Purpose of consultation
FSRA serves the public interest by protecting consumers and fostering a strong, stable, competitive and innovative auto insurance sector. FSRA is responsible, under the Auto Insurance Rate Stabilization Act, 2003, for approving, rejecting, or requesting variance in proposed automobile insurance rates based on whether they meet statutory standards. Ratemaking benchmarks assist FSRA in determining whether an insurer’s assumptions are appropriate when seeking approval for rate changes.
FSRA retained Oliver Wyman (the “Consultant”) to independently analyze loss trend rates and reform factors along with other key actuarial assumptions, the results of which assist FSRA in conducting its statutory reviews of insurers’ rate filings. The Consultant’s preliminary report was posted on our website and feedback was requested on their assumptions and methodologies. This public consultation reflects FSRA’s broader commitment to transparency and collaboration with insurers.
Feedback received and response
FSRA appreciates the significant effort that went into the comments submitted in response to the Consultant’s preliminary annual review respecting proposed Benchmarks. FSRA received 7 submissions from July 25, 2022, to August 19, 2022. FSRA has considered all feedback during the public consultation. A full list of respondents to the consultation is provided in Appendix 1.
Responses have been broadly categorized as technical or general:
- Technical feedback on the Consultant’s preliminary analysis: The Consultant has addressed these submission comments in Appendix H of their final report.
- General feedback addressed towards FSRA: These comments were generally beyond the scope of the Benchmarks exercise and have been addressed in Appendix 2.
FSRA benchmarks based on the consultant’s results
FSRA has undertaken a thorough review of the Consultant’s annual review report and acknowledges that the Consultant’s analysis has been developed in accordance with accepted actuarial practices.
Over the past year, labour and supply trends associated with the COVID-19 pandemic have led to rising inflation. This trend is reflected in the Consumer Price Index (CPI). The Consultant acknowledges that the rise in inflation associated with vehicle parts, replacement vehicles, rental fees, maintenance, and repair costs from late 2021 to 2022 is not fully embedded in the claims cost data analyzed for this review. Further, the impact of inflation on health care costs may ripple through the economy, affecting the future trend rates for any coverages. It is FSRA’s view that the future loss trend rates for Physical Damage coverages should be adjusted upwards to account for the higher-than-historical average inflation rate observed in the CPI. Further details on the derivation of future loss trend rates for Physical Damage coverages based on the latest inflation rate can be found in the Commentary section of FSRA’s Guidance. Insurers should consider unusual economic changes for all coverages when selecting future trend rates.
As Benchmarks may not represent an individual insurer’s business, FSRA requires that all actuarial assumptions be fully supported with an analysis of the insurer’s own data to the extent credible, regardless of whether FSRA Benchmarks are adopted.
Appendix 1: List of respondents
Outlined below is a list of stakeholders that provided written submissions on the Benchmark consultation.
|1||Associated Canadian Car Rental Operators (ACCRO)||2022.08.19 ACCRO comment on Ontario Private Passenger Vehicles Annual Review|
|2||Consumer||“The division of auto insurance premium rate classes has become onerous to our younger generation to the point that they can not afford to drive without support from their parents. This is not just in their high school years but extending through age 25. I would ask the FSRA to review the regulation governing the premium rates of new drivers, specifically as it relates to how poor claims experience of young drivers is spread only to young drivers. Our young people need a leg up these days with high inflation and low wages. Is it fair that new drivers with no accidents have to bear the cost of poor drivers in their age group - to the point they can not afford to drive? Think of people in the trades & long term care / PSW workers who can not use mass transit to perform their jobs, who we are in dire need of in this country and yet they are paid at low starting wages - how are they supposed to afford such high costs of car insurance? My vote is for young drivers not to be penalized if they have a good driving record. Surely there is a better way to allocate these costs fairly. I respectfully request a review into the fairness of premium rate classes by age for auto insurance, as it relates to the discrimination against young drivers with no previous claims experience. Thank you.”|
|3||Co-operators General Insurance Company||FSRA 2022 PPA Annual Review Consultation Cooperators Submission|
|4||Definity Insurance Company||Response - FSRA Annual Review|
|5||Desjardins General Insurance Group||2022-08-19 Desjardins response to the FSRA Ontario Private Passenger Vehicles Annual Review|
|6||Facility Association (FA)||FA Submission FSRA Annual Review 2022|
|7||Insurance Bureau of Canada (IBC)||IBC Submission - FSRA Annual Review Consultation 2022|
Appendix 2: FSRA consultation responses
The following table summarizes the key themes that were raised during the consultation period and FSRA’s response.
|Theme||Summary of Comments||FSRA Response|
|Insurance Act||ACCRO recommends modification to Section 277 of the Ontario Insurance Act to correct the incomplete transfer of risk resulting from changes made in 2006 via Bill 18 as important portions of policy coverage were not included in the Section 277 revisions. (ACCRO)||FSRA appreciates comments from our stakeholders. While modifications to the Insurance Act are beyond the scope of the Annual Review, these recommendations may be considered as part of the work planned for implementation of a new strategy for reforming the regulation of auto insurance rates and underwriting initiative.|
|Fairness in Rates and Underwriting||Auto insurance premiums have become unaffordable for young drivers through to age 25. FSRA should review the rate regulation governing the premium rates of new drivers, especially for those who have good driving records, to ensure fairness in rates. (Consumer)||Thank you for taking interest in our Ontario Private Passenger Vehicles Annual Review.
FSRA appreciates and shares your concern for fairness in rates and underwriting. FSRA is currently in the process of assessing consumer vulnerability, including those associated with age, as part of its broader strategy to reform the regulation of rates and underwriting in Ontario.
|Flexibility in Rate Level Indication Calculation||FSRA should grant insurers greater flexibility in the choice of data, assumptions, and methodologies in the rate level indication calculation by considering insurers’ unique experiences and future needs of their clients.
This represents the spirit of principles-based regulation. (Co-operators, Definity, Desjardins, FA, IBC)
|FSRA supports insurers using appropriate data, assumptions, and methodologies to reflect their unique experiences in rate level indication calculations. FSRA’s Guidance has set clear expectations that require insurers to use their internal data to the extent credible for deriving actuarial assumptions.
Further, this Guidance provides clarification on FSRA’s expectations respecting the work of pricing actuaries in rate filing applications. In signing the Certificate of the Actuary, the pricing actuary assumes full responsibility for the methods and assumptions used to determine whether indicated rates are just and reasonable.
|Inflation||Given the level of uncertainty in the market from inflation, changing driving patterns, and global supply chain disruptions, insurers should be permitted to offer and justify their own cost loadings for inflation in the rate filings. (Definity, Desjardins, FA, IBC)||As indicated in the Guidance, insurers are required to consider unusual economic changes, such as the surge in inflation and changing driving behaviours, in predicting future claim costs.
FSRA will continue to monitor inflation and other economic factors affecting claim costs. Material changes in future trend rates will be reflected in the mid-year benchmarks update.
|Use of Benchmarks and Rate Regulation Principles||“we believe FSRA should accept the filing insurer’s view, even if it differs from the view of FSRA’s actuary. Forcing all participants in the insurance market place to adopt a single view introduces systemic risk and potentially detracts from the competitive marketplace should certain participants reduce their risk appetite where they do not agree with the imposed view.”
"we believe it is important to reiterate our position that FSRA should use the benchmarking exercise to inform its considerations of rate filings, rather than to set specific targets, caps, or floors with respect to any one particular assumption.” (FA)
|FSRA’s expectations for insurers on the use of Benchmarks have been clearly set out in this iteration of the Guidance as well as the Guidance published October 20, 2021.
Benchmarks are developed based on the review of industry data, which may not represent an individual insurer’s business. FSRA indicated in the 2020-H2 Guidance that insurers are no longer permitted to directly adopt the Benchmarks without justification. FSRA requires that all actuarial assumptions be fully supported with an analysis of the insurers’ own data, to the extent credible, regardless of whether FSRA Benchmarks are assumed.
As indicated in the Guidance, FSRA regulates Ontario automobile insurance rates and uses ratemaking Benchmarks as one input in reviewing insurer’s auto insurance rate filing applications based on statutory requirements. Benchmarks are not intended to be used to set specific targets, caps or floors on actuarial assumptions.