Auto insurance rates going up in Ontario

For those in Ontario who recently received their auto insurance renewals I’m sure they couldn’t help but notice that. The issue has had some media attention as a result of a government report released in the spring recommending further changes. The report subtlety points the finger at lawyers and health care provides.Lawyers build up both no-fault claims and tort claims to get their clients the biggest settlements and maximize their fees. Lawyers build claims by having their clients undergo excessive assessments and treatment programs that often provide little benefit to the client. Health care providers are pleased to cooperate because it generates generous revenue streams.

All this is lost on the public who blame insurance companies for any rate increase. This is technically true since they set the price of the product although they do not control the product. While other parties run up costs in the system, insurance companies are left handing out the bad news in the form of rate increases. Most people assume that rates are rising because insurance companies lost money when the markets crashed. However, unlike life insurers, auto insurers do not invest in the equity markets. Because most of their payouts are within a year of collecting premiums, revenues are put in short-term investments. Though when interest rates fell last year so did investment income for insurers.

At times auto insurance is a strange beast. You would expect insurance companies make their money on underwriting. However, insurers often forego underwriting profits to keep your business and rely on investment income to remain profitable. When investment income drops off then rates need to catch up with claim costs to ensure an underwriting profit. It’s almost as if the companies are in the insurance business in order to access capital to invest. Adjusting claims is almost a sideline. It’s analogous to Mcdonalds who are really in the real estate business. They buy properties and set up restaurant franchises in order to collect rent. Selling hamburgers is a sideline in order to justify collecting exorbitant rent from their franchisees.

What does this all mean? Well insurance companies, lawyers and health care providers will be lobbying the government to protect their interests and ensure they continue to make money. And as for consumer, well they will pay the bills.