The Time is Right for Auto Insurance Modernization
The pandemic has forced many businesses to look for innovative ways to adapt to the new normal and better serve customers in a time of great change. Renowned crisis manager Judy Smith, former senior advisor to President Bush Senior, offers an insightful message for times of transition—"
There's always an opportunity with crisis. Just as it forces an individual to look inside himself, it forces a company to re–examine its policies and practices
.”

Canada’s insurance industry has certainly responded to the challenges of operating in a crisis, and many companies are now embracing opportunities to transform their businesses to meet consumers’ growing desire for online, on–demand services.

Governments are keen to seize on emerging trends and reform or remove antiquated rules. The insurance industry can then work with legislators on important changes—rules governing usage–based insurance, the distribution of insurance documents and rate regulation complement current consumer trends and are all asking for modernization.

During the pandemic, insurers have been applying rebates or re–rating policies to provide consumers with financial relief and to reflect that many people aren’t driving as much as they used to. Several insurers also reduced rates or deferred planned rate changes. Ontario’s Financial Services Regulatory Authority (FSRA) facilitated this process by easing rules around rate regulation and documentation requirements so insurers could provide relief to customers in a matter of days or weeks instead of the several months it typically takes for approval.

These recent actions taken by regulators and insurers reflect a desire to link vehicle use and premiums. However, regulators still limit usage–based insurance.

Since March, many workplaces have changed, with many more people working from home. Some businesses were forced to close altogether for an extended period. As a result, vehicle use dropped dramatically overnight.

In Ontario, insurers are only allowed to use usage–based insurance to give a discount on a traditionally set premium. While it’s allowed in most of the US and Europe, pay–per–kilometre insurance is currently prohibited in our province.  
A full usage–based insurance offering would save consumers money and offer brokers another value–added product for a growing market segment.
FSRA has expressed interest in expanding usage–based insurance, including allowing the technology that gathers data on vehicle use and driving habits that insurers use to set premiums. Ultimately, it’s FSRA who has the power to ensure usage–based insurance offerings are fair for consumers, similar to with traditionally set premiums. Consumers have become increasingly comfortable managing business interactions digitally, and that trend will only grow. In Ontario, consumers can now choose to receive electronic proof of auto insurance. As we move forward, digital options should be expanded to consumers who want to receive and manage claims forms and other insurance notices online. Alberta already allows a full digital insurance experience for auto insurance customers, and Ontario’s brokers would benefit from a similar environment to expand options for their customers.

Rate regulation is another area ready for review. During the pandemic, FSRA made temporary changes to rate regulation and documentation requirements that empowered insurers to return premium dollars to Ontarians.

Consumers would continue to benefit from FSRA’s and insurers’ ability to be nimble and responsive to market conditions. Many jurisdictions have moved away from the practice of rate regulation used in Ontario and most of Canada, which involves multi–month timelines, thousands of pages of actuarial justification and regulatory approvals. And in those jurisdictions, regulators’ ability to oversee the market and enforce the rules hasn’t changed. Most importantly, consumers have benefited from more price competition and product options.

The pandemic has been a monumental challenge for society, with no manual to help us manage. But our collective efforts and willingness to adapt are reasons for Ontario and the rest of Canada to be hopeful. As Judy Smith reminds us, crisis forces us to re–examine policies and practices. Our industry must seize on these opportunities to work with government and regulators to bring positive change for our customers.
Kim Donaldson—Vice President, Ontario, Insurance Bureau of Canada
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