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 6 submissions from August 4, 2023, to August 25, 2023. 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 I 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 two years, 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). Physical Damage (“PD”) claim costs have been directly impacted since late 2021 by the rise in inflation associated with vehicle parts, replacement vehicles, rental fees, maintenance, and repair costs. 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 PD 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 PD 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.

ID Company Submission
1 Co-operators General Insurance Company FSRA 2023 PPA Annual Review Consultation Cooperators Submission
2 Definity Insurance Company Response - FSRA Annual Review
3 Desjardins General Insurance Group Desjardins response to the FSRA Ontario Private Passenger Vehicles Annual Review
4 Facility Association (FA) FA Submission FSRA Annual Review 2023
5 Insurance Bureau of Canada (IBC) IBC Submission - FSRA Annual Review Consultation 2023
6 TD Insurance TD Insurance response to the FSRA Ontario Private Passenger Vehicles Annual Review

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
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. (FA) This comment was addressed by FSRA in the “2021-H2 Consultation Summary”
Future Trends on Physical Damage Coverages “With uncertain economic condition and the increasing loss ratio for optional coverages, we would suggest FSRA consider increasing the future trends for physical damage coverages.” (FA) Similar to the Benchmark Guidance published on December 20, 2022, FSRA will make adjustment to the future loss trends for Physical Damage (“PD”) coverages based on the Consumer Price Index for passenger vehicle parts, maintenance and repairs in Ontario released by Statistics Canada as of July 2023, to better reflect the impact of excessive inflations on automobile’s PD coverages. 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 also believe regulators should allow the filing insurer to set their prices and market share on their views of ultimates and their selections of models describing frequency/severity/loss costs over time and as projected into the future. The rate review process should focus on whether the filing insurer’s process to arrive at their forecast was reasonable (and consistent with the insurer’s previous views / process / approach unless an explanation is provided as to what has changed and why). If so satisfied, we believe regulators should accept the filing insurer’s view, even if it differs from the view of the regulator’s actuary.”

“FA’s long‐standing position has been that that benchmarking exercises should be used to inform regulators of considerations for rate filings, rather than to set specific targets, caps, or floors with respect to any one particular assumption. This approach opens the opportunity for insurers to reflect their own assessment of future costs in providing their product / service to the consumer, and allows them to set their rates based on their assessment of the competitive market in which they operate.” (FA)		 This comment was addressed by FSRA in the “2021-H2 Consultation Summary”