Industry input sought for territory rating reform

March 11, 2024 — THE CEO of the Financial Services Regulatory Authority of Ontario said using territory ratings for setting auto insurance premiums is not an unfair practice.

“Location is one of the primary determinants of your risk as an insured driver,” Mark White said during the regulator’s third annual ‘Exchange’ speakers event in Toronto. “Your risk of theft where you drive most frequently, the density of the traffic, how good the roads are, are determined by where you live. And so to take geography out would mean that we would increase cross-subsidization and have rates that are less fair for many consumers.”

He said during a ‘fireside chat’ session that the problem with the current territory system is how it is constructed.

“Our predecessor, many years ago, just took postal codes and what happened is that now people move literally across the street from one postal code territory to another and they can see a significant increase in rates.”

Mr. White said FSRA is aware that the postal code-based system is outdated and needs to be changed.

“The problem is not that (insurers) use territory. It is that territory is not allowed to be refined based upon how the risks actually transpire in the marketplace,” he said.

He said FSRA is open to suggestions. It has been accepting rate filing applications from auto insurers in the Greater Toronto Area that are interested in participating in a test of various ways to apply territory ratings.

“That means that consumers can then, by shopping around, ultimately find insurers with different territory patterns,” Mr. White said. “So you won’t have that situation when you move across the street, and your rates go way up.

“Maybe it will be true with your insurer, but some other insurer will say that risk hasn’t changed.”

He said FSRA believes the best way forward is to allow the market to figure it out in a supervised fashion.

“We will be able to control this through our test-and-learn environment and our innovation framework,” he said.

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