Shop Insurance Canada Explains Why Auto Insurance Rates Are So High In Greater Toronto Area

November 19, 2015 - The Greater Toronto Area's reputation as the most expensive region in Canada to insure a vehicle is well worn by now, although it is a reputation founded in reality. The city of Toronto and its surrounding neighborhoods represent the highest premiums in the country, with almost no exception. The surrounding province of Ontario has long been pegged as an expensive auto insurance market, but does the GTA give Ontario a bad name, and just why are prices so out of control in the big smoke of Toronto?

It is important to understand before anything else is discussed that the auto insurance sector in Ontario is like the Wild West. The reasons for that are myriad, and we'll touch upon them shortly, but the result is a market that is littered with problems that hurt consumers, and even the insurance companies. Yes, those big bad corporate giants, it may be hard to believe, but in Ontario they become the victim as well.

So, Ontario is an anomaly in Canada and the Greater Toronto Area is an anomaly in Ontario. The average auto insurance rate in Ontario is $1,583, but the top 10 most expensive cities in Canada's most populous province are in the GTA, with the city of Hamilton being the only exception. The one thing that sets all those top 10 cities apart is that all of them are above the Ontario average, and in most cases drivers in those areas will pay hundreds of dollars more per year on their premium.

Indeed, this week we put out the Shop Insurance Canada consumer guide that showed the average cost of insurance premiums in Ontario's cities. The short story of the data was that the further away from the GTA that a consumer is, the lower their premium will be; with some cities (Ottawa a standout example) being positively affordable.

Of course, the glaring question emanating from all this is simply, why? It is not an easily answered question because many reasons why the GTA is expensive for auto insurance premiums would be applicable across the whole province and are not necessarily unique to the Toronto metropolitan area.

Over-regulation
While it may seem prudent for the government to run a tight ship when it comes to auto insurance regulation, it is actually having an adverse effect on the market and actually contributes to the unaffordability of premiums in the province. A 2011 study by the Fraser Institute suggested that most regulatory measures used in the province actually hamper the reduction of premium cost, even though many regulations are implemented to reduce costs.

The numerous mandatory policy points that all insurers must provide, and all drivers must have in Ontario, are viewed as a hindrance more than a help. The Fraser Institute says that these mandatory benefits (such as minimum $200,000 liability) work against market innovation from companies and end up costing insurance providers more. That added cost is placed on the consumer and competition is not as fierce between insurers as it would be in other regions.

Fraud
Ontario is a hotbed for insurance fraud, with the auto insurance sector described often as rife with fraudulent claims and other nefarious activities. The Greater Toronto Area is the epicenter for fraud, the largest populated area in the country, it is where most criminal fraud rings operate. The Insurance Bureau of Canada (IBC) recently said that while single driver fraud is happening, it is the crime rings in Toronto that pose the biggest problem.

"Organized crime, unfortunately, is very creative," says Rick Dubin, vice president of the Insurance Bureau of Canada's investigations unit.

With GTA residents sometimes paying 47 per cent more than the Ontarian premiums average, the need to clamp down on fraud is paramount. The statistics only add to the feeling that insurance rates in the Greater Toronto Area are out of control. Ontario was home to a massive 85,000 vehicle related accidents in 2014, a number most agree is colossal for a province with 9.6 million drivers and surely points to high fraud rates. Many of those drivers are in the GTA and the average bodily injury claim stood at $143,630, with the average payout standing at $31,785. To put that into perspective, Alberta's average bodily injury claim was $12,785, while the average payment amounted to $3,766 in 2014.

Auto insurance companies and the government are teaming up to combat this fraudulent activity, with both the private and public sectors creating teams dedicated to rooting out auto insurance fraud. At the moment though there is little light at the end of the proverbial tunnel.

Government Ignorance
For fear of losing votes, governments and regulatory bodies dedicated to insurance reform in Ontario are unwilling to accept blame for the current situation, and sometimes outright deny that the issue is there. A recently updated study by the Ontario Trial Lawyers Association (OTLA) showed that consumers are paying too much for their auto insurance, paying a combined $1.5bn over the odds through 2013 and 2014.

The response from the Insurance Bureau of Canada (IBC) was to say that the study "isn't fair". The IBC argued that the OTLA study had omitted various criteria, such as distracted driving and fraud (see above), essentially dismissing the findings. Whatever you think of the study, sweeping canvas of the state of the auto insurance industry, or mere peak into the bigger picture, there is no doubt that it shows that consumers are paying more than they should.

Toronto's Own Problems
As mentioned, the above reasons are not exactly unique to the Greater Toronto Area, although the size of the city and the pull it has around Ontario means that fraud, ignorance, and regulations are amplified in the metropolitan areas. Combine those reasons with the following problems that uniquely contribute to Toronto's ascending auto insurance rates.

Those problems are things that effect all cities. They are the reason why New York City is more expensive for auto insurance than Little Falls in New York State, or why the London market is more expensive than Milton Keynes. Yes, Toronto's status has a massive, highly populated, global city results in its higher insurance premiums.

There are more cars on the roads, which means more hot headed drivers, which means more accidents, which means insurance companies assuming more risk. It is interesting to note that some of the most expensive GTA neighborhoods (North York, Brampton) have some of the busiest intersections and are home to roads with more frequent accident figures.

Insurance providers will also take into account a neighborhood's proximity to key locations in the city (commercial or financial centers), and crime rates in the area. On top of that, there will be personal criteria for the insurer to assess, such as age, experience, claims history, driver record, vehicle, storage, and more.

Again, a driver in Toronto is not unique compared to a driver in other areas in Ontario, but the contributing factors of the general neighborhood information and the auto insurance problems facing the whole province all add to the cost. It is perhaps easier to see the GTA as a cocktail of bad auto insurance situations, a perfect storm that results in auto insurance rates that even raise eyebrows outside of Canada.