Understanding Ontario’s Rate Approval Process

What Are the Quarterly Auto Insurance Rate Approvals?

Four times a year the Financial Services Commission of Ontario (FSCO), the provincial insurance regulator, releases the average change in auto insurance rates approved by FSCO over the previous three months.

Although only some insurance companies may have filed for rate changes, FSCO will determine what the average change is for the entire insurance market. For example, if companies representing 20% of the market received approval for an average 5% increase, the average impact on the entire market would be 1% (5% x 20/100).

The quarterly reports are intended to inform consumers about how insurance rates are trending. In addition, the FSCO report also lists each company that had a change in rates approved.

Why Do Insurance Companies Apply For Rate Changes?

Most premium dollars go towards repairing cars and to assisting people injured in auto accidents. Cost structures and claims experience varies across the insurance industry and each company will determine what they need to charge their customers. That is why it’s important for consumers to shop around. An independent broker can assist a consumer in shopping for the best rate.

Currently, there is upward pressure on auto insurance rates in Ontario. Insurance companies are reporting an increase in claims costs related to property damage, in part because of the rising cost of repairing increasingly technologically advanced vehicles. In addition, there is growing concern related to distracted driving. As the number of accidents due to inattentive driving increases, so too do the claims costs.

Not all rate approval applications are for increases. Some companies may look at their costs and determine a rate decrease can be accommodated. In some cases, insurers decide to move rates up and down for groups of customers based on cost experience although the average across the board for all their customers may be zero. For example, an insurer has determined that the claims costs for younger drivers has gone up while the cost for other age groups has gone down.

How Does FSCO Decide Whether a Rate Change Application is Appropriate?

Insurers must submit proposed changes to their rates to FSCO for approval along with supporting actuarial data. FSCO and its actuaries review this data and insurers’ assumptions regarding future claims costs, expenses and investment income to ensure that, as required by law, the proposed rates are:

• Just and reasonable;
• not excessive; and
• not going to impair a company’s financial solvency.

Following FSCO’s review, an insurance company may be required to amend its proposed rates before they are approved. FSCO cannot deny a rate application if meets the above criteria. The regulator can request that an insurer file new rates and can even mandate a decrease, as long as the rates are being charged are reasonable and do not impair and company’s financial solvency.

An insurance company cannot charge a rate that has not been approved by FSCO.

Why Are My Insurance Rates Going Up More Than the Approved Increase For My Insurer?

The approved increase for an insurer is an average of all drivers. Rates between territories can vary considerably. However, the rate quoted by an insurer for an individual consumer will be the same for consumers with the same driving characteristics, including:

• The vehicle insured
• Where he or she lives
• Driving experience
• At-fault accident and conviction history of drivers
• Whether the vehicle is used for pleasure or commuting, and
• Choices made by the consumer on coverages purchased and deductible or liability limits.

Also, as most consumers purchase annual policies, any changes approved for the insurer and effective prior to the policy renewal date, or changes in the policyholder’s circumstances since their last renewal (e.g., at-fault accidents, driving convictions), will impact the rate at renewal.

Consumers are urged to shop around for auto insurance. Ontario has a very competitive marketplace. Rates for the same coverage vary based on each insurer’s claims costs and the insurer’s rating system. An independent broker can assist a consumer in shopping for the best rate.