How Motorists and Insurers Are Feeling the Auto Insurance Pinch in Ontario

Motorists in Canada’s most populous province pay a lot for auto insurance coverage. Ontario has some of the nation’s highest rates at an average price of $1,505second only to British Columbia. Of note, the Greater Toronto Area (GTA) is among Canada’s most expensive markets.

Meanwhile, insurance providers in Ontario argue they are making little to no profit. They say the province is a small sum game for insurers, even those that make money. How is it possible both customers and insurers are in a tight situation? 

For drivers, high rates affect them financially. For insurers, the outlook for future earnings remains uncertain. It is safe to say both want meaningful reforms to Ontario’s insurance system.  

What Is Fuelling Ontario’s High Car Insurance Rates?

Traditionally a tough market, insurance in the province is influenced by many factors keeping rates high, including: 

  • Increasing claims – Distracted driving is a significant contributor to a higher frequency of claims in recent years. As the number of accidents increases because of inattentive drivers, so too do the cost of claims.
  • Escalating repair costs – Modern vehicles typically feature a lot of on-board technology, and when damaged, they cost more to repair. A 2018 report by Mitchell International found the cost of repairs was increasing each year across Canada, up by $63 in 2018 compared to 2017.  
  • Fraud – One of the biggest factors facing auto insurance in Ontario is fraud. The province is rife with fraudulent activity that makes it harder for insurers to reduce rates and find profitability. According to the Insurance Bureau of Canada, Ontarians pay over $1 billion each year in higher premium rates to offset the money insurers lose through fraudulent claims.  

In terms of profitability in the insurance industry, the data is a little more mixed. It is worth noting that many insurers make money in Ontario, and some do not.

It is not easy to evaluate how profitable an insurer is, and for consumers, it’s fair to ask why it’s even important if the insurance industry is thriving? Outside of government-initiated reforms, lower premiums in Ontario may only come about if insurers are profitable, resulting in more affordable coverage.

Return on equity (ROE) is a crucial metric in determining insurer profitability, even though it can be tricky because it can be open to interpretation. By 2018, ROE across the auto insurance sector in Ontario was down to 3.3% (equal to $33,300 in profit from $1 million in investment).  

Getting a Better Rate 

Regardless, drivers are paying more for auto insurance than they would like, sometimes over $2,000 a year in parts of the GTA. 

So, what is a driver in Ontario to do?

The Government of Ontario has committed to several changes in auto insurance as part of a broader $45 billion relief fund to combat the economic fallout from the COVID-19 pandemic. Specifically, the government wants to promote more competition by decreasing regulations to help drive innovation. Furthermore, the government says it will take more action against insurance fraud, including giving insurers the ability to reject claims from suspected fraud cases.

Despite these steps, reforms are unlikely to deliver significant premium reductions in the province, meaning drivers will need to find other ways to save.  

Strangely enough, this year is as good as any to get some discounts on your rate. 2020 is already defined by COVID-19, which has impacted Canadians financially and culturally. The pandemic prompted the government to make changes to the Insurance Act, giving insurers the option to offer rebates to their customers. With those measures, drivers in Ontario have saved over $1 billion during the COVID-19 pandemic, according to the province. Moreover, people have been using their cars less because of the lockdown measures, which could also help them get discounts on their coverage.  

While every little bit helps and discounts are welcome, the truth is Ontarians still face excessively high car insurance premiums. It is unclear what the long-term future holds, with many hoping for reforms, but for now, Ontario will remain an expensive market for consumers and a challenging one for insurers.