Ont. drivers might have overpaid $5B on insurance over five years

Ontario insurance companies are potentially making billions in pre-tax income off motorists who are generally overpaying for coverage, according to a report commissioned by the Ontario Trial Lawyers Association.

Report author and economics professor Fred Lazar, of York University’s Schulich School of Business, suggests insurers might have raked in approximately $5 billion in pre-tax income from 2011-2016, including an estimated $1.5 billion in 2016. Those 2016 profits represent an estimated 60 per cent increase over those from 2011, Lazar says.

“Given the levels of excessive profitability, consumers almost certainly have paid too much for their insurance coverage,” Lazar writes in the report, which was released Tuesday by the OTLA. Lazar adds that the overpayments amount to approximately $143 per insurance policy per year in the province.

“I estimate that in the last five years alone, overpayments may have totaled $5 billion,” Lazar said in a news release. “This represents 9.5 per cent of total premiums paid during the same amount of time.”

Lazar calculated the potential pre-tax profits by examining auto insurers’ financial performance, including their return on equity. However, he says it’s difficult to be certain because these companies “do not report publicly the equity allocated to their auto insurance operations in Ontario, the net investment income attributable to such operations, or their actual operating expenses.”

Speaking at a news conference on Tuesday, Lazar said change in the system needs to come “through the political side.”

NDP MPP Wayne Gates pressed the provincial government to stop the “gouging” of Ontario families on Tuesday, during question period at Queens Park.

“Why did the premier deliver a 60 per cent increase in the profits to insurance companies, instead of delivering 15 per cent in savings for Ontario families?” he said.

Finance Minister Charles Sousa said the government is aware of “alarming costs that do in fact exist in our system,” and is taking steps to “increase consumer protection, combat fraud and ensure those injured in an accident get the care they need when they need it.” He also pointed to the establishment of the Financial Services Regulatory Authority as a major step toward tackling the situation.