Postal code discrimination exists in Ontario but is it fair?

Auto insurance has long been a political hot potato and it could use some serious overhaul to reduce high rates.
Auto insurance has long been a political hot potato and it could use some serious overhaul to reduce high rates.

For some auto insurance consumers in Ontario, it’s not how old you are or if you are a good driver, but where you live that matters most in determining your premiums.

“Drivers in the Peel region and other parts of the GTA pay significantly higher auto insurance rates than others in the same region, for no good reason,” said NDP MPP Gurratan Singh in a press release. “In the last year alone, my community of Brampton has seen premiums increase at a rate nearly five times higher than the provincial average, and the average Brampton driver’s annual premiums are nearly $1,000 more than the average driver in much of Toronto.”

Drivers in the city, which is northeast of Toronto, face the highest insurance rates in the province, annually averaging $2,268 per year, according to Kanetix.ca, an online insurance quote marketplace.

To combat this disparity, the Brampton East MPP in Ontario introduced a private member’s bill in the Conservative-dominated legislature on Oct. 15 that would end the practice. It would have compelled the Financial Services Commission of Ontario (FSCO), which regulates insurance in the province, to consider the Greater Toronto Area (GTA) as one single postal area and it would prohibit insurance companies from basing pricing on this type of category.

The bill was defeated (even though the PCs themselves promised to end the practice in 2017) but Singh vowed to continue the fight.

Auto insurance has long been a political hot potato and it could use some serious overhaul to reduce high rates. Ending postal code discrimination might help some, but others could be harmed.

“Where you live just doesn’t factor in your personal address but also includes the number of intersections, traffic lights and signs, auto theft and auto fraud statistics. If you live in a highly populated area with more vehicles on the road and busier intersections, you have a higher probability of being involved in an auto accident than if you resided in a less populated area,” writes eastern Ontario-based McDonell Levert Insurance on its website.

The broker argues that rural residents in Ontario would suffer a 20 to 30 per cent increase is the bill was passed.

Clearly, the insurance companies are stuck between a rock and a hard place: they must find a way to offer their products and make a profit, but when people who live in certain areas constitute a greater risk, who pays for this?

According to the Ontario Trial Lawyers Association (OTLA), the companies are more than profitable and they could afford to better serve customers by spreading out the risk more equitably.

“Insurers are not required to be transparent and clear in their auto profit reporting,” said OTLA president Ronald Bohm to the Globe and Mail. “(They) have been crying poor and getting (the) government to allow them to cut benefits to those seriously injured in accidents.”

According to an updated OTLA report (prepared by Fred Lazar, associate professor, economics from the Schulich School of Business at York University), Ontario consumers overpay by $143 per policy each year.

In B.C., the province mandates consumers purchase auto insurance from a public auto insurer, the Insurance Corporation of British Columbia (ICBC) and its rates are highest in Canada, said LowestRates.ca, quoting Insurance Bureau of Canada numbers.

B.C. residents pay an average of $1,680 per year, compared to the second-highest, which is Ontario at $1,445 per year.

Postal code is just one of many factors that go into determining your auto insurance rate, and your best bet is to shop around and get the best rate. But be prepared to bite the bullet if you live in a high-rate area.

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