Cuts to auto insurance rates could mean trouble for industry

15% cut to Ontario auto premiums lead to huge losses: IBC report

Ontario auto insurers had minor net returns in 2011 and 2012 after recovering from a severe loss situation prior to 2010 reforms, according to the Insurance Bureau of Canada (IBC).

IBC commissioned two independent professional firms, KPMG and J.S. Cheng & Partners, to estimate the profitability of Ontario auto from 2008 to 2012.

Read: We need to talk about auto insurance 

The reports found that between 2008 and 2010, the Ontario auto insurance industry lost $2 billion.

Key findings include:

 JSCPKPMG
2011 return on equity (Private Passenger Auto)2.6%0.2%
2012 return on equity (Private Passenger Auto)4.9%3.3%
Increase/decrease claims costs 2012 over 2011+ $300M– $198M

 

These returns on equity numbers were modest compared with other industries, such as banks (16.5%), retail sector (12.2%), life and health insurers (9.3%) and the securities industry (12.6%).

“These professionally qualified reports correct the highly misleading comments made by those who do not understand the auto insurance system, including the Ontario Trial Lawyers Association,” said Ralph Palumbo, vice-president, Ontario, IBC, in a press release. “The reality is that the system in Ontario is broken and needs to be fixed.

Read: Liberals vote to support 15% cut in auto insurance rates

“It’s quite simplistic for the NDP to call for a rate cut without a plan,” continued Palumbo. “But do the math – a straight 15% cut to premiums would turn a modest profit in 2012 to another potential $1 billion loss across 90 insurance companies that sell auto insurance in Ontario and sets up the possibility of insurers leaving the market or becoming insolvent.”

The P&C insurance industry employs 63,000 people in Ontario and insurers paid $ 2.2 billion in taxes and health levies to the Ontario government.  This is money that supports schools, hospitals and other public programs and services.

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Transcontinental Media G.P.