Pandemic closures, telecommuting fuelled 2020 record auto insurance profits

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Auto insurance companies struck it rich in the first year of the COVID-19 pandemic.

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Traffic volumes across Ontario dropped to levels likely never seen before at the onset of the coronavirus outbreak in March 2020 as office employees began to work from home, businesses closed their doors to customers and a stay-at-home order was issued to limit non-essential travel.

Lightly-travelled highways and roads were a regular sight, which in turn led to fewer collisions and insurance claims last year —  a record low of just 50% of premiums, according to the General Insurance Statistical Agency.

The Office of the Superintendent of Financial Institutions, an independent federal agency, revealed Ontario auto insurance companies made profits of $3.63 billion in 2020. It also reported the insurance industry as a whole raked in $4.44 billion.

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Even with fewer drivers on the road, overall premiums went up by $198 million despite insurance companies allowing for rate reductions to people who stopped commuting to their job.

Nainesh Kotak, a disability and personal injury lawyer based in Mississauga, has been advocating further reductions to premiums for Ontario drivers, especially during the pandemic.

“(Insurance companies) rarely give rate reductions and the minimal amounts they gave were after the media began to highlight the dramatic reduction of vehicles on the road at the outset of the pandemic,” Kotak says. “The reductions were woefully deficient given the dramatic downturn in claims.”

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Kotak points out that a preliminary report this summer from the province’s Financial Services Regulatory Authority revealed the regulated profit provision of 5% of premiums was exceeded, hitting 27.6& last year – more than five times the amount that the regulator allows for.

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“Auto insurers were able to take advantage of many people working from home and took an expected windfall in profits. They could have given meaningful rebates but instead generally sought approvals for an increase in premiums for 2021.”

And some customers may face increased insurance rates yet again next year as driving habits return to normal due to provincial restrictions being slowly lifted, even if some employees would rather continue to work from home until the virus has been eradicated.

It’s no secret that people in Ontario pay the highest car insurance rates in Canada, which typically can cost between $1,500 to $1,900 a year depending on a variety of factors including type of vehicle, age, driving record and where you reside.

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Kotak also says the industry has boosted their profits also by shrinking coverage, reducing injury benefits, and denying claims.

“Auto insurers should make a profit but the windfall they made during the pandemic and likely into the future is unacceptable,” says Kotak.

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