Canadians For Integrity Auto insurance: Mad about being plundered? Blame suspicious or inept politicians and executives engaged in fraud

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Auto insurance: Mad about being plundered? Blame suspicious or inept politicians and executives engaged in fraud

Information of great public interest that sponsors and owners of newspapers and media do NOT want you to know

Billions of Ontario drivers’ dollars in possession of the auto insurance industry are unaccountable while the industry declares profit of only $0.2 billion.

By CFI editor
First posted: Monday, July 10, 2013 12:54 PM EDT

Under the pressure of the auto insurance industry and its lobbyists, paid by the industry to influence our elected politicians and government decision makers, the Ontario Liberal government made about 40 changes to auto insurance and regulation in 2010.

Questionable declarations used to favour the insurance industry

The Liberal government’s officials argued that the changes were needed due to the $1.3 billion financial loss the Ontario insurance industry suffers every year as a result of fraudulent insurance claims.

In 2010, the insurance industry maintained it was a victim of $1.3 billion insurance fraud per year on staged accidents and faked injuries causing some of its insurance companies to make no profit, and others to be in the red.

To boost the insurance companies’ profit, the Liberal government legislated changes to the Insurance Act, made regulation changes and amendments to the Statutory Accident Benefits Schedule, and put them into effect on September 1, 2010.

The Changes

About 1% of the 65,000 Ontarians injured in car accidents each year is qualified for benefits of UP TO $1 million in medical and rehabilitation claims.

The changes the government made:

No Changes

Nearly 20% of accident victims have severe non-catastrophic injuries.

The changes the government enforced:

50% cut in the limit (from $100,000 before to $50,000 now) - UP TO $50,000 is the benefit that an insurance company can pay now for accident victims with severe injuries.

The remaining 80% of accident victims suffer the so-called minor injuries such as whiplash, strains and sprains.

The changes the government enforced:

96.5% cut in the limit (from $100,000 before to $3,500 now) - UP TO $3,500 is the total benefit now ($96,500 down) that an insurance company can pay for an accident victim with injuries including, but not limited to, whiplash, strains and sprains.

You Should also Know that:

In the $3,500 limit, insurance companies can include the cost of assessments. More importantly, insurers can cut you off at the preapproved amount of $2,200.

The average total cut in benefits the insurance companies are required to pay for an injured person after the government changes is 83%. However, the rates of the premium the drivers are forced to pay their insurance companies are not cut.

Moreover, some drivers have their premium increased by their insurance company by as much as 81% in about 2 years, instead of the expected regular reduction in premium rate due to vehicle depreciation.

All this allows no doubt as to the extreme increase in insurance industry profit while some accident victims will have to endure more suffering due to inadequate payment for their recovery.

Two years and nine months since the legislated changes

In 2010 officials from the insurance industry repeatedly stated that paying fraudsters for staged accidents and faked injuries was costing the industry $1.3 billion every year.

Despite the drastic cuts in 2010, according to which insurance companies have to pay out 83% less for accident victims and therefore have increased their profits drastically, insurance industry officials vigorously insist now that they are trying to cut rates but cannot because of the, note, $1.6 billion expense made every year caused by fraudsters for staged accidents and faked injuries – the amount increased with $300 million (from the $1.3 billion the industry claimed as a loss in 2010).

MORE FACTS TO BE HIGHLIGHTED

KPMG report

In 2012, the independent third-party company KPMG (which delivers Audit, Tax, and Advisory services) wrote in its report – the first and the only report on that matter – that it estimated insurance fraud in Ontario per year to be between $769 million and $1,560 million ($1.56 billion) – obviously different from the fixed $1.6 billion ($1,600 million) claimed by insurance industry officials.

It is also important to note that the report from KPMG further indicates,

“the information and findings included in this report are based on information that was provided to us” (provided by the insurance industry apparently).

Auto Insurance Anti-Fraud Task Force report

The publicly funded Auto Insurance Anti-Fraud Task Force, which was created by the Liberal government in 2011, was still struggling in 2012 to define the extent of the fraudulently claimed insurance benefits:

“Estimating the amount of fraud has proven difficult,” a status report issued by the Task Force said.

Financial Services Commission of Ontario (FSCO)

Figures released by the Financial Services Commission of Ontario show that in 2012 insurance companies were paying $300 in injury benefits for every car in Ontario – significant drop from the $764 paid out on average in 2010.

Ontario Auditor General Jim McCarter

Despite having the lowest death and injury stats per capita of any province – adding to the profit of insurance companies for having to pay out less – Ontario motorists pay the highest auto insurance rates in Canada, said the province’s Auditor General Jim McCarter in his July 2012 annual report.

The Auditor further pointed out that

Ontario premiums — which average just over $1,400 per vehicle — are as much as 75% higher than other provinces over the last five years.

CALCULATIONS REVEALING SHOCKING INFORMATION

Important Notice

If you are in medical condition where emotional outburst can result in stroke or heart attack, I strongly recommend that you stop reading this article further. I wish you the best, and I mean it.

MY CALCULATIONS

Calculations No. 1:

How much more do Ontario drivers pay than drivers in the other provinces?

Based on the report from Ontario Auditor General (OAG) Jim McCarter

NOTE:

According to the OAG Annual Report released in July 2012, as of December 2011, approximately 7.6 million light-duty vehicles (e.g., passenger cars, vans, light trucks and sport utility vehicles) and almost 300,000 heavy-duty vehicles were registered in Ontario – totaling 7.9 million.

If Ontario premiums were on average $1,400 (75% higher than the other provinces, findings made by the Auditor General), the average auto premium for the other provinces was $800. According to mathematical calculations, each Ontario driver has been paying $600 more for a vehicle than a driver in other provinces of Canada over the last five years.

To find out from the above Auditor General data how much Ontario drivers pay on top for their premium compared to drivers in other provinces, I had to multiply the $600 difference by the number of the vehicles, which at that time was approximately 7.6 million: the result is $4.6 billion.

In other words,

Ontario insurance industry has been generating $4.6 billion every year for the last 5 years only from what it takes from Ontario drivers on the top of what drivers in the other provinces of Canada pay for their auto premium.

POINTS TO BE HIGHLIGHTED

How is it that the Financial Services Commission of Ontario (the regulatory agency of the Ministry of Finance that regulates the auto insurance and has statutory duty to provide regulatory services that protect the public interest) recognized the never proven $1.6 billion losses for the insurance industry from allegedly fraudulent claims, but was “unable” to detect and realize that the same insurance industry has been collecting $4.6 billion every year for the last 5 years on the top of the average premium paid in the rest of Canada.
Why did the Liberal government have to enforce insurance changes that are harmful to Ontario drivers based on a claim from the insurance industry for $1.6 billion loss from fraudulent claims given that such loss was never proven and established.
Suppose the Ontario insurance industry had such loss of $1.6 billion. Why did the government legislate changes just to boost the industry’s profit as compensation when the $4.6 billion collected by the insurance industry from Ontario drivers on the top of what was collected in other provinces is 3 times the industry’s claim for $1.6 billion loss.
The Ontario government has duty to protect Ontarians from being defrauded by corporations. For that reason, (1) it should have verified before considering the changes that the insurance industry was not making a false claim, and (2) that such changes would not legalize insurance industry’s unjust enrichment.

Calculations No. 2:

How much did the insurance industry gain solely from paying out less?

Based on figures released by FSCO

The Financial Services Commission of Ontario has provided that in 2012 insurance companies paid $300 in injury benefits for every car in Ontario – a significant drop from $764 paid out on average in 2010 (a drop resulting generally from the changes legislated by the provincial Liberal government made to boost the insurance industry’s profit).

To calculate how much less insurance companies paid for a car in 2012, I subtracted $300 (paid out in 2012) from the $764 (paid out in 2010). The result is $464 (61% less from $764).

In short, Ontario insurance companies paid out $464 less in injury benefits for every car on Ontario’s roads in 2012 as opposed to 2010.

To calculate the total Ontario auto insurance companies gained from paying less in 2012 compared with 2010, I multiplied $464 (the savings from a single car payout) by 7.6 million (the number of registered and insured motor vehicles in Ontario). The result is $3.5 billion.

In other words,

as a result of paying out 61% less in injury benefits for every car in 2012, Ontario insurance industry benefited itself with an additional $3.5 billion in one year.

NOTE:

That is nearly 3 times the $1.3 billion unproven loss from fraudulent claims for the insurance industry – a loss for which the Liberal government said changes in the auto insurance regulations are necessary so the industry could be compensated.

Calculations No. 3:

The following is based on a driver’s personal experience.

As supported by documents, a 9-star-driver with an excellent record saw an increase of $1,215 (81%) in his premium in the last 3 years instead of receiving the regular yearly decrease based on the depreciation of his vehicle. The current market value of this driver’s car is $2,500; but as of August 2012, the premium he pays to the insurer increased to $2,709.

The insurance company’s ombudsman who responded on behalf of the company’s CEO explained that the increase in the driver’s premium was normal and customary.

Accordingly, it should be concluded that this insurance company, a major player on the insurance market, has applied the same premium-increase formula to all other drivers who hold this company’s insurance policy. Based on the practices of this major auto insurance company of increasing premiums, it would be reasonable to assume that all other auto insurance companies in Ontario also make additional profits through the same or a similar strategy.

The amount that the Ontario insurance industry has generated over the years from such increases is shown in the results of my mathematical calculation, which, as a base, use the premium of $1,494 that the 9-star driver (we take as a real example) paid in 2009.

The pattern of raising car premium year by year

. . . . . . . . . . . . . Total Policy Premium
Aug. 2008-09 . . $1,494

. . . . . . . . . . . . . Total Policy Premium Increase
Aug. 2009-10 . . $135 (9.0%) increase from $1,494 paid in Aug. 2008-09
Aug. 2010-11 . . $413 (27.6%) increase from $1,494 paid in Aug. 2008-09
Aug. 2011-12 . . $715 (47.8%) increase from $1,494 paid in Aug. 2008-09
Aug. 2012-13 . . $1,215 (81.3%) increase from $1,494 paid in Aug. 2008-09

. . . . . . . . . . . . . .Total Policy Premium
Aug. 2012-13 . . .$2,709

NOTE:

The profit results for the insurance industry in Ontario would be roughly 20% to 50% greater when (1) the regular reduction based on the vehicle’s yearly depreciation is taken into account – a reduction the insurance company did not make; and (2) when the increase of the number of vehicles in Ontario is also taken into consideration.

How much extra did the Ontario insurance industry take from Ontario drivers?

Year: 2010

I multiplied $135 (the increase in the premium of $1,494 on the vehicle in 2009) by 7.6 million (the number of registered and insured motor vehicles in Ontario).

In 2010, as a result of such an increase, the Ontario insurance industry took $1 billion from Ontario drivers to add to its profit.

Year: 2011

I multiplied $413 (the increase in the premium of $1,494 on the vehicle in 2009) by 7.6 million (the number of the registered and insured motor vehicles in Ontario).

In 2011, as a result of such an increase, the Ontario insurance industry took $3.1 billion from Ontario drivers to add to its profit.

Year: 2012

I multiplied $715 (the increase in the premium of $1,494 on the vehicle in 2009) by 7.6 million (the number of registered and insured motor vehicles in Ontario).

In 2012, as a result of such an increase, the Ontario insurance industry took $5.4 billion from Ontario drivers to add to its profit.

Year: 2013

I multiplied $1,215 (the increase in the premium of $1,494 on the vehicle in 2009) by 7.6 million (the number of registered and insured motor vehicles in Ontario).

In 2013, as a result of such an increase, the Ontario insurance industry will take $9.2 billion from Ontario drivers to add to its profit.

Calculations No. 4:

What is the auto premium actually paid to the Ontario insurance industry?

Based on

The statement of the vice-president of the Ontario section of the Insurance Bureau of Canada, Ralph Palumbo;
The Ontario Auditor General; and
the above driver’s personal experience

The vice-president Palumbo said that of the $10 billion in premiums paid in Ontario in 2011, the insurance industry took home a profit of $233 million.

According to the Ontario Auditor General annual report released in July 2012 (which applies to 2011), Ontario drivers’ premiums averaged over $1,400 per vehicle.

There were approximately 7.6 million registered and insured vehicles in Ontario in 2011 – one source claims that the Ministry of Transportation of Ontario was responsible for “10.4 million registered vehicles” in 2012.

To determine the total that the Ontario insurance industry collected as a premium, I multiplied $1,400 (the “over $1,400” average premium per vehicle reported by the OAG) by 7.6 million (the number of registered and insured motor vehicles in Ontario).

Calculations show that the amount the Ontario insurance industry collected from Ontario drivers as a premium in 2011 was $10.6 billion - $0.6 billion more than the $10 billion that was announced by the vice-president of the Insurance Bureau of Canada.

The result of the $10.6 billion total collected as premiums from Ontario drivers, however, must be incorrect because, in the calculations, I used the number provided by the Ontario Auditor General for the average driver’s premium in Ontario ($1,400) - which I find to be questionable and suspicious.

NOTE:

The driver whose payment data I used in “Calculation No. 3” has the highest rating given to drivers with excellent driving records.

• This driver has only one vehicle;
• The driver is the sole driver of the car;
• The driver has 32 years of driving experience;
• The driver has over 700,000 km driving experience on the road;
• The driver has never been a cause for car accident (in whole or in part);
• The current market value of his car is $2,500.
Clearly, this driver should be eligible for the lowest premium rate an insurance company can offer. Accordingly, the premium rate paid by this driver should be below the average rate; more accurately, it should be at the bottom of the range between the lowest and highest premium rates for Ontario.

. . . . . . . . . . . . . . Total Policy Premium paid by this driver
Aug. 2009-10 . . . $1,629 (after increase of $135)
Aug. 2010-11 . . . $1,907 (increase of $278)
Aug. 2011-12 . . . $2,209 (increase of $302)
Aug. 2012-13 . . . $2,709 (increase of $500)
The rate increase pattern for this driver is not an error. The insurance company’s ombudsman who responded to driver’s complaint on behalf of the company’s CEO confirmed the increase and explained that it was normal and customary.
Given that this driver’s insurance company is one of the major players in the insurance industry, it would be reasonable to assume that it is also normal and customary for the other insurance companies to apply the same or a similar formula in raising the premium.

The “NOTE” section above explains why I find the Ontario Auditor General’s statement that Ontario drivers’ premiums averaged $1,400 per vehicle (in 2011) to be incorrect and misleading.

Based on the information and calculations above, I have compelling reasons to believe that the average taken as an auto premium from Ontario drivers in 2011 was the 2011 premium cited earlier ($2,209). Note, however, that the $2,209 premium is for a vehicle with a market value of about $3,000 in 2011 and that the average market value for Ontario cars is over $7,000; therefore, the average must have been significantly above $2,209.

To find out how much was the total auto premium paid to the Ontario insurance industry in 2011, I multiplied “our driver’s” premium rate cited above (reasonably accepted as being the average) by 7.6 million (the number of registered and insured motor vehicles in Ontario).

The total auto premium involuntarily paid to the Ontario insurance industry must have been roughly:

Year 2011 . . $14.5 billion
Year 2012 . . $16.8 billion
Year 2013 . . $20.6 billion

NOTE:

Premium rates can not be enforced by an auto insurance company if the rates are not approved by the government regulator FSCO (Financial Services Commission of Ontario).
When approving the auto premium rates sent to it by an auto insurance company, the regulator FSCO must ensure that the Ontario government’s requirement allowing an insurance company to increase its premium rates are based on a “reasonable rate of return” and that the return does not exceed 12% of the company’s equity*.

. . . . *equity means the monetary value of a property or business
According to disclosure made by the Financial Services Commission of Ontario (FSCO), the insurance companies paid $300 in injury benefits for every car in Ontario. When $300 is multiplied by the number of the insured cars (7.6 billion), the result from the calculation indicates that the total paid out in injury benefits in 2012 for every car in Ontario was $2.3 billion.
The total premium extracted from Ontario drivers in 2012 was $16.8 billion, as outlined in the calculations above. When the $2.3 billion payout, which is considered as an expense for the industry, is subtracted, the total left in the hands of the Ontario insurance industry is $14.5 billion.
The other major expense for the industry comes from the salaries paid. Suppose the Ontario insurance industry pays average salary of $80,000 to 30,000 employees. This amounts to $2.4 billion paid in salaries. As a related comparison, the Toronto police force has nearly 5,600 police officers and 2,100 full-time civilian staff. The annual budget of the force is approximately $1.3 billion.
After subtracting $2.4 billion (paid as salaries to the approximately 30,000 employees) from what was left after the payout in injury benefits, the result for the total, in 2012, left for the insurance industry in Ontario was $12.1 billion.
Based on the $20.6 billion, which was the auto premium paid to the industry, I calculated that, for 2013, the total amount remaining unaccounted for by the Ontario auto insurance industry after subtracting the most of its expense ($4.7 billion) will be $15.9 billion.

IN SUMMARY

Since 2007 Ontario auto insurance companies have been generating $4.6 billion every year for the last 5 years based on the difference between what they take as premiums from Ontario drivers and what insurance companies take from drivers in the rest of Canada (Refer to “Calculations No. 1” above).

Further,

As a result of the 83% average cut in the limit of what insurance companies have paid out for accident victims, which was legislated and enforced on Ontario drivers by the Liberal government in 2010 because Ontario insurance companies were claiming a $1.3 billion annual loss as a result of paying for fraudulent claims, the Ontario insurance industry added an extra profit of $3.5 billion in one year (Refer to “Calculations No. 2” above).

In addition,

Through increases of the premium rates on Ontario drivers since 2010, the insurance industry in Ontario must have additional profits averaged at $4.7 billion(Refer to “Calculations No. 3” above):

Year 2010 . . $1.0 billion
Year 2011 . . $3.1 billion
Year 2012 . . $5.4 billion
Year 2013 . . $9.2 billion

In conclusion:

With regard to the above reasoning and calculations and in the absence of any reliable proof to the contrary established by an impartial auditing third party, I am firmly convinced that:

Many Ontario insurance companies have two different financial reports: one for internal purposes and another for the public;
Many Ontario insurance companies have undeclared profits and have evaded taxes;
Ontario drivers have been cheated for years.

THE POSITIONS TAKEN BY THE PLAYERS

Ontario NDP Opposition Leader

March 2013: The provincial NDP leader Andrea Horwath threatened the Liberal Premier Kathleen Wynne that she would trigger a provincial election if the Premier would not agree to cut auto insurance premiums for Ontario drivers by 15%.

Ontario Auto Insurance Executives

Soon after the NDP leader publicly made the demand for a 15% cut on the premium, the executives of the Ontario insurance companies met with her saying that they are trying to cut rates but are handcuffed by the $1.6-billion fraud bill.

Ralph Palumbo, the vice-president of the Ontario section of the Insurance Bureau of Canada

April 2013: The vice-president Ralph Palumbo has said of the declared $10 billion in premium paid in Ontario in 2011 that the insurance industry had taken home profits of $233 million ($0.2 billion) adding, “and that doesn’t strike me as being exorbitant.”

Ontario Liberal Premier Kathleen Wynne

In response to the demand for a 15% cut in the premium for Ontario drivers, the Liberal Premier Kathleen Wynne said,

that she was more interested in tackling the problem (the crime of fraudulent claims) at its core. Also,

. . . .Quotations:

“We’ve talked to the industry and we understand that it’s complex. We understand that there are changes across the system that need to be made so we have to do this in a prudent way.”
“It has to be a viable outcome because what I don’t want to do is create a situation where there are people who won’t be able to get insurance because the insurance industry says, ‘Well, you’re pushing us too hard, we just won’t write insurance for certain parts of the population’ ”

FINAL CONCLUSIONS

If the Ontario Premier designate, Kathleen Wynne
- accommodates the insurance industry at the expense of the 9.3 million Ontario drivers just because she feels intimidated by the executives of the insurance companies; and
- thinks that it is just and fair to take billions of dollars from Ontario families and hand the money over to the industry in agreement with executives, but without adequately researching the problem,
she clearly demonstrates an inability to govern the province of 14 million Ontarians.
If the Liberal Premier Kathleen Wynne is sincerely interested in tackling the cause for the overly high auto insurance rates at its core,
- She, therefore, must immediately call in the forensic auditors from the Ministry of Finance to investigate the accounting practices of the auto insurance companies in Ontario and to disprove the accusation of false information being recorded in the accounts;
- She must immediately call in CRA (Canadian Revenue Agency) to investigate whether the auto insurance companies have paid their due taxes in full;
- She must also immediately call in the provincial Special Corruption Unit, Anti-Rackets Branch, which is mandated to investigate fraudulent schemes that result in significant financial losses to individuals, corporations and government, to investigate the auto insurance companies in Ontario.
The Ministry of Finance’s agency, the Financial Services Commission of Ontario (FSCO),
- which is mandated to oversee the insurance industry; and
- which has a statutory obligation to ensure that all insurance companies meet the Ontario government’s requirement that the insurance companies’ auto premium rates are based on a “reasonable rate of return” and that the return does not exceed 12% of the company’s equity*; and
- which can permit an auto insurance company to increase its premium rates only if they do not exceed the 12% limit,
must also be subjected to a thorough investigation by (1) the provincial Special Corruption Unit (Anti-Rackets Branch) and (2) the forensic auditors team from the Ministry of Finance, as public interest dictates, for the exorbitant auto premium rates approved by FSCO.
Since 2011, the average annual additional profit that the Ontario insurance industry has made solely through an increase on the premium rates is $5.9 billion – that is 3 times the $2 billion needed for Ontario transit funding.
Ontario auto insurance industry harms Ontario economy severely: If the premium rates were not exorbitant, billions of dollars would be left in the hands of Ontarians and thus most of this money would be spent in the province for goods and services resulting in more job openings, lower unemployment rate, higher profit for Ontario business, and more money for the government from paid taxes.
Ontario Liberal Premier Kathleen Wynne, who has the final say in her government’s decisions, must create publicly funded insurance for all Ontario drivers as soon as possible instead of suspiciously favouring the auto insurance industry and following her agenda to generate funding for the public transit by forcing more taxes and fees on Ontarians.

Please send this article to all your friends, acquaintances, and forums to whom you think it would be of interest to.

Related Articles, Links, Materials, and Actions
• Letter sent to the CEO
• Response from the insurance company
• Demand letter sent to the company’s CEO
• Second response from the insurance company