City Counsels

Until last month, personal lines insurance carriers in Ontario who were concerned about a mandated 15% reduction in auto rates could look on the bright side. At least property rates are only regulated by consumers who have a choice to shop around.

However, this could change if Toronto City Council gets its way. On August 26, a majority of councillors voted in favour of a motion to ask the provincial government to “review the setting of property insurance premiums in Ontario, similar to its review of auto insurance premiums, and consider legislation to establish limits to premium increases.”

The councillors who tabled the motion are Michael Thompson and Norm Kelly. Areas within both Thompson and Kelly’s wards were identified by the city as having chronic basement flooding problems. At press time, the Ontario finance ministry had not indicated whether it would regulate home premiums, but a spokesperson did say the province has a competitive market and consumers are encouraged to shop around.

However, if all Toronto property owners agreed with Ontario’s Ministry of Finance, then those homeowners would probably spend their time shopping around for competitive rates rather than complaining to their city councillors.

Most consumers probably understand that one purpose of insurance is to share risk among policyholders. Most also understand that it is not actually the insurance carrier’s job to prevent water from flowing into one’s basement. That job is shared by the city and the property owner.

But many consumers – and their elected representatives – appear not to understand two facts that are second nature to those in the property & casualty industry. One is that insurance makes commercial sense only when it covers sudden and unforeseen risk. The other is that insurance can also be used as a tool to reduce risk.

So the challenge for the industry is to drive home two key points. One is that it makes little sense for multiple policyholders to share financial risk – such as basement flooding in certain areas – when the risk is neither sudden nor unforeseen. The other is that if a carrier does not charge a lower premium to the policyholder with a lower risk, one of its competitors will – unless prohibited from doing so by regulators.

The three-day Toronto City Council meeting in late August had numerous items in its agenda, including the Basement Flooding Protection Program, on which Toronto Water is projected to spend $962 million from 2014 through 2023.

As of last November, $91 million had been spent to upgrade more than 1,300 kilometres of storm and sanitary sewers, build two surface storage ponds and build one underground storm storage tank, staff noted in a report at the time.

Then in December, City Council voted to spend $61.3 million on the Basement Flooding Protection Program in 2014 – which is about 15% of the rate-supported Toronto Water budget of $403.3 million. It sounds like a lot of money, but $61.3 million is 1.6% of the total 2014 tax-supported operating budget of $3.74 billion. The city has budgeted to spend 2.7 times as much ($167 million) on libraries and 6.3 times as much on parks, forestry and recreation ($287 million), in 2014, as it is on basement flooding protection.

Certainly libraries and parks are important municipal functions. However, one question remains. What function is more germane to city government: Restricting insurance rates or ensuring the storm and sanitary sewer systems are up to the job?