Auto pricing report shows the slow pace of regulatory approvals, insurers say

A 2018 Auto Insurance Price Index released Tuesday illustrates, more than anything, the slow pace of regulatory approval for auto rates across the country, Insurance Bureau of Canada says.

“When we see reports like this [about auto insurance rate trends], it’s a snapshot in time, and that time is outdated in terms of the reality of the environment today,” says Pete Karageorgos, IBC’s director of consumer and industry relations.

“These are rates that have been approved in the past. Similarly, it takes time for a rate change to work its way through the system. By the time an individual’s policy is renewed, again a year later, we have a new reality, a new environment.”

LowestRates.ca, an online rate comparison site for insurance, reported that auto insurance rates in Alberta trended upward between 2016 and 2017, increasing by 5.1%. In Ontario, auto insurance pricing trended downward, decreasing by 4.9% in the last year.

“The car insurance industry can be a bit of a mystery to consumers, and that’s the main reason we created the Auto Insurance Price Index—to pull back the curtain and give consumers the information they need to make the decisions that work best for them,” said Justin Thouin, co-founder and CEO of LowestRates.ca. “We hope consumers can use this information to make better decisions. Don’t accept rate increases if our index shows prices falling in your province.”

But consumers in every province are facing higher rates in the future, as several CEOs of Canada’s largest insurers have indicated to Canadian Underwriter. Some insurers have reported seeking average rate increases in the neighbourhood of 5%.

The need to increase rates reflects emerging claims inflationary pressures for insurers right now. Insurers’ auto claims costs are increasing for two primary reasons: 1) the higher cost of auto physical damage repairs; and 2) the increased frequency and severity of auto accident claims because of distracted driving.

LowestRates.ca notes that car insurance rates in Ontario have been trending higher in the most recent quarter for which it had data (2017 Q4). But falling Ontario auto insurance rates cited in the price index seem to be reflecting the political history of about three to four years ago.

In May 2013, Ontario’s government called on the industry to produce a 15% auto insurance rate decrease by August 2015. At the time, the minority Liberal government promised the reduction to get NDP support for its 2013 budget.

This promised decrease became a central plank of the NDP’s policy campaign in the 2014 election, when the opposition NDP Leader Andrea Horwath accused the governing Liberals of not delivering soon enough on their promise to produce the decrease.

In January 2016, Ontario Premier Kathleeen Wynne called the pledge a “stretch goal,” with Ontario rate filings showing an average overall rate decrease of 7% since 2013.

“We’re about five or six quarters ahead of that [the Insurance Price Index’s trend of Ontario’s decreasing rates],” says Karageorgos. “The reality today is that, in the Ontario provincial rate approvals of 2016 Q4, for example, we see some upward movement on rates.”

Insurers are calling on Canadian insurance regulators to make it easier for the industry to respond to rate changes quickly, whether up or down. This would smooth out the effect of rate changes, preventing a “yo-yo” effect in which consumers see large premium fluctuations in the present based on claims conditions from months or even a year ago.

Ontario’s insurance regulator approves auto insurance rate filings on a quarterly basis, while Alberta’s regulator approves rate filings on an annual basis.

“What needs to be addressed is the whole rate-filing system, especially in Ontario,” says Karageorgos. “That allows for quicker response by insurers both upwards and downwards by insurers.”