Brace for roller coaster ride on auto insurance: Cohn

By: Martin Regg Cohn Provincial Politics, Published on Tue Apr 30 2013


On auto insurance, Charles Sousa is in the driver’s seat.

But Ontario’s finance minister admits he is steering the province into uncharted territory with his Thursday budget by taking an unexpected left turn.

Promising to deliver a sharp 15 per cent cut in car premiums, Sousa’s goal is to keep the NDP on board for the ride — so that his minority Liberal government remains roadworthy.

The New Democrats make a compelling case that auto insurers are profiting from lower payouts to accident victims. Now, wielding the balance of power in the legislature, NDP Leader Andrea Horwath is demanding a 15 per cent cut in premiums as her price for propping up the Liberals (not to mention seven other budget requests ).


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Keen to reduce his own exposure to political risk — a budget defeat would trigger a spring election — Sousa is warning the insurance industry to brace for financial peril.

“There will be a 15 per cent target reduction,” Sousa tells me, pushing his finger into a conference table.

Interviewed in his corner office overlooking Queen’s Park, as OPP constables patrol the halls to guard against unauthorized budget leaks, the treasurer says he has chosen his path.

“Let’s go 15 per cent and let’s go as fast as we can.”

That means not only lower premiums, but reduced profits — the latter mandated by law. New legislation will dial down the targeted rate of return for the auto insurance industry, from about 12 per cent now to less than 10 per cent.

But not everyone will see an immediate 15 per cent cut in their rates. As ever on insurance matters, beware the fine print.

First, the good news: the government wants to reward good drivers most. Henceforth, car insurers would be required to give people with clean records the best rates and reductions.

Second, the average news: the 15 per cent cut would merely be an industry-wide average (as sought by the NDP) — not an across-the-board requirement. People living in high-traffic, high-fraud, high-cost regions might still bear the brunt.

Third, the unclear news: Sousa isn’t saying how fast he can deliver on his target, and how he’ll enforce it.

In politics, timing is everything.

Horwath wants the decrease “by the end of 2013.” The Liberal target is “within the first year” of the budget’s passage — effectively a deadline of roughly mid-2014. Sousa acknowledges this timeline “will be the subject of debate.”

The legislation would “instruct” the regulator (Financial Services Commission of Ontario, or FSCO) to target a 15 per cent reduction via “guidelines.” This would be achieved by a lower rate of return, and a promised crackdown on rampant fraud that has pushed costs far higher than other provinces and is blamed for rising premiums.

It’s unclear how far these combined measures will go toward achieving that 15 per cent (average) decline over time, but Sousa is adamant that the target will be met. “I need FSCO to have that oversight.”

Auto insurance has been a death trap for governments of all political stripes in recent decades. New Democrats botched the issue when in power in the early 1990s (reversing their promise of public auto insurance); the Mike Harris Tories allowed rates to soar; now the Liberals are faulted for similar hikes.

“I need everyone’s buy-in,” Sousa says. And not just on auto insurance.

He vows to meet or exceed most other NDP demands — including modest welfare reforms, youth job-creation funding and expanded long-term care for seniors.

Ultimately, though, he thinks Horwath will have to heed public opinion.

“Even the NDP, even the Conservatives are going to look at this budget and say, ‘Jeeze, they put stuff in there that’s good for us, that’s good for the public, things that we share in common.’ ”

And if the New Democrats say, No?

“I always welcome input,” he says diplomatically, choosing his words carefully. “This is politics. We’re in a minority situation, so I recognize a need to work with the opposition. But I also recognize a need to govern and to get it done.”

As treasurer, Sousa can’t afford to play financial broker in a game of political poker, because he presides over a depleted treasury. Recent budget deficits of roughly $10 billion won’t be eliminated for another four years — while the accumulated debt soars toward $300 billion. Meanwhile, economic growth remains sluggish and the outlook is bleak, depriving the treasury of robust tax revenues.

Against that budgetary backdrop, “We’re not gonna be buttering things up,” Sousa warns.

Brace for a roller coaster ride on auto insurance — and everything else on the NDP’s list.

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