Ontario to review postal code auto rate factor

Auto prices can vary based on the customer’s home address; while this has been a sore point for some consumers, the Insurance Brokers Association of Ontario is urging the regulator to think carefully before changing the use postal code rating factors.

Ontario Finance Minister Charles Sousa announced Dec. 5 the government plans to tell the Financial Services Commission of Ontario (FSCO) “to review risk factors used by insurers to calculate premiums with the goal of ensuring drivers in certain parts of the province are not subject to unfairly high rates.”

Any criteria used to determine auto insurance prices “should be reviewed on a regular basis to make sure it is still appropriate,” IBAO CEO Colin Simpson said in an interview Monday. But IBAO has urged the provincial government to “remain cautious” about the risk factor review.

In particular, IBAO is concerned about any potential consequences to consumers caused by changes to postal code rating factors. If customers in high-risk territories get a break on their auto rates, for example, “there has to be a corresponding increase somewhere else, unless you are going to put strain on the insurance companies’ balance sheets, which I don’t think is in anyone’s interest,” Simpson said.

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“We want to ensure that costs are actually taken out of the system,” Simpson added, so that insurers can pass those cost savings to brokers’ clients.

A location can give actuaries insights about a driver’s risk, including the traffic volume where they drive, frequency of collisions and where vehicles are parked.

These are “important components of pricing auto insurance,” wrote Anna McCrindell, Gore Mutual’s vice president of underwriting, in a statement to Canadian Underwriter Monday.

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Where a vehicle owner lives “is an excellent predictor of risk,” said Carol Jardine, Wawanesa’s chief strategy officer, in an interview Monday.

“Unfortunately, that means that people who live in certain areas have to pay more for insurance. If anyone wants to substitute where you live for a rating indicator then the regulator has to look at other risk factors.”

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Other risk factors – such the time of day a vehicle is driven and total distance driven – can be gleaned from telematics, which some insurers use to provide discounts for low risk behaviour.

Ontario prohibits several factors from being used as rating criteria. These include certain minor at-fault accidents and credit history.

People with poor credit ratings “tend to have more risky type behaviours,” including riskier driving habits, Jardine noted.

The risk factor review was one of a series of measures announced Dec. 5 in an effort to reduce auto premiums. Other proposals include “independent assessment centres” to examine accident benefits claimants, standard treatment plans for certain types of auto injuries and a special office dedicated to insurance and other serious fraud.

The Dec. 5 announcement is a “step in the right direction” for Ontario auto insurance, Simpson said.