Ontario’s auto insurance changes could increase premiums, experts say

Premier Doug Ford is following through on his promise to make more auto insurance benefits optional, although experts say the results could mean higher rates for drivers.

The changes, which make all auto insurance coverage except for health and personal injury optional, were first announced in the province’s 2024 budget. The government argued at the time that some drivers may already have access to certain benefits through their workplace, so they should have a choice not to pay for them twice.

According to a regulation posted in late July, this means that drivers could choose not to opt into coverage for benefits like income replacement, caregiver benefits, home maintenance and damage to clothing or glasses, as well as benefits paid out in the event of death.

“My own interpretation is it seems like there’s a lot of risk for very little savings,” Matt Hands, vice-president of insurance at Ratehub.ca, said in an interview. “The idea behind choice is powerful, but my concern is lack of education around the matters.”

The Ministry of Finance said it will be mandatory for insurers to offer the optional benefits to drivers and that the government will be working with the Financial Services Regulatory Authority (FSRA) of Ontario, as well as other sector partners, to “ensure consumers are educated about the auto insurance product and options available to them.”

“This would help consumers in making better informed decisions on the coverages that they need for themselves and their families,” ministry spokesperson Scott Blodgett told Queen’s Park Today in a statement.

But for some experts the reward for opting out of certain benefits isn’t worth the risk — and could actually increase prices in the long run.

NDP Auto Insurance critic Tom Rakocevic said he can’t see how the changes will save drivers money.

“I think a lot of people may not get the information they need and just assume they’re fully covered,” he said, adding the Ontarians who choose not to take the optional benefits may be struggling financially and not have alternatives through their workplace.

The government’s proposal also includes a change that would require auto insurers to pay for expenses sustained in a crash prior to those expenses going through a supplementary health insurance plan.

While Rakocevic said the policy could help consumers who are at risk of exhausting their own personal insurance, he also believes “this will be used as a pretext again for insurance companies to raise rates.”

Mary Kelly, chair in insurance at Wilfrid Laurier University’s School of Business and Economics, agreed, arguing that insurance companies are going to have to offset the cost of being the primary payer in the event of an accident.

“I’m assuming premiums are going to go up,” she told Queen’s Park Today. “It’s going to increase the prices. It’s going to bring in a lot of uncertainty because insurers don’t have the data to be able to price this accurately, and so I think we could see some significant dislocation in the market if this happens.”

While the idea of streamlining compensation is “a better experience for the customer,” Hands says it doesn’t make sense as a cost-cutting measure.

“If insurance companies are going to be on the hook for paying out more claim costs when it comes to accident benefits, wouldn’t this lead to them wanting to increase their prices over time to cover the claims or the increased claim expenses they’re taking on?” he asked.

Blodgett, meanwhile, said the ministry anticipates that any increase in costs may be “offset by the back-office burden reduction.”

Consultations on the regulation will remain open until Sept. 9.

Last week, Ford said auto thefts are to blame for premiums spiking across Ontario.

“The reason they’ve spiked is because more cars are being stolen. It’s as simple as that,” he told reporters at a news conference touting the purchase of five police helicopters.

“The rates are determined by how many cars are being stolen, how many accidents are happening, and our goal is to reduce the insurance for everyone. So we’re going to be on these insurance companies like they’ve never seen before to make sure they reduce the rates.”

But it may not be as simple as that. Insurance rates are impacted by multiple factors, including an individual’s driving record, the type of vehicle and their postal code, as well as market trends.

A 2022 auditor general report suggests average auto insurance premiums in Ontario increased by about 14 per cent between 2017 and 2021 to $1,642.

According to the FSRA, that average price rose to about $1,796 by June 2023.

“For sure, if we could reduce theft and limit that impact, at the very least it’s going to help curb the cost of insurance inflating at the rate it has been,” Hands said. “I’m not convinced that it’s immediately going to start seeing decreases across the board.”

Kelly told Queen’s Park Today that auto theft is only covered under an insurance benefit that must be opted into — therefore reducing thefts will likely not make a big difference to drivers’ pocketbooks.

“The premiums are set separately, and then it’s added up together,” she said.

Rakocevic added that even if car theft was significantly reduced in Ontario, there’s “absolutely no guarantees” it would have an impact on premiums.

“We continue to pay the highest rates. It looks like none of this is going to ensure or guarantee that auto insurance rates are going to come down.”