Car Insurance companies in Ontario are potentially getting billions in pre-tax income. These earnings have been achieved after putting the hand in the pockets of drivers who generally pay in excess for the coverage, according to a report commissioned by the Association of Trial Lawyers of Ontario.
The report’s author and economics professor Fred Lazar, from the Schulich School of Business at the University of York, suggests that insurers could have gained approximately $ 5 billion in pre-tax income between 2011-2016, including approximately $ 1.5 million in 2016.
Those “2016 earnings represent an estimated 60 Percent increase over 2011”, says Lazar.
“Given the levels of excessive profitability, consumers have almost certainly paid too much for their insurance coverage,” Lazar writes in the report, which was published on Tuesday by the OTLA.
Lazar adds that the excess payments amount to approximately $ 143 per insurance policy, per year in the province.
“I estimate that over the past five years, the overpayment’s may have added up to $ 5 billion,” Lazar said in a press release. “This represents 9.5 percent of the total premiums paid during the same amount of time.”
Lazar calculated possible pre-tax earnings by examining the financial performance of auto insurers, including return on capital. However, he says it’s hard to be sure, because these companies “do not publicly report the capital allocated to their car insurance operations in Ontario, the net investment income attributable to such operations, or their actual operating expenses.”
Speaking at a press conference Tuesday, Lazar said that change in the system must come “on the political side.”
NDP, MPP Wayne Gates, pressed the provincial government to stop the “increase” in insurance rates in Ontario during the questioned period in the provincial parliament Tuesday.
“Why did the prime minister deliver a 60 percent increase in profits to insurance companies, instead of delivering a 15 percent savings to Ontario families?” The MP said.
Finance Minister Charles Sousa said the government is aware of “alarming costs that actually exist in our system” and is taking measures to “increase consumer protection, combat fraud and ensure that those injured in an accident receive the attention they need, when they need it. ” ” He also pointed to the establishment of the Financial Services Regulatory Authority, as an important step in addressing this situation.
Sousa also noted that the report was commissioned by the OTLA, a group of lawyers that also increased the costs in the system.
“It’s about caring and not about cash, which is what we try to avoid in the abuse of the system,” he said.
Sousa says the province has reduced insurance rates by up to 11 percent. However, that still falls short of the 15 percent target the Liberals set in the 2013 budget, which was supposed to have been reached in August 2015. The premier Kathleen Wynne described that goal as a “stretch target” in January.
“We have to do better,” Sousa said Tuesday.
Lazar and his colleague Schulich’s professor, Eli Prisman, published an earlier version of the report in the Risk Management and Insurance Review magazine in 2015. Lazars says that the OTLA approached him to update the report with 2015 and 2016 data.
According to Lazar’s updated estimates, Ontario drivers may have overpaid up to $ 9.2 billion between 2001 and 2016.
OTLA says the findings point to the need for greater transparency in the province’s auto insurance industry. The organization is also asking that the issue become a topic of discussion during the province’s electoral campaign.
The OTLA describes itself as “an advocate for the rights of those who have suffered injuries and losses through the misconduct of others.” Your membership consists of plaintiff attorneys and their staff.
“This update is just another example of how Ontario’s auto insurance system needs a complete rethink,” Claire Wilkinson, president of OTLA, said in a press release.
The total cost of claims increased by an average of 4.5 percent per year, or 19 percent between 2012 and 2016. “We agree with OTLA that the system Insurance must be reformed for the benefit of consumers, but claiming that the excess profits of the insurer is the cause is simply false, “he said.
Lazar acknowledges in the report that his overpayment estimates” may be challenged, “though he suggests that estimates Over-payments could be higher if the insurers’ operating costs are less than the 25 percent used in their model.