bout de papier, Vol. 5, No. 2 (1987) — Summer 1987 // Été 1987, p. 42
Every day you pick up your newspaper, there’s another article on government insurance, smart no-fault, reduced or increased rates and talk of an election in Ontario. So far, no one seems to have answered the question which brought all this about — why are our insurance rates so high?
The cast of players for our new game are playing for high stakes indeed. The automobile insurers are trying to protect over 2 billion dollars in premiums, the three provincial parties are jockeying for position in the upcoming election, and the lawyers are trying to protect their lucrative practice in automobile injuries by fighting the no-fault concept. In playing the game, most of the facts have been left behind and the average person is totally confused by the overwhelming statistics and seemingly endless “instant” solutions. For example: the latest news is an automobile insurance rate freeze. However, almost all of the annual rate increases by insurers are already in effect for 1987 — the net effect to you and me is negligible. A 10% premium roll-back for young males and taxi drivers — the net long term effect is higher rates for you and me, but it did sound good!
But back to our question about the high rates. The truth of the matter is that rates are not too high. If anything, rates are still too low, but not by much fortunately. Last year our automobile insurers lost over 100 million dollars. In the past few years, several companies went bankrupt, many companies stopped writing auto insurance and others priced themselves out of the market. This is certainly not in line with the image we have been given of the “fat cat” insurance company.
There are two basic reasons why our rates are high — claims frequency and average claim size. This means basically, that drivers in Ontario have more claims, and the cost of each claim is higher than in the other Canadian provinces. This is actually quite logical, as we have a larger percentage of the Canadian population. It seems that the pace of life in other provinces is much slower and more relaxed
Claims frequency and claim size are too general in their concept in many ways, so here are some specifics to think about:
1. Did you know that in insurance claims involving injuries almost 50% of the claims payment goes to legal fees and claims administration?
2. Have you been to the body shop who quotes $300 to fix your car, but $1,200 if an insurance company is paying the bill?! have, and those are the actual numbers I was quoted.
3. Did you know that there are groups of crooks who will steal your car if you pay them $100 or $200?
4. Did you know that people are paid to rear end another car — usually with five or six people in it, who magically all have whiplash injuries and doctors and lawyers who help them collect from insurance companies?
5. Do you have friends with teenage sons, where the mother is the owner and principal driver of a hot rod or fast sports car, but she has never been in the car?
6. Alcohol is involved in 75% of single vehicle crashes and 45% of multiple vehicle accidents. No wonder our rates are so high! So, how do we fix it? Going back as far as 1968, and as recently as this year (the Slater Task Force), many study groups have recommended changes to the legal system as it applies to automobile injuries; the not-so-new concept is known as “no fault” insurance. The insurance companies, who understand how much money is wasted with our current system, finally see an opportunity to convince government and the general public that no fault will save everyone money — except the lawyers. No fault is a system that provides specific payments for specific injuries and you would collect from your own insurance company. Most lawsuits would be eliminated and the right to sue would be restricted to very serious injuries or death. The savings would be incredible and estimates of 26% of premium are probably fairly accurate. Remember that this will not apply to collision and comprehensive benefits, which are already on a no fault basis. Needless to say, the legal profession is not happy about this and watch for their arguments involving “The Charter of Rights” and our “Communistic” society. If it comes to a choice between no fault insurance and government insurance as found in some western provinces, we will see lawyers voting N.D.P. to try and preserve the expensive system of litigation. Strange bedfellows indeed. A few comments on government insurance:
1. Did you know that the originator of government automobile insurance in British Columbia went bankrupt and 180 million dollars of taxpayer’s money was used to bail it out?
2. Premiums under some government plans are artificially low because gas prices were increased to subsidize the insurance. There are other subsidies too.
3. Premiums under government insurance are almost identical to those in Ontario (see point 2). I think that most of us would agree that Ontario premiums should be higher especially in Metro Toronto.
4. Do you want unionization of the industry? What happens to your broken car if a strike occurs and lasts five months, as happened in B.C.? In my opinion, which is admittedly biased, the above “real” facts speak for themselves, and you actually can have a say in the outcome. Although we are only pawns in the game, we have a vote — so vote smart and vote no fault. The real truth in all of the “Smoke and Mirrors” you have seen and will see, is that it is very unlikely auto insurance rates will go down. Under no fault, insurance companies will need the money to stay solvent; under government insurance, rates will inevitably go up or be subsidized with a different hand in your pocket; under government supervision, rates will likely be higher because another insurer going bankrupt is bad publicity, and someone has to pay for the watchdog staff that might be hired. The true value of no fault is that it will keep rates from going up, and with luck we will never see rate increases of 30 and 40% again. With such formidable players in the game, I consider that a win.
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Originally published in bout de papier, Vol. 5, No. 2 (1987) — Summer 1987 // Été 1987, p. 42. Read the rest of this issue →
