Major Changes to the Ontario Automobile Policy Effective Sept 1, 2010.

[dankyyz]

Unfortunately the insurance client / company relationship has developed the "If I'm not screwing you, you must be screwing me" attitude.

I'm older than most on the forum and if I calculated the money I have sent to the insurance companies over the years for house, business, car and life insurance I probably could have bought an OK condo in Toronto or a half decent cottage or retire with a few extra hundred grand in the retirement fund. Claims total? Less than $15K.

OK, I begrudgingly admit: Ability to sleep at night, priceless. BUT IT STILL SUCKS.

In the same boat. I have payed for several punks to crash their gixxers and get close to full price back, plus physio. Total claims.......? $1500 when some texting soccermom drove into the back of a friends car that i was driving on a 3 k run.

That is....ever. I have been driving for almost 30 years. always had cars/bikes. Often several.

And it does suck that the only way insurers can stay afloat is to downsize the product offering. I wonder if profits are also being reduced at the top for the same purposes.

[FUNN]

So I have problem with this. Why lowering the cap on AB means I have to pay more??? I thought the point was to stabilize the rates. The way I understand the word stabilize is, no raises (unless made a claim). Now, you are saying 5% instead of 15%, which sure looks better, but it is not zero .....

I hope that the they will stop approving rate increases or at least severely slow down the tempo of them happening. If they don't, I'd consider the government's attempt a failure.

Stabilize THEIR PROFITS is what they are trying to say but a reverse spin to make it sound better for you.

[dankyyz]

Its like fries. Either you charge more, or reduce the serving size.

In the end its all like that. The reason for the company to exist ends up being the investors, and the "users" take all the hits.

[mxs]

Stabilize THEIR PROFITS is what they are trying to say but a reverse spin to make it sound better for you.

I am sure this is just a tiny bit more complicated when selling fries, but ...

All I've heard the FSCO and government to say, was to stabilize rates, not profits. Sure I don't expect them to want to make less from all of a sudden, but at least they should stop making more. And by reducing the cost of identical product is just what should be enough for them. They should make more money be reducing cost, not by charging more or by reducing the quality of their offerings. Until Sep 1, they always cried that they cannot. So I take it that this excuse is partially not a valid excuse anymore.

[VifferFun]

So I have problem with this. Why lowering the cap on AB means I have to pay more??? I thought the point was to stabilize the rates. The way I understand the word stabilize is, no raises (unless made a claim). Now, you are saying 5% instead of 15%, which sure looks better, but it is not zero .....

I hope that the they will stop approving rate increases or at least severely slow down the tempo of them happening. If they don't, I'd consider the government's attempt a failure.

By "stabilize", they mean they are trying to reduce the variability in the year-to-year rates. 0% to 5% increases would be considered relatively stable, keeping in check with inflation.

[VifferFun]

And it does suck that the only way insurers can stay afloat is to downsize the product offering. I wonder if profits are also being reduced at the top for the same purposes.

Even with the large rate increases as of late, insurers have been losing money. Just check out the State Farm and Kingsway financials from last year. Kingsway was paying out about $1.35 for every $1.00 they received.

[dankyyz]

I get it. I was more stating that it's a fact of life. Either the price goes up, or the serving size goes down.

[Squadz]

Wow, I may be getting a good deal on my insurance right now.

I'm fully covered as a 20 year old on my 650 for 800/year.

My car is a different story..$3600/yr as a secondary driver..

Hope the changes don't hurt too much.

[Krauser]

How did you pull that off? I'm 23 with an SV650 and the best I could do with a 100% clean record and 3 years+ riding experience is $1400.

[mxs]

Even with the large rate increases as of late, insurers have been losing money. Just check out the State Farm and Kingsway financials from last year. Kingsway was paying out about $1.35 for every $1.00 they received.

Ok, but that's only one side of the story and always has been. Now you are getting what you were calling for (new rules with lower caps), so it would be time for your industry to do the same. Be fiscally responsible and control your costs. There's no transparency to what degree you do so. The profits can be improved two ways, by hiking rates (which has been happening quite regularly) or cutting your operating costs.

There's has not been that many insurance companies going belly up, so I assume that it still makes financial sense to stay in business, even though we are frequently reminded here how low profit industry this is. If that were so, most of the investors would be gone elsewhere following higher yields, because that's what they do for living.

[VifferFun]

Ok, but that's only one side of the story and always has been. Now you are getting what you were calling for (new rules with lower caps), so it would be time for your industry to do the same. Be fiscally responsible and control your costs. There's no transparency to what degree you do so. The profits can be improved two ways, by hiking rates (which has been happening quite regularly) or cutting your operating costs.

The new rules have not been proven to improve anything -- only time and the courts will tell. The industry has already adjusted rate increases down from about 15% to 5%. If the new rules show a drastic reduction in claim payouts (but I don't suspect they will), then you will see further decreases in the future. The changes to the insurance product are not drastic, and I don't suspect that it will significantly curb the appetite of Canadians for milking the system. Outside of the GTA the rates have more or less just kept pace with inflation -- the reason is that people in these areas are much less likely to lawyer up so they enjoy lower premiums.

Insurer expenses are generally about 28%, which I believe is actually lower than that of the United Way which boasts the lowest expenses of Canadian charities. If expenses rise above 28%, an insurer has great cause for concern because they will no longer be able to compete. Believe it or not, but insurance in Ontario is VERY competitive. If you can't compete, you lose your business. Insurance is almost entirely price driven these days.

There's has not been that many insurance companies going belly up, so I assume that it still makes financial sense to stay in business, even though we are frequently reminded here how low profit industry this is. If that were so, most of the investors would be gone elsewhere following higher yields, because that's what they do for living.

Insurers do go belly up -- Kingsway would have last year but they were bought out by their subsidiary, Jevco. ING, the largest P&C insurer in the country, pulled out of the Canadian market entirely and sold their stake (which is now known as Intact Insurance). Why would ING pull out of the market if there was profit to be made?

[2smokewilleh]

profits can be improved two ways, by hiking rates (which has been happening quite regularly) or cutting your operating costs.

Just to correct you on that, The "Operating costs" (I.e. paying employees, paying for office/utilities, equipment etc) Makes up less than 2% of an insurance company's overall costs. There is very little overhead in operating costs,.insurance companies are pretty lean businesses with controlled costs, and to cut those expenses wouldnt really make a difference in profit.

[VifferFun]

Just to correct you on that, The "Operating costs" (I.e. paying employees, paying for office/utilities, equipment etc) Makes up less than 2% of an insurance company's overall costs. There is very little overhead in operating costs,.insurance companies are pretty lean businesses with controlled costs, and to cut those expenses wouldnt really make a difference in profit.

I think you mean 28%, not 2%.

The Expense Ratios for most insurers are around the 28% mark I believe. Refer to page 7 of this document from OSFI:

http://www.osfi-bsif.gc.ca/app/DocRe...Industry_e.pdf

Improving the Expense Ratio is a goal of any insurer -- unlike claims, expenses are easier to control. If an insurer were wasting money on useless expenses, they would have an expense ratio of, say, 32%, which means they will need to charge 4% more than their competitors just to cover costs. In other words:

Increasing expenses --> Increasing rates --> Decreasing market share --> Decreasing profit

[mxs]

Well I said, operating cost, so it could have been that 2% out of 28 is strictly operating. The 26 is claim related cost I assume. Assuming that you are as lean as you say, the new rules should significantly help you to push 26 down and as such to improve or maintain profits WITHOUT rate increases (except for peanut inflation ...) happening as often as they have in the last 2-3 years.

Looks to me like still pretty good business to invest in, even with 28% staying put ....

[VifferFun]

Well I said, operating cost, so it could have been that 2% out of 28 is strictly operating. The 26 is claim related cost I assume. Assuming that you are as lean as you say, the new rules should significantly help you to push 26 down and as such to improve or maintain profits WITHOUT rate increases (except for peanut inflation ...) happening as often as they have in the last 2-3 years.

Looks to me like still pretty good business to invest in, even with 28% staying put ....

Claims are MUCH more than 28%. Your target premium breakdown is something like this:

~67% -- Injury and Repair Claims (including expenses that can be directly related to specific claims such as Claims Adjusters, Lawyer fees, Expert Witnesses, etc.)

~28% -- Expenses that cannot be directly related to specific claims (including Payroll, Buildings, Commissions, Taxes, etc.)

~5% -- Target Underwriting Profit

The problem is that the Claims portion (which we would hope to be about 67% of the premium) is variable and is rapidly increasing in Ontario. If, for example, the claims portion increases to 80% and the expenses remain fixed at 28%, then it's pretty easy to see that the underwriting LOSS would be 8%. It isn't easy to simply decrease expenses . . . there is a cost to operating any business. The only ways to stay afloat when claims are increasing are to either figure out a way to pay less claims (such as legislation), or increase rates. No business can sustain losses indefinitely.

The hope is that the Statutory AB changes will decrease the AB Claims Ratio so that rates can come down. Only time will tell what the Claims Ratio will look like next year. Remember that the legislation only affects Accident Benefits, not the other coverages on your policy.

Kingsway's situation last year looked something like the following:

~110% -- Claims
~28% -- Expenses

This implies an underwriting loss of about 38%. Even if Kingsway didn't have to pay rent, salaries, or commissions, they were still losing money.

[mxs]

Thanks for the breakdown.

[VifferFun]

FYI, I was at a conference last night with all of the other auto/property insurance actuaries in Ontario. There was an experienced actuary (in the industry before I was even born) who presented on the Ontario Accident Benefits reform. He thinks that the cost savings of the reform will be significant at first, but will quickly diminish as the lawyers figure out ways around the system. Some of the cost-saving measures of the reform can be easily circumnavigated with a little bit of creativity. He said that lawyers are already holding conferences discussing this very topic. His sentiments were much the same as mine -- only time will tell what the true impact of the reform will be.

The most rapid loss increases have been in medical and rehabilitation, where the average loss has more than doubled in the last four to five years. There has also been a recent (and rapid) increase in caregiver benefits.

He stated that the main reason for Accident Benefits claim increases is the industries that have formed to exploit the auto insurance product -- personal injury lawyers, shady physiotherapy clinics, etc. We've all seen the Personal Injury Lawyer commercials where they convince people that they are victims, and deserve hundreds of thousands of dollars for their recent fender bender. His opinion wasn't entirely biased, since his daughter is a physiotherapist. He told a story of her first job where the employer was already using her license number for illegal billing in the first three weeks. She reported the incident to the College of Physiotherapists and got the heck out of there.

He noted that escalating AB claims is a significantly worse problem in the GTA than outside the GTA (which I have mentioned many times before). One thing that I didn't know was that the Financial Services Commission of Ontario is regulating that insurers must implement rate changes (as a result of the reform) uniformly across all regions of Ontario. This means that any rate decrease to the GTA as a result of the reform will be diluted by forced decreases to the rest of the province, even though the cost savings is MUCH more significant in the GTA.

Let's all hope that these AB reforms will do some good and we can get some premium reductions out of it! I'm not optimistic though . . . I'm sure that shady lawyers/physiotherapists etc. will figure out ways around the reform.

[mat2312]

I say we do away with the current system. Pass a law that prevents people from suing others on the road (except for criminal acts which if I'm not mistaken insurance doesn't cover anyway) and make them choose whether they want benefit coverage while driving as a kind of extended health care benefit. Make each driver and passenger responsible for their own vehicle health coverage, if you don't ride in a vehicle don't get coverage.



Right now forcing people to pay for something they'll likely never use only makes them feel like they're doing something right when they have a chance to 'screw' the insurance company. I don't agree with it, but can you blame them when it costs $200+/month to insure a vehicle?

I'd much rather an 'opt-in' system, than being forced into getting hosed or paying for other people's BS like others have said on here.

[VifferFun]

I say we do away with the current system. Pass a law that prevents people from suing others on the road (except for criminal acts which if I'm not mistaken insurance doesn't cover anyway) and make them choose whether they want benefit coverage while driving as a kind of extended health care benefit. Make each driver and passenger responsible for their own vehicle health coverage, if you don't ride in a vehicle don't get coverage.

Right now forcing people to pay for something they'll likely never use only makes them feel like they're doing something right when they have a chance to 'screw' the insurance company. I don't agree with it, but can you blame them when it costs $200+/month to insure a vehicle?

I'd much rather an 'opt-in' system, than being forced into getting hosed or paying for other people's BS like others have said on here.

So you would be cool with covering your own medical and repair costs when involved in a collision that isn't your fault?

[mat2312]

So you would be cool with covering your own medical and repair costs when involved in a collision that isn't your fault?

I should be given the choice.

Driving is an inherent risk. That's why it would be recommended to get your own health/property benefits. It wouldn't matter who caused the accident or the severity of the accident only that you were injured and needed to be treated. The coverage rate, you would decide much like other types of health benefits.

I do not believe in the concept of mandatory liability coverage and I do not believe citizens should be forced to do business with a private company in order to operate a vehicle on public roads.

remove the ability of people to sue, as part of the agreement for using public roads you understand that you run the risk of being injured through non-criminal acts ( you'd still be able to sue for CC violations)