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Business Commentary Auto insurance regulation in Ontario needs a dramatic overhaul

Colm Holmes is president and CEO of Aviva Canada.

When a car is classified as a write-off, that usually means it’s time for a new one. As many consider Ontario’s system of auto insurance regulation as badly broken, could the same guidance be applied here?

Ontario drivers continue to pay among the highest rates in Canada – particularly in the Greater Toronto Area – and they deserve relief from the repeated frustration of increasing rates annually.

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We welcome the recent actions by the Ontario government and the province’s Financial Services Regulatory Authority of Ontario. The announcement of a public consultation on the auto insurance system – asking Ontarians to submit their views – is a great opportunity to get to the heart of the issue and, most important, sets the stage for genuine reform. Consumers deserve to have more choice, innovative products, in a system that is free from fraud and abuse. True change does not come from tinkering around the edges, because a new paint job doesn’t matter if your car is a total write-off.

Imagine an insurance policy that is simpler and easier to use, and easier to understand. Do we really need more than 600 government regulations to govern auto insurance in Ontario? How does today’s consumer benefit from them? By eliminating red tape and complexity, we could better manage costs that are ultimately borne by the consumer.

Embracing technology is one surefire way to kill some of the complexity involved in insurance today. For example, we have long advocated for digital proof of insurance to replace those pink liability insurance cards, similar to what is available so far in Nova Scotia and in the vast majority of U.S. states. After all, if today’s new cars are loaded with all sorts of technology, why can’t its driver be afforded the same benefits to modernity? If the slow path to implement digital proof of insurance is any indication, we will continue to struggle to adopt more innovative technologies that could make the process of buying and claiming on insurance more efficient and more convenient for the customers who use it.

More choice and a greater range of options should be available for consumers when they are buying auto insurance. When you buy a car, you can choose among a number of options at a number of price points. You can add features or decline them. You can choose what is important to you, and what you are willing to pay extra for. Every vehicle must still meet a certain standard and while the industry is regulated, we’re not all forced to drive the same make and model of car. Yet, when it comes to auto insurance, the government mandates practically every aspect of the product we offer – from the coverage available to the price that is charged.

Customers are not permitted to opt out of coverages even if they already have similar protection through other products such as life insurance, extended health-care insurance or disability insurance. This is cumbersome, expensive and unnecessary. Eliminating this duplication could reduce the cost of insurance for many drivers – enabling them to purchase the right amount of coverage for their life stage and lifestyle.

When it comes to pricing, the current rate regulation process adds costs and delays. It hinders insurers’ ability to innovate and react to market conditions; and it stops us from offering more competitive pricing for those who deserve it. Most jurisdictions have moved on from this type of strict rate regulation, because the added bureaucracy does nothing to lower the cost of insurance. In a free-market economy, consumer choice creates competition, which leads to innovation and tends to drive prices lower. Yet in our current system in Ontario, that choice is not allowed. In terms of insurance products and innovation, we all are forced to buy the same car.

While the global financial services industry is evolving through innovation and advanced technologies, the insurance industry struggles to innovate. Simply put, Canadians are not benefiting from the emerging technologies in the global insurance industry because overregulation prevents innovation.

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These types of reforms should not be seen as merely a lofty ambition. We owe it to drivers in Ontario to break the status quo. We must create a better system – and that starts with imagining how it could be, not just complaining about how it is.

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