Will Ford tackle Insurance issues?

[Type17]

The Ontario Liberals have a cozy relationship with the insurance industry, together they collaborate on regulations and setting rates so the gov't maximizes revenues and the insurance lobby maximizes profits. The insurance buying public gets stuck with the bills in this faux-market system.

Do you think there is a way Ford can be persuaded to reduce regulation and make auto insurance more competitive for Ontarians?

I doubt Ford would tackle this stuff if he wins. Car insurance rates are pretty reasonable and since most people in Ontario are cagers, this is a total non issue.

That said, some risks are forced on insurance companies because they are tail risks with low probability but devastating impact to the person buying insurance. Without regulation, you can opt out, but if it happens to you and you end up on your *** because you can't work and your employer benefits ran out, you better not be out there on kickstarter grovelling for cash or complaining that there isn't enough help out there and the state isn't taking care of you.

Maybe paying high insurance on motorcycles is enough to dissuade you from engaging in a high risk activity, passes the cost of the activity to you, and results in a fairer shouldering of the consequences of your activities than if you almost died and lived off of benefits your entire life. It may actually be cheaper at a societal level (once you account for changes in behaviour and incentives) to have this system, than to allow you to opt out of some coverage then have the state cover your bills from tax revenues.

In any case, i don't think insurance is as much of a racket as it seems. Small insurers pop up and go out of business pretty frequently, and margins really aren't that high on average. If we were cheap to insure and all low risk, then the market would take care of us appropriately.

 

[Baggsy]

Is that 15% cut from the Liberals retroactive?

Some people were asking, because they haven't seen it yet.

 

[J_F]

It's not about accident benefits, it's about the regulatory climate that puts industry in cahoots with gov't to fix prices for guaranteed revenues and profits.

1) Their pricing and risk rating schemes are not transparent. Who knows if Hayabusa riders pay more because insurance companies expect them to be high earners or because insurance payouts are higher than those riding R3s. We're not allowed to know.
2) They have zero incentive to fight fraud. Other regulations make that difficult and the regulator lets insurance companies build losses into the cost base they use to determine their profit guarantee.
3) There is no opportunity for aggressive competitors to enter the market - it's closed by virtue of membership and regulation.

Why should a 20 your old driving a Jeep Patriot pay $1400 in Winnipeg, $3000 in Calgary and $4200 in Toronto?

I'm a conservative so I carefully think through any recommendations that involve gov't doing more. Considering our economy is hip-linked to transportation, this might just be an area where a gov't run program like MB and BC could actually benefit the province AND it's taxpayers.

accident benefits are a function of the regulatory framework
while the concept has had a few different names based on changes in government
it started with the Peterson Liberals when no fault became law in '90

premiums and benefits were low and the system worked fairly well for a few years
then Ontario took a stroll down Rae Lane and all hell broke loose
after a failed attempt at public insurance full blown accident benefits were legislated
this is when the rampant fraud started and premiums skyrocketed

Rae got tossed and Harris made some small improvements

then McGuinty was elected and the turds hit the fan again

I don't like having about 50% of my premium going towards something I don't want or need
I have disability insurance already, and pay through the nose for public health care

and paying it twice, once for the car and again for the bike is outright theft

as for transparency in underwriting, never gonna happen
actuarial science is top secret stuff, will never be publicly shared

 

[Type17]

Is that 15% cut from the Liberals retroactive?

Some people were asking, because they haven't seen it yet.

Doug will give it to them straight out of his pocket if nothing else. Just tell them to close their eyes and open their mouths; their savings are incoming.

 

[Mad Mike]

In any case, i don't think insurance is as much of a racket as it seems. Small insurers pop up and go out of business pretty frequently, and margins really aren't that high on average. If we were cheap to insure and all low risk, then the market would take care of us appropriately.

There is no way to calculate margins the way Ontario's market is regulated. The comparison is price and the consumer level, that is the measure of efficiency in a market.

In Ontario, the gov't regulates insurance in cooperation with the insurance industry. They collaborate on pricing, product bundles, and work together to control who has access to the market. For gov't, it assures they collect a guaranteed revenue from transfer payments, for insurance companies it guarantees profits.

Issues:
It's completely controlled, but not transparent therefor difficult to challenge rate schemes and costs.
There is no incentive to fight fraud, the regulator allows these to be included as a cost before setting margins, these costs get fully passed along to consumers.
Insurers have a bigger hand in making rules than do consumers, they use this to create rules that keep revenues high and competition low.
Competition is restricted by limiting market access.

The most important question is why are costs so much higher than any other province, while crash rates are the lowest in the country?

 

[Mad Mike]

accident benefits are a function of the regulatory framework
while the concept has had a few different names based on changes in government
it started with the Peterson Liberals when no fault became law in '90

premiums and benefits were low and the system worked fairly well for a few years
then Ontario took a stroll down Rae Lane and all hell broke loose
after a failed attempt at public insurance full blown accident benefits were legislated
this is when the rampant fraud started and premiums skyrocketed

Rae got tossed and Harris made some small improvements

then McGuinty was elected and the turds hit the fan again

I don't like having about 50% of my premium going towards something I don't want or need
I have disability insurance already, and pay through the nose for public health care

and paying it twice, once for the car and again for the bike is outright theft

as for transparency in underwriting, never gonna happen
actuarial science is top secret stuff, will never be publicly shared

I'm with you for everything but the transparency part.

I don't care to see the formulas an actuary uses to compute risk, I want the raw data. You can get high level comparisons on the theft rates and repair cost of an accident/incedent by vehicle, but nothing that relates that to frequency of payout. They also hide all demographic data, so we don't really know if a 20 year old single female costs less to insure than her 35 year old married male counterpart.

 

[J_F]

I'm not sure our auto insurance racket is much different in that regard to other insurance lines, MM?

life and home can vary wildly as well, and the risk reasoning is still always vague

 

[Type17]

I'm not sure our auto insurance racket is much different in that regard to other insurance lines, MM?

life and home can vary wildly as well, and the risk reasoning is still always vague

It would be vague though and it is so on purpose; it's the secret sauce of insurance of the insurance business. Costs vary annually because they set pricing annually to recover losses and meet certain targets. Too low and you lose money or miss targets, too high and your clients go somewhere else.

There isn't a monopoly on insurance so I'm not sure why people think there isn't competitive tension... You don't need 1000s of big firms to have competitively priced insurance. Also i'm not an actuary, but losses and premiums become harder and harder to predict as your sample size gets lower so you'd get more volatility in your losses resulting in higher premiums...

It's kind of an interesting math problem.

 

[Mad Mike]

I'm not sure our auto insurance racket is much different in that regard to other insurance lines, MM?

life and home can vary wildly as well, and the risk reasoning is still always vague

Life and home prices vary from company to company based on each insurer's risk appetite -- prices are fairly consistent from province to province. Auto is not like that, the best prices in Ontario are always higher than the rest of Canada, some drivers minimum price is 3x higher than other parts of the country.

The insurance industry also keeps regulations in place that are designed to protect profits, a good example of this is the lack of blanketability in auto. I can cover me my 2 sons, daughter, wife, dog, house, boat, cottage, skidoo, ATV, dirtbike, hang glider and jetski under a single $1m personal liability blanket. I can't cover 2 motorcycles.

 

[Mad Mike]

It would be vague though and it is so on purpose; it's the secret sauce of insurance of the insurance business. Costs vary annually because they set pricing annually to recover losses and meet certain targets. Too low and you lose money or miss targets, too high and your clients go somewhere else.

There isn't a monopoly on insurance so I'm not sure why people think there isn't competitive tension... You don't need 1000s of big firms to have competitively priced insurance. Also i'm not an actuary, but losses and premiums become harder and harder to predict as your sample size gets lower so you'd get more volatility in your losses resulting in higher premiums...

It's kind of an interesting math problem.

True, it's not by definition a monopoly, it's a cartel. Cartels are structurally different than monopolies, however they share the same goals of controlling revenues, costs and profits.

 

[Type17]

True, it's not by definition a monopoly, it's a cartel. Cartels are structurally different than monopolies, however they share the same goals of controlling revenues, costs and profits.

Do you actually know that for a fact or are you speculating? As far as I know, any sort of collusion is illegal in Canada.

 

[PrivatePilot]

I think a lot of you are missing the underlying problem with our insurance market here....fraud.

This has been well known issue for years. http://business.financialpost.com/o...ontarios-auto-insurance-system-is-a-car-wreck

When the fraud issue is dealt with and the costs associated with it disappear, assuming the government actually forces the insurance companies to adjust rates accordingly (not just swallow up the savings and wallow in the extra profit) we should see some results.

Can Ford accomplish that? Who knows.

 

[J_F]

I think a lot of you are missing the underlying problem with our insurance market here....fraud.

This has been well known issue for years. http://business.financialpost.com/o...ontarios-auto-insurance-system-is-a-car-wreck

When the fraud issue is dealt with and the costs associated with it disappear, assuming the government actually forces the insurance companies to adjust rates accordingly (not just swallow up the savings and wallow in the extra profit) we should see some results.

Can Ford accomplish that? Who knows.

to complete the RCA
what component of mandatory insurance is most subject to fraud?

 

[Mad Mike]

Do you actually know that for a fact or are you speculating? As far as I know, any sort of collusion is illegal in Canada.

The competition bureaus does not intervene in cartels that include a government regulator, the regulator has the authority to oversee price fixing and supply manipulation. In the case of auto insurance, the cartel leverages the regulator through a lobby and through cooperative agreements between govt and insurance to pay offsets back to the government.

With a good regulator this is a workable situation and could benefit all of us. I don't blame the insurance companies, they are businesses and their goals are business goals. The regulator, FCSO, should be working toward a taxpayer mandate. There are a couple of big things the regulator lets insurance away with that cost us all.

1) Cost of fraud. Insurance companies are allowed to bundle fraud costs into their base cost, which is the major component of their cost base. Imagine if all the banks got together and did the same, then asked the FCSO for approval to quadruple banking fees.

The FCSO should take a base line for insurance fraud costs across Canada, then ask the insurance companies to manage averages instead of passing that directly on to consumers. Gov't could also make changes that would make fraud easier to fight.

2) Restriction on supply. The insurance lobby collaborates to keep blanket products out of the Auto insurance market, a supply restriction made legal by the presence of a regulator. The regulator already forces a standard set of base and optional offerings, they could simply add blanket that would dramatically reduce costs for multi-vehicle owners.