the Canada average is at 45.9%.
People are running out of income, and Smith says this is having an impact on auto insurance:
“We are definitely seeing an increase in non-payments and new clients with payment problems, particularly in Toronto and the Greater Toronto Area. For high risk drivers, premiums average between $3,000 and $6,000, with some as high as $10,000. It can be costly when talking about numbers like that. There is a lot of fraud in the system, which drives up higher cost. OuR model is to get drivers back on track and get them on a plan back to lower rates.”
Discussing the high-risk auto insurance market specifically, we asked Smith why insurers provide services to offenders, why drivers deserve the chance of auto insurance, and how much of a problem are issues such as distracted and impaired driving:
“(High risk) Drivers absolutely deserve a chance to have auto insurance. Canada is such a big country that people need cars to get around, for the most part. We build on the principles of rehabilitation. I strongly feel that everybody should have access to auto insurance at a reasonable rate. Of course, high risk drivers pay more for that but we definitely believe everybody should have access to it.”
There is clearly a stigma around impaired and distracted drivers. Should these drivers be vilified or are education-based approaches better to reduce the number of offences?
“Yes, absolutely. Lots of times we have people who are on a drinking and driving charge, but don’t have any accidents or tickets. It is really the only offence they have ever made and people certainly do make mistakes. It is very serious and we take it very seriously, but these people pay debts to society through the courts and we feel it is our job to get them back on track. We want to get them insurance and educate them on the consequences of having another issue and having tickets associated with that.”
Easyway is a high-risk insurance specialist. This means you deal with customers on an offence or who have failed to pay before. What is your approach to repeat offenders once they are on one of your policies?
“There are two sides of the population. 80% of people are repenters and look to rehabilitate and then there are 20% who are repeat offenders. No matter how much education you give them, they will still get that extra speeding ticket, still get the distracted driving ticket, or five plus tickets in a year.
These are dangerous drivers and should they be off the road? It is not for me to decide, so we provide a service and they pay accordingly to what they are. These drivers pay higher even in the non-standard pool and these will pay the most prohibitive cost premiums because of their driving records.”
Canada is on the verge of legalizing marijuana; how do you think it will impact impaired driving numbers and what will be the insurance implications of the legalization?
“It’s a very interesting issue. Driving under the influence is drugs or alcohol, so it is not just drink. So, I certainly see there will be a learning curve for people to understand the new laws once they are passed next year. I expect to see an increase in those types of charges.”
Do you experience a lot of fraud in your customer-base?
“There are segments that are more prone to skirting the truth when it comes to their underwriting risk. We do a good job at screening. In the insurance market in general, one of the things that has been discussed is customers using an address that is not associated with the vehicle. This has been a big contributor to fraud and insurance companies now make sure customer details match between vehicle and address.”