Why some Ontarians could soon be paying more for car insurance

ANALYSIS: The Tories may prohibit companies from basing insurance rates on postal codes, writes Josh Dehaas. Here’s what that could mean for your monthly payments
By Josh Dehaas - Published on January 9, 2019
PC MPP Parm Gill
PC MPP Parm Gill introduced the Ending Discrimination in Automobile Insurance Act late last year. (Adrian Wyld/CP)

If you’re a driver living in a Toronto-area suburb, such as Brampton or Vaughan, congratulations: your auto-insurance bill is likely to drop in the next few years. But if you’re a driver living in Kingston, Ottawa, or northern Ontario, I have some bad news: your rates are probably going to rise.

That’s because Ontario’s Progressive Conservative government has decided that using postal codes to set insurance rates amounts to “discrimination.” PC MPP Parm Gill, who represents Milton, introduced a bill — the Ending Discrimination in Automobile Insurance Act — late last year that would prohibit insurance companies from considering “factors primarily related to the postal code or telephone area code for the residence of a person” when deciding what kind of monthly premium to charge.

The government today launched a consultation process, which it’s calling Putting Drivers First, to canvass the views of consumers and businesses on how to reduce rates. “We want to hear directly from you on how to improve the system,” said Finance Minister Vic Fedeli in a press release. The Ministry of Finance and the Financial Services Regulatory Authority of Ontario will also conduct a review of the province’s rate-regulation system in an attempt to “achieve greater efficiencies and introduce more competition.”

The press release stated that the government would be working with Gill on his bill, which would, it explained, “eliminate the unfair practice of discriminating against drivers simply based on where they live.” The problem, according to insurance brokers, is that there isn’t anything discriminatory about using postal codes to set auto-insurance rates and that Gill’s bill (or legislation stemming from it) would do nothing to tackle the root causes of high rates in the GTA suburbs. They expect that it would push down the cost of insurance in those parts of the province, but only by causing rates to go up for everyone else.

“With this bill, you might make the people in Milton and Brampton very happy, but if people in northern Ontario or Ottawa see a significant rate increase as a result of this, they’re not going to be pleased,” says Anne Marie Thomas, of InsuranceHotline.com.

Rory Levert, an insurance broker in Alexandria, worries that the change would mean that drivers in his part of the province, who pay about $1,000 a year on average, would see their rates rise substantially to subsidize decreases in such places as Brampton, where the average cost is more than $2,000. Levert says that if you take postal codes and area codes out of the equation, insurance companies will have little to go on beyond driving history, so they’ll end up offering the same rates across large swaths of the province, if not provincewide.

And Thomas and Levert say that there are good reasons for insurers to charge higher rates to those with postal codes in those GTA suburbs. “All insurance rates are based on past results,” Levert explains. “History finds that, in certain areas, claims frequency and costs of these claims are higher,” he says. That may be because people in those area spend more time commuting and travel on busier roads, but it’s also in large part because they are more likely to submit fraudulent personal injury claims, he says. Thomas and Levert both believe it’s only fair that people with higher risks pay more.

“I liken it to a home that’s built on a flood plain as opposed to on the top of a hill,” Levert says. “Should the owner of the home built on a floodplain be paying the same as the owner of the home on top of the hill?”

One may not expect a populist conservative party that complains about big government to be in favour of adding more regulation, but there are political considerations for the PCs when it comes to auto insurance. Urban voters tend to elect NDP and Liberals members; rural areas vote reliably PC. The suburban ridings that pay the highest insurance rates are the true election battlegrounds. Rural voters may be upset if their rates rise, but they’re still likely to vote Tory. Lowering auto-insurance rates in the suburbs could reduce the risk of losing those seats.

Levert says that outlawing the use of postal codes would do nothing to tackle the real reasons that Ontario has the highest insurance rates in the country. “Ontario has one of the richest benefits for accident benefits, which is what makes our product one of the most expensive in North America — which makes it more attractive to fraud,” he explains. “If you (claim to be) hurt in an automobile accident, the benefits that are payable from your auto-insurance policy are much greater here than they would be in many other provinces.” The potential for a big payout combined with a slow-moving legal system means insurance companies often find it easier to settle claims than to fight them, he says: “It’s costing the insurers way too much to fight a lot of the claims.”

In 2013, a provincial task force found that as much as $300 per registered passenger vehicle in Ontario and as much as $700 per registered passenger vehicle in the GTA may be attributable to fraud. The governing Liberals attempted to fix the problem with 2014’s Fighting Fraud and Reducing Automobile Insurance Rates Act, which targeted cheating tow-truck and vehicle-storage providers by requiring them to provide itemized invoices. It also cut the amount of coverage drivers are required to carry for catastrophic injuries from $2 million to $1 million, and for non-catastrophic injuries from $86,000 to $65,000.

But rates kept rising, so, in 2016, the Liberals hired former Workplace Safety Insurance Board president David Marshall to study the matter. In his final report, released in April 2017, Marshall identified a number of flaws in the system, including the fact that one-third of revenue is spent on “competing expert opinions, lawyers’ fees and insurer costs to defend claims.”

Marshall recommended creating a board of health-care professionals that would work with a strengthened regulator to shift the system to a “care-not-cash approach.” Under such a system, accident victims would automatically get “evidence-based treatment protocols (for) the most common injuries,” allowing insurance companies to “avoid disputes as to what care is appropriate.”

He also recommended that the regulator establish hospital-based independent examination centres to provide diagnoses and treatment plans. “Insurers must provide the treatments prescribed in the programs of care or those that are stipulated by the independent examination centre without dispute,” he wrote. “The advice given by the independent examination centres should be taken as mandatory in accident benefits and tort disputes and courts should afford these opinions a zone of deference in tort cases.”

The Liberal government said that it would move forward with a number of Marshall’s recommendations, including the introduction of standard treatment plans and the creation of independent examination centres, but little progress had been made before the election in June, when the Liberals were replaced with the PCs.

If a care-not-cash approach could successfully reduce the incentive to make fraudulent claims, insurance rates would likely fall — a fairer solution than asking drivers in low-risk parts of the province to subsidize people in places where the risks are much higher.

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