Slashing all car insurance rates during COVID-19 would be 'overly simplistic,' says industry CEO

Transcript

Despite the enormous drop in vehicle collisions on Canada's roads during the coronavirus pandemic, the nation's insurance bureau insists there is no reason to lower insurance rates across the board. 

Ontario Provincial Police said there were 953 collisions in and around the Greater Toronto Area over the last month — compared to more than 2,500 over the same period last year. That's a drop of over 62 per cent. 

Don Forgeron, president and CEO of the Insurance Bureau of Canada, says that because of the "substantial" decline in crashes, the insurance industry has "decided that adjustments need to be made to better reflect the reduced risk." 

However, Forgeron told As It Happens host Carol Off that a blanket rate reduction is "an overly simplistic approach to what is a complex issue."   

Here is part of their conversation. 

What does this mean for the auto insurance industry?

It's clear that when the premiums were set for policies that consumers currently have, they were set in a different time and place. They were set with the expectation and the belief that accident rates that were in existence during 2019 would continue into 2020. Clearly, that has changed substantially.

Because of that, the industry has decided that adjustments need to be made to better reflect the reduced risk. 

What kind of adjustments? 

The industry is made up of about 180 different insurers and they all have their own business models and all insure different segments of society.

What [the majority] announced a couple of weeks ago was for consumers whose driving habits have changed substantially … there ought to be premium reductions as a result of that. 

Insurers have taken variations on that theme. Their customers are getting in touch with them and adjustments are being made to those policies.

So people have to actually be proactive? The customers have to say that they are not driving as much and the car has been sitting in the driveway since the beginning of March. Or do the insurance companies themselves initiate this?

The insurance companies, of course, would have no way of knowing what your circumstances are, whether or not they've changed or in what way they've changed. So, yes, it does require the customer to get in touch and let their insurance broker or their insurance company know what has changed.  

The insurers themselves would decide what kind of discounts might be given to those customers? 

Yeah, auto insurance rates are heavily regulated in Canada. There are provincial rate regulators in each province who establish rates. And there are a lot of rules and guidelines around how these changes need to be made.  

This is not just left to chance. So companies would have to offer reductions or rebates or changes in line with rules that would have been approved by regulators when the rates were originally filed.  

Some companies have done it differently. Some have decided to simply write a cheque, a refund cheque to consumers. Others are providing deferred payments. Others are providing a credit against their policy. 

The New Democratic Party in Ontario is asking for auto insurers in the province to cut all rates by 50 per cent. Why not just do that?

I understand the sentiment behind that, but what I don't understand is the science behind that. Insurers rely on actuarial science — so do regulators — to arrive at a premium for a consumer that's reflective of the risk. 

Simply pulling a number out of the air, [like] 50 per cent, just wouldn't fly with regulators. There's more science to it than that. It's an overly simplistic approach to what is a complex issue.  

Is the auto insurance industry going to see increased profits [during the pandemic]? 

Like everything else through this crisis, it's impossible to know how this all plays out. 

The industry underwrites commercial insurance. It underwrites property insurance. It's also affected by the stock market and the ups and downs that we're witnessing there. And so it's far too early to tell how this all plays out.

But what I can tell you, I know most of your listeners won't believe what I'm about to say, but going into this year, the industry was marginally profitable. 

It's not an industry that attracts huge returns on investment and it has been a difficult three to five years, driven in large part by natural catastrophes right across the country.

Written by Adam Jacobson. Produced by Tayo Bero. Q&A has been edited for length and clarity.