Monday Rant: Insurance is Too High, and You Don’t Need a Tow

Originally published on Autos.ca on July 22, 2013 (Monday Rant: Insurance is Too High, and You Don’t Need a Tow)

Want to hear a revelation that will shock the socks off you? Insurance is too damned high in Ontario. You’re shocked, right? When I was talking to my fiancée about buying a car here she told me the insurance rates would be too high. I scoffed. It couldn’t be more than $1,000 right? I’m over 31, I only want third-party coverage, the car is a safe one, and I have over 10 years of driving history.

She was right. I was wrong.

Canada-wide, insurance premiums are astronomical. An ancient system of regulation and bureaucracy prevent competition while a high prevalence of fraud, high cost of medical expenses and frivolous claims ruin it for everyone.

In Australia, I was used to paying around $500 a year for my compulsory third-party coverage. In Western Australia, where the government still runs the program, they only charge an average of $250 a year – and still make profit! Yet here in Ontario, I pay $4,000 a year. Even if there wasn’t prehistoric bureaucracy preventing them taking my Aussie history into account they’d still charge me more than $2,000. That is wrong.

So what’s wrong?

Simply put, the whole system is rotten at its core. A lack of regulation early in the piece led to a knee-jerk attempt to rein in prices late in the last century, and the whole disgusting muck has muddled along with rorts, overpayments and under-enforced fraud protection ever since.

The Insurance Bureau of Canada is an industry body funded by insurance companies. Naturally enough they say that increasing regulation and capping premiums won’t help – obviously they have a vested interest, but that point is probably fair. Especially when an (IBC-funded) KPMG report found that despite posting a profit of $417 million last year, insurance companies lost $1,512 million over the past five.  And that $417 million dollar profit is only a small return on equity (four percent) compared to other industries.

The IBC says that the average claim cost is six times higher in Ontario than the rest of Canada, citing its own report, which found the average payout in Ontario was $29,000, while in Alberta it was $3,600.

The IBC is not alone in its claims either. For example think tank Cape Gemini reported in 2011 that in Canada, “An elevated claims ratio continues to result in underwriting losses for the Canadian non-life insurance industry,” and that “The claims ratio has been especially high in auto insurance.”

So why is that?

Well, fraud could be one answer. There is a sense among consumers that the high medical levy paid by Ontario insurers is down to people making spurious medical claims. Everyone seems to know of one friend of a cousin’s friend who claimed $10,000 for a bruised elbow.

Some of those fears are supported by the numbers. For reference, Ontario represented more than 50 percent of the medical levies paid by insurance companies in 2012.

What about the other costs of a claim? Here in Canada I notice that every single fender bender seems to be attended by a minimum of two tow trucks, plus a police car, and then often times a fire truck and an ambulance pull up.  Emergency services charge insurance companies for attendance, and the insurance companies charge you.

If the fender bender is minor, clearly those services are not necessary. This could be a cultural thing though – in Australia I’ve seen police, firefighters and paramedics drive right by quite significant crashes – if you don’t call, they don’t come. Frankly I like that system, unless I’m lying unconscious in a pool of blood and my arm is a pretzel, focus on actual sick people.

But also, what are these tow-truck drivers doing? If you are in a fender bender, and you pop a couple of clips off your front bumper, maybe dent your rear door or your guard a little: you don’t need a tow.

Don’t let them anywhere near you. Don’t sign the form, don’t let them connect their chains, don’t let them even stop. Tell them politely, “Thank you but a tow is not necessary, please go away” and leave it at that. You don’t need a tow. Today on the 401 I passed three separate multi-car incidents. In none of them was the damage more substantial than a dented door skin.

But of course the tow-truck drivers need the tow – they get paid for it. Oh, and they get a referral fee from the body shop they drag your ‘damaged’ car to. Keep your keys, keep your car, and go research the cheapest way to fix your own mess.

In Argentina they know the value of pragmatism. I was in a taxi that had a crash in Buenos Aires once. “Is there much damage?” called out my driver, who was not at fault.

No, no mucho, solo su porte, [no, not much, just the door]” said the driver who’d just changed lanes on top of us.

Listo, no importe, [okay, no problem],” said my driver and off we all drove. I asked him about it. He explained he would go to a friend who has a body shop, “it won’t cost much, and will take less time.”

He’s right. You’d be surprised how much minor damage can be fixed with a $100 prepaid credit card, 30 minutes on the internet, and a 12-mm socket.

Body shops will charge insurance companies premium part prices, plus labour - sometimes more than $150 an hour. Everyone charges more when they think the payee is a faceless corporation.

But it’s not. The payee is ultimately you.

[Edit: It has been brought to this writer's attention that Collision Industry Information Assistance (CIIA) (an industry body for smash repairers) funded a report proving that labour rates are actually discounted for insurers, and that the average rate is $56.80 for auto body repairs.]

Oh, and while I’m at it. If you have a minor crash in the left lane, don’t stop where you are and block traffic like a fool. Roll your busted-up car to the shoulder and get out of the way! I’ve seen cars on three wheels successfully navigate to a safer and less bothersome position OFF the motorway. There is no excuse for not moving your car to a safer place. If everyone learned that one lesson that all of Europe and Oceania already know – I guarantee you post-crash injuries will come down too.