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High injury claims costs make auto insurance in Ontario priciest in Canada, says Auditor General

Ontarians are paying more for auto insurance than their counterparts across the country, says Jim McCarter, the province’s Auditor General, and it’s due – in part – to the cost of accident injury claims. In his 2011 Annual Report, McCarter found that the average cost of automobile accident injury claims in Ontario is $56,000 – about five times higher than the average injury claim in other provinces.

“The Ontario government has taken some recent initiatives to address the high cost of auto insurance claims in the province, but still faces a number of challenges to ensure that premiums remain affordable and accident benefits are reasonable,” McCarter said following the release of the Report on December 5.

The Financial Services Commission of Ontario (FSCO), an arm’s-length agency of the Ministry of Finance, oversees the auto insurance sector and supports the government’s responsibility to balance the need for a financially stable auto insurance sector with the need to ensure consumers pay reasonable premiums and receive fair claim benefits when they are involved in accidents.

Ontario drivers, particularly those in the Greater Toronto Area, generally pay much higher auto insur­ance premiums than other Canadian drivers. While this is partly due to high claim costs, Ontario also has one of the most comprehensive and highest benefit levels in Canada, the Auditor General stated.

“Auto insurance fraud is a big problem in Ontario,” said a statement from the Office of the Auditor General of Ontario. “Industry estimates put its value at 10% to 15% of all premiums paid in Ontario during 2010—as much as $1.3 billion. Unlike many other jurisdictions in North America, Ontario does not have significant measures in place to combat fraud and was awaiting the recommendations of a government-appointed task force expected in the fall of 2012.”

The following are some of the Auditor General’s other significant observations:

• The total cost of auto insurance injury claims in Ontario rose by 150% between 2005 and 2010, even though the actual number of injury claims rose only 30% over the same period.

• FSCO offers a mediation service for people who disagree with settlement offers from insurers, but since about half of all injury claims end up in mediation, the service is so backlogged that dispute resolution takes 10 to 12 months rather than the legislated 60 days.

• FSCO had not routinely obtained assurances from insurance companies that they had paid the proper amounts for claims. Without such assurances, there is an increased risk of unnecessarily high payouts, which could help insurers get FSCO approval for higher premium increases.

In his 2011 Annual Report, McCarter also said that provincial ministries and agencies must do a better job of collecting “meaningful and reliable information about their programs.” He points to the following examples and the need for better information.

  • The Green Energy and Green Economy Act authorized the government to fast-track the development of wind and solar power projects without many of the usual planning, regulatory, and oversight processes. On a go-forward basis, it will be important that government decision-makers are provided with information to assist them in striking the appropriate balance between promoting green energy and the higher electricity prices that households and business enterprises will be paying for such energy.
  • Since 2002, consumers have paid a special debt retirement charge on their monthly electricity bill that was intended to pay off $7.8 billion in what is called the “residual stranded debt” of the old Ontario Hydro. Since then, consumers have paid $8 billion, but the Minister of Finance has never provided a public update on how much of the debt remains—even though the Electricity Act requires the Minister to do this “from time to time.”
  • The Ministry of Natural Resources needs more reliable information about whether Ontario forests are being successfully regenerated by private-sector forestry companies. It can accomplish this by exercising more diligence in its oversight activities.
  • In an effort to improve service to the public, the Ministry of Health and Long-Term Care has introduced significant changes to the way many family doctors and specialist physicians are compensated. Even though there has been a significant cost increase as a result of these changes, the Ministry does not know whether these measures have produced the expected benefits.
  • On a per capita basis, Ontario spends more on legal aid than any other province but provides the fewest number of low-income residents with dedicated legal representation. As a result, more people have to rely on Legal Aid Ontario’s website and courtroom duty counsel. Legal Aid Ontario does not have the information needed to assess the impact of this on the legal needs of low-income people.
  • As a matter of policy, the LCBO pays suppliers a percentage of the retail price it wants to charge for their products. However, if it took advantage of its purchasing power as one of the biggest buyers of alcohol in the world to obtain lower wholesale prices, it could then assess whether paying those lower prices would still allow it to meet its retail-pricing objectives and increase its profit margins.
  • The Office of the Children’s Lawyer has historically exercised its discretion to refuse about 40% of child custody and access cases referred to it by the courts but has never formally assessed the impact of these refusals on the children, their parents and guardians, or the courts.
  • The Ontario Trillium Foundation provides more than $100 million a year in grants to not-for-profit and charitable groups. While it has a well-defined grant review and approval process, the supporting documentation often could not demonstrate that the most worthy projects were funded for reasonable amounts and that the funds were spent for the intended purpose.
  • Five years ago, the Ministry of Training, Colleges and Universities stopped collecting data from the province’s 470 private career colleges on graduation rates and post-graduation employment success. Students who responded to our survey said this kind of data would be extremely useful to them in deciding their future career path.
  • The Ministry of Community and Social Services relies on hundreds of community agencies to deliver most of the services that its Supportive Services program provides to help people with developmental disabilities live at home and work in their communities. However, the Ministry did not know whether the agencies were delivering an appropriate level of service for the funding they received nor the extent of unmet service demand.

Full audit report is available online.

You might also be interested in: How the Greater Toronto Area affects Ontario auto premiums 

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