A recent study conducted by the Ontario Trial Lawyers Association shows that drivers in Ontario have overpaid for their car insurance between 2001 and 2013. The study revealed that consumers had handed over between $3 billion and $4 billion above what was required through a 12 year period.
The data suggests that it is a problem that is getting worse with 2013 seeing consumers pay some $840 million above what they should have to insure their vehicles. The study was conducted by Fred Lazar and Eli Prisman, professors at the York University Schulich School of Business.
Ontario is known for rife insurance fraud and the Ontario Trial Lawyers Association is now urging the auditor general within the province to investigate how insurance premiums for drivers are calculated.
"Auto insurance companies in Ontario have had a relatively free ride during the past 20 years," Lazar wrote in the report.
Based on the data gathered in 2013 there is room for insurance providers to cut premiums by as much as 7.9 per cent and still have margins to have a return on their investments. The study focused on returns in investment and more importantly how the Financial Services Commission of Ontario (FSCO), which regulates auto insurance, calculates them.
The car insurance industry in the province is profitable and Lazar says a return of equity around 5.7 per cent is possible, which would be half of the current rate.
The OTLA looked at 18 major insurance companies that dominate the auto coverage industry in Ontario and found that in 2013 they had a return equity of 17.5 per cent. That figure is vastly higher than the guideline provided by the province, and while the study factors in cyclical market trends within the industry it also points out that premiums have been rising for 20 years.
In a bid to curtail rates and to stop increased accusations of fraud, the Ontarian government pledged in 2013 to reduce average rates by 15 per cent. That pledge is falling by the wayside and the study confirms this by saying coverage prices have not fallen enough.
A spokesman for Ontario's Minister of Finance said the province is still committed to reducing auto insurance rates, but that "reviewing the financial statements and economic activity of private companies is not within the Auditor General's mandate."