Auto insurers in Ontario and across Canada have announced that in the wake of the COVID19 pandemic they will be offering significant reductions of drivers’ monthly premiums.  Some insurers are cutting the premiums of all drivers by a fixed percentage while others are requiring insureds to update their current driving habits and reducing premiums on that basis. 

The premise is simple and fundamentally a good news story.  While self-isolating and working from home a huge percentage of drivers are staying off the roads.  With fewer drivers on the roads, there are fewer collisions.  Fewer collisions mean fewer people are injured or killed and fewer vehicles are damaged or written off.  This translates to a significant reduction in claims made to auto insurers. 

 Who will benefit more from this decision: drivers or insurance companies? 

To date, I have not seen any definitive figure which estimates the total reduction in claims across the industry.  It is likely in the order of tens of millions to hundreds of millions per month across Canada.  With this significant reduction in claims, the question is how much of this money will be paid back to drivers in the form of reduced premiums, and how much will be taken as profit by the insurance companies?

We may never have a definitive answer to this question.  Insurance company profits have been notoriously secretive.  Although auto insurance is mandatory, insurers are not required to separate out the profits made in auto insurance vs other lines of coverage.  In perhaps the most comprehensive attempt to discern auto insurer’s profits in Ontario, York University professors Fred Lazar and Eli Prisman have published a series of reports documenting years of over-payments by Ontario consumers.  In the most recent update which includes data from 2015 and 2016, their report concludes that over the last five years for which data is available, Ontario drivers overpaid by $5 billion in excess premiums.  This is $143 per year per motorist. Auto-insurer profits in Ontario were $1.5 billion in 2016. 

Ontarians continue to pay the highest auto insurance premiums in the country. 

My take is that if you want to understand what is going to happen in the future, you should start by looking at the past. Over the last 20 years, we have seen a series of government cuts to mandatory benefits and legal rights, all in an effort to lower premiums.  The Ontario government has cut minimum coverage to no-fault benefits, precluded drivers from suing their own insurance company, and placed limitations on driver’s ability to sue at-fault motorists.  Although premiums have dropped as a result of these actions, Ontarians still pay the highest auto insurance premiums in the country while insurers continue to make record profits. 

Given the historical record of the insurance industry, I predict that while drivers will see a reduction in premiums during the COVID19 pandemic, 2020 will be a year of record profit for the auto insurance industry.