Transparency needed to help end rising auto insurance rates

By LegalMatters Staff • A recent report claiming Ontario drivers overpay for auto insurance justifies the need for insurers to open their books to the provincial government to stem rising premiums, says Toronto critical injury lawyer Dale Orlando.

“Given the levels of excessive profitability, consumers certainly have paid too much for their insurance coverage,” writes Fred Lazar, an associate professor at the York University Schulich School of Business and author of the study for the Ontario Trial Lawyers Association (OTLA).

The report notes Ontario drivers have overpaid billions of dollars in premiums and are subsidizing lower rates for the rest of the country, according to CTV News. 

$5.6B in premium overpayments

CTV reports that the OTLA maintains Ontario drivers have made premium overpayments of $5.6 billion since 2011 while insurance rates have increased 20 per cent since 2017. 

Orlando, partner with McLeish Orlando LLP, says the findings should come as no surprise.

“If you accept the Lazar report there is room for the provincial government to say, ‘now that you are making enough money, Ontarians ought not to be subsidizing the rest of the country so let’s give motorists a break,’” he tells LegalMatterCanada.ca. “And if the industry disagrees with the Lazar report then let’s have an independent audit and get a true sense of what is actually happening.”

The study coincides with the approval of auto insurance premium increases for about 20 insurance companies, according to CTV. Some drivers could see their premiums jump by as much as 11 per cent, the news agency reports.

For its part, the Insurance Bureau of Canada — which represents insurance companies — issued a statement saying “previous reports by Lazar were reviewed by certified actuaries and found to contain fundamental flaws in presenting revenues and return on equity.”

Orlando says the problem is not about making a profit but more about transparency.

“Every business should be entitled to make a reasonable profit,” he says. “If you start with the premise that automobile insurance is a mandatory product, it has to be affordable to the populace and at the same time, insurance companies need to make an adequate profit to justify the amount of investment they have to make.

“The problem is the insurers are the ones who go to the regulator and say, ‘we are not making enough money, we need to increase premiums to maintain a viable level of profitability.’”

Government needs to see finances

Orlando says the government should be allowed to examine insurance industry finances to decide if premium increases are justified.

“When I was the president of OTLA, I asked why the government is not monitoring this. Why is it that we, as an association, have to hire an economist to look at the insurance industry’s figures?” he says. “Are they, in fact, making a reasonable, acceptable amount of profit? Is there a need to raise premiums or cut back on the product? 

“The government doesn’t independently monitor that and it’s very difficult for anyone outside the industry to get a true grasp on the level of profitability that exists.”

The provincial government is under a “tremendous amount of pressure” to either bring rates down or hold them steady and the first step should be to independently audit Ontario insurers, Orlando says.

“If you accept what the Lazar report says as being true, there is plenty of room within the insurance industry to give relief to customers while maintaining profitability,” he says. “The Lazar report is an attempt to get an independent sense of how much profit these companies are making.”

While Orlando acknowledges it might be “a costly venture to go down that road,” an independent audit makes sense.

“The industry itself shouldn’t be able to present their members’ books and say, ‘don’t scratch the surface too closely but give us these big premium rate increases we want,’” he says. “It flies in the face of common sense that you would let a self-interested business dictate whether or not they are making enough money without checking.”