The political perils of rising auto premiums: Cohn

In insurance terms, it’s a perfect storm for the NDP: Rates are soaring, payouts are down, profits are up — and the public is seething.

PrintNews / Queen's park

stBy: Martin Regg Cohn Provincial Politics, Published on Sat Mar 09 2013

 Nothing gets drivers going like auto insurance. Rising premiums can transform a suburban voter from apathetic to apoplectic faster than a minivan reaches top speed.

Anger over car insurance has been accelerating across the GTA since the last provincial election. Politicians (and columnists) who knocked on doors in 2011 got an earful from voters complaining that the government makes auto insurance compulsory — but not affordable.

Now, the New Democratic Party is riding the momentum onto the floor of the provincial legislature. With the Liberal minority government dependent on NDP support for its political survival, party leader Andrea Horwath finds herself in the driver’s seat over auto insurance.

Wielding the balance of power, the New Democrats are demanding a 15-per-cent cut in premiums as their price for propping up the Liberals. If the government doesn’t take that left turn, Horwath is signalling she’ll defeat next month’s Liberal budget, triggering a spring election.

Are the two parties on a collision course?

That depends on whether the Liberals take prudent measures to hedge against known perils — notably the risk that their policies on auto insurance are too weak to protect them from a catastrophic political event. An astute policy analyst (political, not actuarial) might conclude that an election over car premiums is an accident waiting to happen.

In insurance terms, it’s a perfect storm for the NDP: Rates are soaring, payouts are down, profits are up — and the public is seething, especially in the suburbs.

The NDP bases its argument on data showing industry costs have declined by $2 billion a year, thanks to a dramatically lower cap on payouts ordered by the government on routine claims by accident victims. Prior to 2010, the cap was $100,000. Now, most claims (soft tissue damage such as whiplash or sprains) are capped at $3,500 beyond what OHIP pays. Severe (noncatastrophic) injuries are capped at $50,000 (see your broker for details and definitions, I’m just a political columnist).

The debate on lower caps in 2010 was politically painful and controversial for the Liberal government, but probably necessary to get Ontario’s uniquely generous payouts under control. Unsurprisingly, the NDP largely opposed the reforms at the time as being heavy-handed.

Setting aside the exquisite irony that the NDP is seeking to profit politically from the Liberals doing all that (heartless) heavy lifting in 2010 (caps are still more generous than in many other provinces), the New Democrats are running circles around the government on this issue.

The Liberals counter that they can’t pull any “levers” that would magically lower rates, and are challenging the NDP to be more specific about a 15 per cent number that sounds like it came out of thin air. But it turns out that the Liberals did much the same thing in 2003-04, shortly after winning power, to counter a string of premium hikes under the Tories.

The new Liberal government asked the regulator — the Financial Services Commission of Ontario (FSCO) — to reduce rates by 10 per cent. It worked. In 2004, premiums declined by 10.6 per cent (on average — each company’s premiums are different).

Why not do it again?

Car insurers point to lean years over the past decade, and unexplained cost increases in the GTA — notably in Brampton — that suggest organized fraud. Yet despite the overall decline in payouts, the industry raised rates car premiums 5 per cent in 2011 and is quietly boosting its cash reserves. The provincial Auditor General has questioned the 12 per cent return on investment that the regulator (FSCO) factors in when approving rates.

How much longer must drivers wait for a break? Next month’s budget may break the stalemate.

A Forum Research poll last month asked voters about Horwath’s vow that “she will force an election unless auto insurance premiums are reduced 15 per cent.” An impressive 58 per cent of voters backed the NDP leader’s threat.

In reality, Horwath would be loathe to fight an election on auto insurance, because it would expose the NDP’s own hypocrisy: It promised to nationalize the industry, but shifted into reverse after winning power in 1990.

Wynne could have some fun — and outflank Horwath — with a budget announcement that her Liberal government will look into the possibility of publicly-owned car insurance, as pioneered by NDP governments across the prairies and B.C. (and once-promised by Horwath’s own party). Single-payer, public auto insurance works well out west (and in Quebec) — much like medicare — so why not Ontario? Would Horwath agree?

Of course, Wynne won’t have the guts to do that, just as the NDP lost its nerve in the 1990s. On car insurance, no politician is pure — or free from peril. Despite their game of chicken, watch for Wynne and Horwath to take the middle road next month rather than veer sharply left.

* * * *

While on the subject of election polls, a quick fix from my Thursday column: That Forum poll showed only 10 per cent of NDP voters would vote for Wynne’s Liberals (not 20, as I wrote after misreading the chart). Interestingly, it also shows 10 per cent of New Democrats would now vote Tory — proof that polls can drive politicians crazy ….

Martin Regg Cohn’s provincial affairs column appears Tuesday, Thursday and Sunday. [email protected] , twitter.com/reggcohn.