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Auto Insurance: Reforms, Innovation, and Fraud Prevention
Auto insurance is mandatory for Ontario’s nearly 10 million drivers. FSCO regulates the auto insurance industry, ensuring consumers are treated fairly and insurance providers meet specific legislated standards related to rates, risk classifications, underwriting rules, policy changes and forms.
“We want to ensure consumers have access to a choice of competitive rates and providers for their auto insurance. That’s why we work to protect them from unreasonable or unjustified rates, while also working to ensure the health of the industry.”
Bruce Green, Senior Manager, Auto Insurance Rates and Classification
ENHANCING PROTECTION, CHOICE AND AFFORDABILITY THROUGH REFORMS
In 2015, the Ontario government announced auto insurance reforms to strengthen consumer protection, improve affordability and give consumers more choice. The bulk of the reforms were effective as of June 1, 2016. FSCO played a key role in implementing the reforms, working to ensure both industry and consumers understood the changes and their responsibilities.
FSCO commissioned research in the spring of 2016 that confirmed most drivers don’t pay much attention to the details in their auto insurance policies; more than half of drivers “auto renew” their policies each year, and only 10 per cent actually know the details of their policy.
To help drivers recognize the impact of these reforms and be prepared to make informed decisions, FSCO used digital, social and traditional media to raise awareness, and developed a “point of sale” mail insert highlighting important information about the reforms, using the results of the behavioural insights research. The insert was required in all policyholder renewal packages for renewals prior to June 1, 2017. FSCO’s communications encouraged consumers to read about the changes, ask questions and shop around to get the best policy and price to meet their needs.
FSCO also issued 15 bulletins to inform and prepare the industry for the changes, released two Superintendent of Financial Services Guidelines, and revised 23 forms before June 1, 2016, when the changes came into effect.
PROTECTING CONSUMERS THROUGH RATE REGULATION
FSCO sets requirements for the prescriptive rules about rates and risk classification systems that insurers must follow in the Insurance Act and the Automobile Insurance Rate Stabilization Act, 2003 (AIRSA) and their accompanying regulations. Insurers must file an application with FSCO to approve any rate increase or decrease they propose.
The cost of claims has a significant impact on insurance rates charged to drivers. New vehicle technology that is more expensive to repair, increases in the cost of health services for auto accident victims, and insurance fraud all affect the premiums consumers pay.
When reviewing an application, FSCO determines whether the proposed rates are just and reasonable, based on actuarial data. It approves each company’s criteria for setting rates, and evaluates the company’s underwriting rules – the grounds the company uses to determine if it will sell auto insurance to a consumer.
FSCO also provides guidance through Technical Notes that include industry benchmarks to help insurers understand the assumptions FSCO considers reasonable in filings.
If a company’s application does not meet statutory standards, or if the request is not supported by data or is considered excessive, the Superintendent of Financial Services may refuse to approve all or part of the application or order an amendment. This year, the Superintendent refused to approve one private passenger auto rate application and asked for amendments to reduce 18 of 107 private passenger auto rate filings (17 percent). This resulted in lower premiums estimated at $169 million.
The average approved rate change for fiscal 2016-17 was an increase of 2.93 per cent, compared with a decrease of 3.11 per cent in 2015-16 when the majority of rate reductions related to benefit changes from auto reforms were reflected.
PRIVATE PASSENGER AUTO RATE FILINGS
|Fiscal Year||Estimated Average approved rate change*||Number of approved filings||Number of filings amended downwards by Superintendent through rate review/approval process ||Percent of filings amended downwards by Superintendent through rate review/approval process||Estimated Premium savings from Superintendent-directed amendments**|
|2016-17 ||2.93% ||107 ||18 ||17% ||$169,471,896 |
|2015-16 ||(3.11%) ||151 ||33 ||22% ||$251,015,586 |
|2014-15 ||(1.38%) ||79 ||13 ||17% ||$225,123,189 |
|2013-14 ||(5.78%) ||116 ||45 ||39% ||$335,460,162 |
* Auto Quarterly Rate Approvals – FSCO Website
** Difference between rate changes as originally filed by insurers and those finally approved by the Superintendent.
OTHER AUTOMOBILE INSURANCE FILINGS
|Filing Type ||2016-17 ||2015-2016 |
|Non-Private Passenger Auto Rate Filings ||70 ||377* |
|Underwriting Rule Filings ||112 ||48 |
|Endorsement Filings ||54 ||44 |
|Form Filings ||114 ||127 |
* Includes filings required for the 2015-16 auto insurance reforms
Auto insurance complaints 2012-13 to 2016-17 as at March 31
Description of Auto insurance complaints image
OPTIMIZING CARE GUIDELINES FOR COMMON TRAFFIC INJURIES
Insurance premiums paid by consumers continue to rise to keep pace with increasing costs for health services provided to auto accident victims. FSCO is developing a new Common Traffic-Related Impairment Guideline to replace the current interim Minor Injury Guideline implemented in 2010. The new guideline would introduce an evidence-based protocol to treat a broader range of injuries commonly resulting from auto accidents.
FSCO engaged a world-renowned medical and scientific team to conduct extensive research over more than two years to develop a new protocol. The resulting report, submitted to FSCO in December 2014, outlined the rigorous scientific methodologies and research protocols they used to identify common treatable injuries, listed effective treatments and outlined interventions that have not proven effective to date.
FSCO and the Ministry of Finance held comprehensive stakeholder consultation meetings in the summers of 2015 and 2016 on the report’s findings and draft guidelines. FSCO submitted a draft guideline to the Ministry of Finance in early 2017, and the government will determine next steps.
ADVISOR ON AUTO INSURANCE
On October 8, 2015, the province announced the appointment of David Marshall, former President and CEO of the Workplace Safety and Insurance Board, as an advisor to provide recommendations to the government on ways to strengthen consumer protection, improve health outcomes for those injured in collisions and make auto insurance more affordable for Ontario drivers.
FSCO supported this process by providing data and information about auto insurance regulation and sharing insights from our experience as the industry regulator, as well as administrative support, to Mr. Marshall.
Mr. Marshall’s report will be delivered to the government this spring. FSCO looks forward to seeing the results of this work.
ENABLING INNOVATION IN THE AUTO INSURANCE MARKETPLACE
Evolving technology and changing consumer needs influence how auto insurers provide insurance to their clients. Disruptors such as ridesharing, and innovations such as usage-based pricing, require new ways of thinking about market regulation.
FSCO has stepped in with evidence-based guidelines and regulatory policies that enable modernization while still ensuring protection for drivers and passengers.
RIDESHARING IN ONTARIO
The rise of the sharing economy, and ridesharing in particular, created a new regulatory challenge. Ridesharing services didn’t fit into the existing insurance framework, where regulations, guidelines and policies were based on vehicle ownership and use by a single individual or company. Under a standard automobile owner’s policy, drivers are not allowed to carry paying passengers. This meant anyone participating in a ridesharing service would not be covered by their personal auto insurance policy in the event of an accident.
“We worked directly with stakeholders to close the insurance gap related to ridesharing. We wanted to make sure drivers, passengers and vehicle owners would all be properly protected.”
, Executive Director, Automobile Insurance Division
According to a September 2015 City of Toronto report, passengers were taking an estimated 17,000 trips per day using the UberX platform, involving 13,000 vehicles.*
In February 2016, FSCO approved a solution proposed by an insurance company, offering policy coverage for ridesharing drivers through their personal policies for an additional fee. In 2016-17, FSCO continued working with insurance companies, ridesharing entities and government ministries to facilitate a broader solution that would offer blanket coverage for all participants in ridesharing services.
As a result of these efforts, the Superintendent of Financial Services approved interim insurance coverage for Uber (provided by Intact Insurance) in July 2016 and for RideCo (provided by Northbridge Insurance) in December 2016. Under the policies, regardless of their personal coverage, all drivers, passengers and vehicle owners in Ontario using these ridesharing companies now have insurance coverage from the moment the ridesharing app is turned on until the moment passengers exit the vehicle.
USAGE-BASED INSURANCE PRICING
First introduced in Ontario in 2013, usage-based insurance programs (UBIPs) use technology to track a driver’s usage patterns and driving behaviour. These can directly influence insurance rates and help give drivers more control over their auto insurance costs.
Now that insurers have a few years of experience offering these programs, FSCO updated its guidance on UBIPs in December 2016. This enabled insurers to offer temporary matching UBIP discounts to promote a consumer’s ability to seek the lowest rate available. It also allowed insurers to use UBIP data to review a driver’s rating criteria, set discounts and support efforts to fight fraud and manage claims.
FSCO approved three additional insurance companies to offer usage-based insurance programs in fiscal 2016-17. There are now 17 companies offering UBIPs in Ontario.
PREVENTING AUTO INSURANCE FRAUD
Auto insurance fraud is illegal, and contributes to the cost of premiums. To help protect consumers and prevent fraudulent behaviour in the auto insurance system, FSCO conducted one of its first consumer education campaigns for Fraud Prevention Month in March 2017.
FSCO commissioned a survey of Ontario drivers, which found that 27 per cent were unable to recognize, and therefore reject and report, auto insurance fraud. Nearly one in 10 admitted to submitting an exaggerated or false claim, and 25 per cent did not know that auto insurance fraud affects auto insurance premiums.
FSCO’s campaign aimed to build awareness among people who are likely to commit fraud and their victims about how to recognize, reject and report auto insurance fraud. Through digital, social and traditional media channels and community outreach, it provided information and practical tips such as advising Ontario drivers to never sign blank insurance forms and to report all accidents and losses to their insurance company.
MOTOR VEHICLE ACCIDENT CLAIMS FUND
FSCO administers the Motor Vehicle Accident Claims Fund (MVACF) as a “payer of last resort.” The MVACF provides compensation to people injured in automobile accidents when no automobile insurance exists to cover the claim, or where an insurer’s insolvency prevents response to a claim.
When applicable, MVACF makes statutory payments for accident benefits and third-party liability claims. For example, it compensates victims of accidents who have no recourse to auto insurance or accidents involving uninsured or unidentified drivers or vehicles, such as in the case of a “hit and run.”
Claims payouts typically fluctuate from year to year, but have averaged approximately $23.7 million over the last five years. MVACF registered 528 claims in fiscal 2016-17, slightly below the five-year average of approximately 600 claims.
MVACF is responsible for recovering all amounts paid out of the fund from uninsured motorists to satisfy judgments assigned to the Minister of Finance. If warranted, it can garnish the identified uninsured driver’s wages.
Program Outcomes ||
Victim claims and claims administration|| || |
|New claims ||528 ||554 |
|Statutory accident benefits claims paid ||540 ||484 |
|Payments for statutory accident benefits ||$21.2 million ||$21.3 million |
|Third party liability claims paid ||89 ||96 |
|Payments for third-party liability, bodily injury and property damage ||$4.3 million ||$4.8 million |
Enforcement action against uninsured motorists || || |
|Suspended driver’s licences ||210 ||215 |
|Repayments processed ||4,072 ||4,338 |
|Debtors making payments ||488 ||519 |
|Collection of repayments ||$1.0 million ||$900,000 |
FSCO AND DISPUTE RESOLUTION SERVICES
Dispute resolution is an important part of Ontario’s no-fault auto insurance system used when claimants and insurers disagree about entitlements or the amount of statutory accident benefits.
Following amendments made by Bill 15, the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014, FSCO supported the transfer of its dispute resolution services activities to the Licence Appeal Tribunal of the Ministry of the Attorney General on April 1, 2016. FSCO maintained responsibility for mediation, neutral evaluation and arbitration applications received before that date, and has worked over the year to complete these activities.
FSCO completed the 12,036 remaining mediations by July 26, 2016. It also completed 10,875 arbitrations in 2016-17, and anticipates completing the remaining 3,975 arbitrations by the end of 2017-18.
FSCO continues to accept applications for appeal and variation/revocation of decisions arising out of arbitration applications filed prior to April 1, 2016. As of March 31, 2017, FSCO had 86 open appeal files.
* Ground Transportation Review, Findings Report, Attachment 1, City of Toronto, September 2015, pages 30-31
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