Ontario’s auto insurers are operating with modest profit margins – between 4 and 5.5 per cent last year – say two audits commissioned by the industry to be released Friday

Globe and Mail-by Adrian Morrow

The reports, by KPMG and J.S. Cheng, are a stark warning to the government as it considers an NDP demand to slash premiums by 15 per cent in one year. The New Democrats maintain increases in profit over the last two years have given the industry ample room to make the cut. But the Insurance Bureau of Canada, which commissioned the audits, argues bringing rates down that far, that fast would eat up the margin.By KPMG’s estimate, the industry lost $1.2-billion in 2010 before posting profit of $128-million in 2011 and $417-million in 2012, which translates to 4 per cent in the final year. J.S. Cheng had a slightly rosier view, showing a profit of $629-million, or 5.5 per cent, in 2012, up from $264-million the previous year and a loss of a little over $1-billion in 2010.

Margins are narrower when only private-passenger vehicles are factored in, with KPMG showing a profit of $294-million last year and J.S. Cheng showing $492-million.

The reports used different data sets and methodologies, hence the discrepency between their numbers.

“If you take the 15-per-cent cut to premiums, holus bolus … what’s going to happen is you’re going to wipe out that profit,” said Ralph Palumbo, IBC vice-president Ontario. He acknowledged government reforms in 2010 have boosted profit, but said the added cash is not as much as the NDP seems to think. “There are other factors at play here – [companies] haven’t put that money in their pockets.”

Such a change could push some insurers to quit the province while others would cope by cutting back policies, said IBC’s Ontario policy director Barb Taylor.

“It would be harder for some people to get insurance. Insurance companies aren’t going to want to write risks where they’re not going to get back any kind of return,” she said. “There’s definitely a potential for a solvency concern here as well – we don’t want companies going under or leaving the market.”

The minority Liberals, who need NDP support to pass a budget this spring, would rather reduce premiums by cracking down on fraud in hopes the money saved by the industry would then be passed to consumers.

“[Finance] Minister [Charles] Sousa has been very clear that this is an issue – the factors that drive auto-insurance rates up are a challenge that needs to be addressed. The government is looking at what the best approach is to address rates and bring relief to Ontario car owners,” Mr. Sousa’s spokeswoman said Thursday.

The IBC supports this approach, and has called on the government to also tackle the backlog in unresolved disputes between companies and claimants.

But this is not enough for the NDP, which wants the government to dictate a 15-per-cent cut. “What the people of Ontario deserve is a real commitment and real action,” Leader Andrea Horwath said last month.

Leave Reply

You must be logged in to post a comment.