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IBC rejects poor-pay-more argument

Insurance companies do not target people in lower income neighbourhoods, as the Ontario NDP suggests.

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“We’re extremely disappointed with the implication that people in lower income neighbourhoods are charged higher rates simply because they earn less than those in more affluent neighbourhoods,” said Ralph Palumbo, Ontario vice president, IBC. “Any such implication is objectionable.”

Palumbo added that what IBC didn’t understand was why the NDP based their argument on the use of simplistic online marketing processes that did not give you the complete picture.

The online quote system, the method used by the NDP to gather their auto insurance quotes, is not a perfect science. These tools only provide information from a very narrow perspective and are not representative of the rates offered by the majority of insurers, thereby limiting the availability of competitive quotes that any consumer can obtain.

A full review by IBC of available rates based on the profile submitted by the NDP shows that for those drivers focused on price, lower premiums were available. The NDP’s quote for a driver in the Jane and Weston area of Toronto was $2,517, yet a survey of the wider insurance market found lower rates of $1,822 for that same driver.

Insurance rates are based on many factors, including claims frequency, according to IBC. If one neighbourhood has more claims than another, it will face higher rates to pay for those higher claims payouts. It’s an effective and fair model of pooling risk, based on objective data that all insurers use.

Added Palumbo, “Surely, this is a more equitable system than having people who live in areas that experience lower claims subsidize the higher costs of those who live in areas that have higher claims. ”

A preliminary review of 2011 collision data for the neighbourhoods selected by the NDP shows that the Jane and Weston area reported three times as many collisions as Lawrence Park.

The claim that auto insurance rate approvals are based on a 12% rate of return is also incorrect, as is the claim that there is a guaranteed profit rate for insurance companies.

“There is absolutely no guarantee of profits in the setting of auto insurance rates. The 12% return on equity is a benchmark established by the Financial Services Commission of Ontario when it reviews insurance rate applications made by insurers,” said Palumbo.

The Ontario Auditor General’s recent report highlighted the fact that fully 89% of the $9.8 billion in auto insurance premiums went to paying claims – which left very little to cover operating expenses. It is a fact that, far from earning profits, insurers lost $1.7 billion in Ontario auto insurance in 2010 and $2.8 billion over the past three years.