Have you noticed your insurance rate inching ever skyward over the past few years? It’s not just you. Since the pandemic, the auto insurance industry in Ontario and across Canada has been rocked by unprecedented rates of auto theft, a microchip shortage, shipping delays, economic inflation and climate change – all of which result in higher premiums and more expensive cars.
Between February 2023 and February 2024, the average insurance premium in Canada increased by 6.6%. By comparison, in Ontario, that increase during that same period was 11%.
With insurance rates soaring and no end to the auto-theft crisis in sight, both the government and the insurance industry are closely examining ways to help keep costs down for drivers while combating the organized crime networks behind these latest spates of carjackings.
On March 26, the government laid out their official budget for 2024, which combines both proposals and enacted legislation regarding how the province allocates their finances. Their larger plan for transportation includes extending the cap on gas and fuel tax, removing fees on licence plate renewals and a proposal to ban new tolls on highways and other new changes.
Their plans for auto insurance build on existing plans, ranging from increasing optionality to evening out rates between postal codes.
Here’s a look at what was discussed, and what to expect in 2024 and beyond.
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More optionality (and a little bit less)
In January of this year, drivers were officially able to opt out of Direct Compensation-Property Damage insurance (DCPD), a previously mandated piece of insurance that protects drivers found not at-fault in a collision.
Allowing drivers to opt out of DC-PD is one indication of this government’s approach to legislating auto insurance. In a budget announcement on March 26, the Ontario Minister of Finance Peter Bethlenfalvy emphasized the need for more optionality in auto insurance by allowing consumers to opt in on certain types of insurance benefits.
“We’ve moving forward with auto insurance reforms that would provide more choice and flexibility to drivers in order to keep their premiums more affordable,” he announced in the budget announcement.
The government has proposed to make all benefits optional — with the exception of mandatory medical, rehabilitation and attendant care benefits. They reason that this move could potentially help drivers reduce their insurance premiums by removing certain parts of their insurance that would otherwise be covered by extended health insurance (say, through work-sponsored health plans).
As part of that proposal, medical and rehabilitation damages following a collision would be covered by auto insurance first, before extended health care. (Currently auto insurance is the second payer to injury claims).
New proposals might mean drivers paying more for less
The intention behind having these damages covered by auto insurance by default is to cut down on paperwork and what the government calls “red tape” for patience and hospitals.
However, some critics warn that making auto insurance pay out first – even if the accident victim has an extended medical plan that could cover the damage – might increase costs to the insurer, who would then have to pass on costs to their customers. And the only way to pass on costs to customers is through increasing their premiums.
In fact, a 2019 study by the C.D. Howe Institute found that auto insurance customers in Newfoundland and Labrador were paying 35% more in insurance than insureds in other Atlantic provinces primarily due to high injury claims.
In her column on Driving.ca, Lorraine Sommerfeld stated it more bluntly: “On the surface, it appears to make things clearer for the injured party to get repaired. Behind the scenes, it could end up being a shell game that saves nobody anything.
The benefits that the government does seek to make optional might have negative affects on the consumer as well. Ontario budget makes no claims on how much consumers would be saving by opting out of certain insurance benefits.
“I don't think this is where we have any sort of specific numbers in terms of the rate of increase or a decrease,” said Bethlenfalvy in a press conference. “What we're really focused on is making sure that we provide as much choice and convenience.”
However, just like with opting out of DCPD, by removing certain crucial pieces of insurance, some critics say, the driver could be left on the hook for much more than your deductible if something does go awry.
“While consumer choice sounds attractive, when it comes to auto insurance, it means less protection for drivers in the long run,” said Laurie Tucker, president of the Ontario Trial Lawyers Association, in a statement to the Financial Post. “The end result is usually higher profits for insurance companies and less coverage for consumers.”
However, this proposal has some supporters.
“The Ontario Budget is a good start towards giving drivers more control over their auto insurance by selecting coverage that best suits them,” says Susan Penwarden, managing director of Aviva Canada. “Aviva Canada applauds the government’s leadership for being the first province in Canada to take a consumer-oriented approach that delivers meaningful choice."
Reassessing territorial ratings
One of the ways that insurance companies assess risk when assigning premiums is by looking at where a driver lives in Ontario. Typically, residents in GTA cities tend to pay more in auto insurance than residents in places like Stratford or Tillsonburg.
This increase could be linked to density-related factors like more drivers on the street, higher theft rates in urban areas, but also social factors such as more advertising from personal injury lawyers (leading to more injury claims) and more expensive cars being owned by city-dwellers.
As a result, there’s a large discrepancy – hundreds of dollars in annual premiums — between what you might expect to pay in insurance based solely on the first three letters of your postal code. Since 2018, various provincial government parties, most notably the Conservatives and the NDP, have introduced various bills throughout the year aiming to stop insurance companies from using postal codes as a primary risk factor when setting rates.
In its budget, the Conservative government continued that effort by announcing a new pilot program in partnership with the Financial Services Regulatory Authority of Ontario (FSRA) inviting insurers in the GTA to evaluate and assess new rate changes across territories.
More flexibility likely to come
While nobody wants to see their insurance rates shoot up when they move a few streets over, working out the distinct territory ratings is a nuanced business. Where you live is one of the biggest determinants of your risk as a driver, said FSRA CEO Mark White in a conversation as part of the 2024 FSRA Exchange hosted in early March.
“Your risk of theft, where you drive most frequently, the density of the traffic, how good the roads are — that is all determined by where you live,” he said. “And so, to take geography out would mean that we would actually increase cross-subsidization, and we’d have rates that are less fair for many consumers.”
In other words – simply getting rid of territorial ratings across the province might lead all Ontarians to bear the cost of the added risk of a few municipalities.
Instead, the pilot program seeks to refine and innovate the territory ratings, rather than do away with them altogether. It invites individual insurance companies to test different risk factors and impacts on rates in a sophisticated modelling environment (without impacting real customer rates), to see what types of findings they come up with.
In the discussion, White suggested that soon, insurance companies might be able to set their own territories with more specificity – even though your address will almost certainly impact your insurance rate, you might not see the same rate impacts across all insurance companies. This means in the future, you’ll likely benefit from shopping around for car insurance to find the best rate for your area.
The pilot launched in January 2024 to cover the GTA and is expected to continue for at least two years, with assessments in other regions in Ontario to follow.
Read more: Can high-risk drivers still save on car insurance?
Cracking down on auto thefts in Ontario
Auto theft has hit a crisis level in Ontario and across Canada. In Toronto alone, police recorded a total of 12,262 car thefts in 2023 – an increase of nearly 20% over the previous year’s 9,835 thefts and over 45% up from 2021.
Provincially, the most recent available data from Equité Association reported a 48% increase in car thefts over the course of 2022.
“Parts of Ontario and in particular the GTA are in the grips of an unacceptable spike in auto thefts,” said Bethlenfalvy in his address. “And just as the organized crime rings behind auto thefts are becoming increasingly sophisticated so too must we.
Ontario has pledged $49 million to support police agencies across the province specifically target auto theft, and another $46 million towards the purchase of our four helicopters that will support patrol efforts.
What changes can you expect from the budget announcement?
Nothing much for now. Most of what the government is proposing for auto insurance remain in the proposal stage and require extensive assessment and testing, as well as ongoing collaboration with FSRA to ensure that the roll-out is as sound as possible.
That’s not to say that no change will come out of it eventually – the option to remove DCPD was first introduced in the Ontario government’s 2022 budget meeting and it was officially enacted this year.
However, it’s worth noting that optionality, while it could reduce insurance premiums, may also cost drivers more in the long run if an incident does arise – in the case of DCPD, the general consensus among insurance professionals is that if you’re concerned that you can’t afford it, you definitely can’t afford to drive without it.
A memo sent to the members of Insurance Brokers Association of Ontario (IBAO) from Impact Public Affairs, a strategy partner of IBAO, stated that these announcements are proposed policy, not legislation. The government is aiming to implement these measures in 2026.
Related: One in ten Ontario drivers have experienced auto insurance fraud: survey
