The Financial Services Regulatory Authority of Ontario (FSRA) has released its annual review of guidance and benchmarks used to evaluate insurers’ proposed rate changes in automobile insurance. It has also published the 2024 indexation amounts related to auto insurance injury claims.
New this year, they say claims severity has increased but the regulator found that claims frequency in 2022 was not fully returned to pre-pandemic levels for bodily injury, accident benefits and collision coverage. “Insurers are expected to examine their claim frequency data and adjust to the new normal changes,” the regulator warns in its report, Ontario private passenger automobile annual review based on industry data as of December 31, 2022. The report was published by the regulator alongside another extensive report, the Ontario private passenger vehicles annual review, compiled and written by management consulting firm, Oliver Wyman.
FSRA is also looking at territorial rating in auto insurance, having concluded that current territory requirements are outdated and inconsistent with a principles-based regulatory approach.
“FSRA has also concluded that the current inflexible territory rating requirements limit insurers’ ability to offer lower rates in low-cost geographical areas, potentially leading to less competition and subsidization in rates across territories and within territories. While the pooling of risks for auto insurance will always require consumers with different individual risk profiles to be treated as part of a group, the arbitrary territory requirements may result in some geographic areas of consumers paying premiums that do not accurately reflect their risks,” they write. “The main conclusions of our review are that the current territory rating requirements are outdated, do not reflect technological advancements in data and analytics, are highly prescriptive in nature, and do not allow some consumers to benefit from lower rates available from innovation in rate setting.”
The review also says the regulator is allowing industry advisors to submit auto insurance rates for review. “Once industry advisory rates receive FSRA’s approval, insurers will be able to adopt these rates. Insurers can also use them as a reference for assessing their own average premiums within the marketplace,” the regulator writes. IAO Actuarial Consulting Services Inc. has expressed its intention to submit rates for FSRA to review. “FSRA also extends an invitation to other industry advisory organizations interested in having their advisory rates reviewed and approved.”
It also continues to work on operational risk management (ORM) frameworks to improve underwriting processes. They say FSRA surveyed the 14 largest companies in the province to understand their ORM practices. “These findings will help shape our ORM guidance which will promote just, reasonable and accurate auto insurance rates. It will also support the fair treatment for consumers engaged in the underwriting process.”
Regarding benchmarks, although the regulator has published the benchmarks it uses, it warns insurers that they are no longer permitted to directly adopt them 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.”
The report also looks at loss trend rates and expected cash flow calculations. It warns that insurers remain responsible for overseeing the conduct of pricing actuaries acting on their behalf, discusses processes and best practices, back testing and rate level adequacy.
The annually updated indexation amounts related to auto insurance injury claims, meanwhile, are being increased by 3.8 per cent. “The 2024 indexation rate applies to monetary and deductible amounts related to specific court awards for claimants. It also applies to certain benefits listed under the Statutory Accident Benefits Schedule,” they state. The decision regarding rates becomes effective January 1, 2024.