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The Ontario government is proposing to cut average auto insurance rates by 15 per cent in Thursday's budget, and to introduce industry reforms, but the steps don't come close to balancing out the costs for insurers, some in the industry say.

The governing Liberals did not give a time horizon for the changes, which could reduce annual insurance premiums by $1.5-billion, or $225 for the average driver, although consumers with safe driving records are likely to see the greatest benefit.

But it's possible that some companies in the insurance industry may not see enough savings in the reforms the government is proposing to avoid taking action elsewhere to offset the rate reduction.

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Weeks before Thursday's provincial budget, Aviva Canada Inc., Canada's second-largest personal and commercial insurer, sent a warning note to NDP Leader Andrea Horwath saying that reducing rates without balancing out the costs for insurers could force the companies to take profits from other insurance streams and use them to fill in the auto hole.

Another scenario proposed by Maurice Tulloch, chief executive officer of Aviva, was to use profits from other provinces in the same manner – part of a process called cross-subsidization, which would spread the burden of Ontario's auto cuts to other customers. In his letter, Mr. Tulloch noted that the average insurance benefits claim payout in Ontario to cost nearly $29,000, while in Alberta the cost is closer to $3,600.

The government's budget plans show it wants to pursue change, although the process could take years. It is proposing a crackdown on insurance fraud, a $1.6-billion problem for the province each year.

"The government has identified fraud, and I don't think that's enough, but it has to be done," said Ralph Palumbo, Ontario vice-president of the Insurance Bureau of Canada.

Under the budget, the Financial Services Commission of Ontario (FSCO), overseer of the insurance and pension industries in Ontario, would gain new powers to fight fraudulent insurance claims, including oversight of health clinics and practitioners, who bill auto insurers for injuries sustained in accidents.

This change follows changes to the auto insurance industry in 2010 by FSCO, which aimed to lower the payout cap for minor injuries in an effort to deal with rising costs.

Beyond curbing fraud, the government is proposing several reviews, with the possibility of changing the way injuries are treated based on current medical standards, and introducing an annual report that will assess progress.

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The IBC would like to see FSCO reform its mediation arbitration. The government's budget said dispute resolution system will also be sent for an expert to review. That person will propose legislative amendments in the fall of 2013.

"But without being able to oversee the health clinics and practitioners, it's hard to get the information you need to say what is reasonable [coverage] based on the injury," said Janine White, vice-president of marketplace at Kanetix Ltd., which operates a website that allows consumers to compare insurance quotes.

The IBC would like to see FSCO reform its mediation arbitration process, a dispute resolution system that, as of 2011, was clogged with 30,000 claims cases, with a wait time pushing 10 months. "It's now down to about 12,000, but I'm not sure that truly 18,000 cases have been dealt with, because many of those have been given to an outside resolution firm to deal with," said Mr. Palumbo.

At least one insurer is concerned that the cuts will be distributed across the industry. "The Co-operators was one of the only companies that reduced rates in 2012 – by 10 per cent compared to the industry average of 0.27 per cent," said Maya Milardovic, the company's senior government relations adviser. She is optimistic that FSCO will be able to calculate which companies need to make the premium cuts, and when.

A spokesman for Canada's largest P&C insurer, Intact Financial Corp., said the company welcomes Mr. Sousa's intention to adopt measures that will address the price of premiums, so long as they are balanced by equal reductions on the cost measures.

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