Because
of a flawed government formula, Ontario drivers paid out between $3 billion to
$4 billion more than they should have on auto insurance premiums between 2001
and 2013, according to a study released Friday.
In
2013 alone, Ontario drivers may have over-paid by $840 million, according to
the study by Fred Lazar and Eli Prisman, economics professors at the York
University Schulich School of Business.
The
study was done for the Ontario Trial Lawyers Association, a group representing
Ontario’s personal injury lawyers.
Ontario’s
no-fault benefits were significantly reduced by the government in 2010 and profits
in the industry have increased considerably since then.
The
2010 cuts resulted in the maximum for medical and rehabilitation benefits for
most victims injured in accidents reduced to $3,500 from $100,000. For serious
injuries the maximum was reduced from $100,000 to $50,000.
In
just one year, between 2010 and 2011, industry payments to accident victims for
no-fault benefits fell 50%.
How
Profitable Is The Auto Industry?
At
the heart of the report’s controversial findings is the appropriate measure that
should be used to set the allowable return on investment for auto insurance
companies.
The
report suggests that there is significant room to reduce rates by as much as
7.9 per cent based on 2013 data about profit in the insurance industry.
The
study looked in detail at how the Financial Services Commission of Ontario
(FSCO), which regulates auto insurance on behalf of the Government of Ontario,
calculates the allowed profit in the industry.
The
authors of the report found that a KMPG study which the FSCO used to set a
return on premiums rate for the industry was flawed, as it underestimated
industry profitability.
The
FSCO sets a return on premium benchmark of six per cent in the
auto industry. That is the equivalent of a 12 per cent return on equity,
the study said. More
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