Auto premiums must be risk-based, reform of Ontario territories should be considered: CEOs

IBAO Convention 2013 – The notion of 50 territories and contiguous territories with differentials in Ontario needs reform, Maurice Tulloch, former president and CEO of Aviva Canada and now CEO of Aviva U.K. & Ireland General Insurance, suggested at the Insurance Brokers Association of Ontario’s 93rd annual convention last week.

Insurance “needs to be a risk-based premium that someone has based on the attributes that they bring forward,” Tulloch told those attending the convention’s CEO Panel.

The Greater Toronto Area (GTA) – where the lion’s share of Ontario’s auto insurance fraud appears centred – is a frequent topic when it comes to the Ontario government’s mandated 15% reduction in auto insurance rates. The government recently announced the insurance industry must cut rates an average of 8% by mid-August 2014, and another 7% by mid-August 2015.

Intact Insurance president Jean-Francois Blais pointed to the process when an insurance company does a full filing with the Financial Services Commission of Ontario (FSCO). “You have to justify to the dime what you charge everyone. You cannot just say it’s minus 15 across the board because there is more than one rating variable in how we set premiums,” Blais noted. “The premium reduction has to follow the loss experience.”

The regulatory restriction to have a maximum of 10 territories within the GTA means “some people in some territories will have bigger impacts than others,” said Karen Gavan, president and CEO of The Economical.

“We’re asked to have strong risk management by our regulators so that we understand our capacity and our appetite based upon the capital we have available and make the right risk choices, so we have pressure from the federal regulator to make the right choices for the business,” she said. “It is an interesting conflict between federal and provincial regulation,” Gavan added.

“It wasn’t a science, the 15%,” Tulloch said. “The fact that it’s out there now, we need to respond and we need to stop talking about things which are fluffy. I’m not saying fraud’s not worth something, but it’s not going to get you anywhere close to 15%,” he argued.

Rather, Tulloch cited six things that would help the insurance industry reach the mandated government targets: revise the cat definition; adjust the interest rates on the Statutory Accident Benefits Schedule; stabilize minor injury guideline reform; reduce treatment costs; reform the arbitration process; and replace the bodily injury verbal threshold.