After a few years of almost no change, auto-insurance rates in Ontario have started to go up once more: customers of a number of the province’s insurers can expect to see rate increases, mostly in the single digits so far, appear on the next renewal notice they receive. Industry-watchers say that this increase is just the beginning — and that drivers can expect to see premiums rise across the market in the next 12 months or so.
The Financial Services Regulatory Authority of Ontario — the government body in charge of overseeing the province’s private insurers — is responsible for vetting companies’ requests to proceed with hikes. And more insurers have been filing them: after just one rate increase approval in 2021 (for 0.29 per cent) and none at all in 2020, 29 increases have been approved so far in 2022. The highest of these, at 12.6 per cent, was okayed for Chubb at the end of September and will come into effect in early 2023. Ten of the increases granted are 2 per cent or less. Seven are in the 5 per cent range.
Insurers have started to seek rate increases again because their own costs are going up, says Kelsey Hawke, a licensed insurance broker who works as a Rates.ca insurance expert. Inflation, labour and supply-chain shortages, and a post-acute pandemic return to the roads are driving up the amount insurers have to pay out for claims.
“Things like catalytic converters and even windshields are in short supply right now,” she says.
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Unlike in several other provinces, auto insurance in Ontario isn’t provided through a single public insurer. Instead, 13 big private auto insurers and dozens of smaller ones compete for your premiums in a tight regulatory framework overseen by FSRA.
Ontarians pay some of the highest auto-insurance premiums in a country where insurance premiums are already highby global standards. The average annual premium as of June 2022 is $1,659, though that amount can vary by thousands depending on geography, age, and other factors. For a driver paying the average premium: a 2 per cent increase is an additional $33.18 per year, or about $2.75 more on each month’s bill. A 5 per cent increase is $82.95, or about $6.95 per month. Auto insurers calculate premiums one year at a time, and each insurer tries to forecast successfully how much money will be needed in the coming year to cover costs and produce a profit of approximately 5 per cent. The rate increases they request from FSRA are based on this calculation and anticipating what the next year will bring.
Insurers look at the risk profile of their clients and try to figure out both how many are likely to be in crashes and how much it would cost to compensate those who are. By charging a premium to all clients, the companies guarantee that those who are in collisions will have access to a sufficiently large pot of money to deal with the fallout.
Two major components figure into the cost of the premium, says Ontario finance veteran David Marshall, who currently consults on the insurance industry for the C.D. Howe Institute and other organizations. “Roughly half of the premium comes from the need to cover the cost of replacing the car if it’s damaged or stolen, or of repairing it,” he says. The other half goes to personal-injury-related costs.
Industry research shows that the costs of vehicle replacement and repair have gone up significantly since last year. “You’re looking at some very substantial cost drivers in at least half the cost of the premium,” he says.
On the personal-injury side, too, costs have gone up, he says, driven by inflation and the shortage of medical professionals. The costs that insurers incur for this portion of their payout is much higher in Ontario than in other provinces, he adds, in part because of the lawsuits that the province’s system allows.
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Based on this data, Marshall forecasts that premiums will need to rise by 8 per cent to 10 per cent over the next year to keep up with rising insurer costs. The increases FSRA has awarded so far this year “are not large,” he says, noting that even insurers that have recently seen an increase may ask FSRA for another soon.
For a driver paying the June 2022 average, an 8 per cent increase amounts to $132.72 per year or just over $11 per month. A 10 per cent increase would mean an extra $13.83 each month. These increases can add up quickly for households with multiple cars or younger drivers, who pay significantly more. The highest rates in the province are found in the GTA, where drivers pay hundreds more than the provincial average.
Inflation and instability are driving the recent increases, but reducing the target inflation rate to the Bank of Canada’s target 2 per cent won’t fix the auto-insurance sector, Marshall says: “It’s not the underlying reason behind why rates are high.”
In a recent article, he gives the province a C grade on the product that drivers get for their money. “Ontario’s system is one of the most expensive and is full of disputes, lawsuits, and unnecessary expenditures,” he noted.
In his view, Ontario’s system is too tightly regulated to take advantage of the flexibility and competitiveness that a more open private market could provide. Provinces like Saskatchewan, Manitoba, and Quebec, he says, have public insurers, which means "you can spread the risk among everybody,” driving down premiums. But it's harder for governments to move at the speed of changing consumer needs, he says, and public systems can be vulnerable to political interference. That’s why he recommends keeping private insurers in Ontario but substantially reforming the system to make it more competitive and change the way it’s regulated.
Agenda segment, October 5, 2022: Managing personal finances amid inflation
FSRA did not respond to TVO.org’s request for comment on this story. The regulatory authority is currently requesting public comment on its 2023-2024 proposed statement of priorities, which include a number of proposals related to auto insurance (you can weigh in here).
You can check whether your insurer has been approved for a rate increase on the FSRA website, though it’s important to note that the percentage listed on this page is the maximum increase an insurer has been approved for, and your rate may be increased by less.
There will likely be more increases to come, Hawke says, but there’s no way to anticipate exactly what FSRA might okay, as those applications aren’t public information — only the approvals are public. Regardless of what the industry is doing, she recommends shopping around every time you get a renewal letter from your insurer to see whether you can get a better deal from a rival company: “It never hurts.”
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