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Ontario Premier Kathleen Wynne listens as Ontario Finance Minister Charles Sousa speaks at an event in Barrie, Ontario on Friday April 26, 2012.

Frank Gunn/THE CANADIAN PRESS

Ontario plans to slash auto insurance premiums by an average 15 per cent, empowering a regulatory body to force insurers to cut their rates.

The tough new measures, announced by Finance Minister Charles Sousa Tuesday, go further than the government had previously been willing to go in offering relief to drivers. They demonstrate how badly the minority Liberals want the backing of New Democratic Leader Andrea Horwath, who demanded the insurance cut as a condition for backing Mr. Sousa's budget later this week.

The plan is full of potential pitfalls. Insurers have repeatedly warned that imposing such a cut could lead companies to reduce benefits or refuse to insure people in order to make up for lost revenue. Some insurers may even leave the province or lay off staff.

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But Mr. Sousa framed the move as a matter of fairness. It will save the average household $225 per year and give rate reductions to nine million people, he said.

"It's essential that we take this step forward … We need to reward safe drivers who share our roads and we need to look out for them," he said at an east-end auto repair shop. "Let's address the critical issues that cause premiums to rise and ensure the savings are passed on."

The government's strategy includes giving the Financial Services Commission of Ontario more power to crack down on fraudsters and to oversee health clinics that invoice insurance companies. It would also set binding guidelines around benefits to be paid out to accident victims in a bid to speed up court and arbitration cases between people who get into car crashes and their insurance companies.

Such moves are intended to increase industry revenues. Initially, the Liberals wanted to implement such measures and allow the savings to trickle down to consumers over time.

But on Tuesday, Mr. Sousa went further, announcing that he will bring in legislation ordering a 15-per-cent average cut to premiums and mandating that insurers give bigger discounts to drivers with the safest records.

These measures will take effect as soon as the legislation is passed, Mr. Sousa said. However, he would not commit to hitting the 15-per-cent target within one year, as the NDP had demanded.

The insurance industry was pleased with the anti-fraud measures Mr. Sousa announced, but said the government has to do more to make companies profitable if it wants them to achieve the 15-per-cent rate cut.

"We aren't thrilled with the government ordering that kind of reduction. But we understand with the political climate," said Ralph Palumbo, Ontario vice-president of the Insurance Bureau of Canada. "In order for it to be effective, the government has to bring in reform to the product that is commensurate with a 15-per-cent rate-reduction target. The province still has to do more work to reduce the costs in the system."

For instance, he said, the government must find a way to clear up the backlog of arbitration cases and firm up the definition of a catastrophic injury, which would allow companies to more accurately predict how much they must pay out in benefits.

While Ms. Horwath has said she will likely not make a decision on the budget until she has several days to analyze it, the Liberals are making it as hard as possible for her to turn it down.

Premier Kathleen Wynne has met, in full or in part, most of the NDP's demands: The budget will contain money to reduce waiting times for home care, four new programs to create 30,000 jobs for young people and welfare reform. Mr. Sousa has also asked his federal government counterparts to crack down on companies that dodge corporate taxes.

The budget will be tabled Thursday.

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