Ontario Auto Insurance Outlook: Positive Signs During the COVID-19 Pandemic

Many Ontarians are driving less during the COVID-19 pandemic thanks to stay-at-home measures introduced by the government to help stop the spread of the virus. Beleaguered consumers facing financial difficulties because of the pandemic were in a pickle: how can they afford to pay their auto insurance premiums if they cannot work?

In April, Ontario’s Financial Services Regulatory Authority (FSRA) amended the provincial Insurance Act to allow car insurance providers to offer their customers rebates. Insurers enacted several measures to help customers weather the financial challenges during the lockdown, including: 

• Discounts  
• Auto insurance rebates  
• Waiving of non-sufficient funds (NSF) fees  
• Payment deferrals  

Recent Rate Trends 

For the car insurance industry and consumers in Ontario, the market for 2020 looks much better now than it did a few months ago. Earlier this year, Ontarians were bracing themselves for another round of rate hikes as insurance companies sought an increase in premiums.

Each quarter, insurers apply to FSRA to either reduce or increase premiums. The insurance regulator then decides whether to approve or refuse the price change requests. In most cases, rate increases are requested to reflect market trends. For example, the impact of several defining factors has affected Ontario’s auto insurance system: 

• Increasing claims – Claims have risen in recent years due to an increase in collisions, with distracted driving a major contributor. 
• Escalating repair costs – Alongside increasing claims, insurers are paying more to settle claims. Repair costs are higher than ever and the average payout for a claim has risen significantly. In 2018, Mitchell International found the cost of repairs was increasing year-on-year across Canada, up $63 between Q2 2017 and Q2 2018. 
• Fraud – Ontario’s auto insurance system faces a serious problem with fraud, which inflates premiums. According to the IBC, fraud costs Ontarians over $1 billion each year. 

The challenges facing insurers have been pushed on customers in the form of higher premiums. 

Indeed, FSRA data shows car insurance rates increased an average of 11.4 percent between Q4 2018 and Q4 2019. While some companies sought rate decreases during this time, most made requests to raise their premium costs. Some insurers hiked rates by as much as 34.9 percent as they continued to navigate a hard market.  

Quarter	Overall Rate Change %	Biggest Rate Decrease %	Biggest Rate Increase %
Q4 2019	1.56	0	11.05
Q3 2019	2.60	-0.20	15.47
Q2 2019	1.99	-1.20	20.04
Q1 2019	2.7	-0.03	11.4
Q4 2018	3.35	0	34.87

 

A Respite From COVID-19? 

As 2020 began, the trend of ongoing rate increase requests was widely expected to continue. Despite Ontario’s government embarking on a program to tackle the province’s auto insurance problems, rates were set to increase by as much as 11 per cent this year. FSRA already approved auto insurance premium increases for 20 insurers by February, with an average increase of 1.56 per cent. 

Ontario is Canada’s second most expensive auto insurance market after British Columbia. By 2018, the province’s average premium cost rose to $1,505. Interestingly, from an average high of $1,486 in 2014, the province cut auto insurance costs in 2016 and 2017. But by 2018 rates had soared, higher than any time in the last five years.  

Province	2014	2015	2016	2017	2018
Ontario	$1,486.00	$1,455.00	$1,432.00	$1,445.00	$1,505.00

However, during the COVID-19 pandemic, Ontario’s car insurance system is changing. While many industries and sectors face difficulties during uncertain times, the crisis has arguably given the auto insurance industry a chance to recover.  

Most motorists are off the roads and driving less, if at all. Collision rates have tumbled, and insurance companies now have a respite from increasing claims and repair costs. According to the Ontario Provincial Police (OPP), collisions in the Greater Toronto Area fell 30 per cent since early March.

A total of 1,535 collisions have been recorded across Ontario since stay-at-home measures were introduced on March 23, down 79 per cent year-on-year. During the same period in 2019, the province had over 7,300 collisions. Officials compared current traffic flow in Toronto to a lazy Sunday morning.  

Customers already see benefits in the form of relief measures introduced by auto insurers. It seems that many motorists will pay less for coverage in 2020 than before. There are positive signs that reduced claims and repair costs may allow companies to remain robust through the COVID-19 crisis. What’s good for the industry will be good for the consumer, potentially allowing for drivers to get a more affordable rate.  

How Ontario’s insurance market emerges from the COVID-19 crisis could determine the long-term potential for consumers to receive a lower car insurance rate. Only time will tell whether the current situation is just a brief respite or a sign of lasting change.