History has a way of repeating itself, particularly when it comes to the insurance industry.
Everyone recognizes that the insurance industry is a cyclical business, but history has shown that claims costs rise in a predictable and consistent way. Since a large portion of insurance company revenues come from investment income, the cycles in insurer profitability has to do with variations in return on invested premium dollars and not claims costs. The cycles in profitability of the insurance industry are entirely due to the conduct of insurance companies in the way they price their product during the “good times” and the level of risk assumed by various insurers in their investment decisions. When those decisions work in their favour, the insurance industry enjoys hundreds of millions of dollars in profits as they did during for the period from 2003 to 2007 with all time records profits being achieved in 2004 and 2005. When the insurance market softens and the stock market slips, the industry expects Ontario drivers to bailout them out of their risky business decisions.
The recent demand by the industry for insurance reform and premium increases is a rehash of the pleas heard by the same parties in 2002. Unfortunately, the Ontario government has bowed to insurance industry demands yet again with a slate of proposed legislative amendments that further erode the rights of accident victims. Record profits in the following years have shown that the “insurance crisis” that occurred 7 years ago was a fabrication of the insurance industry. Time and history will show that the same is true this time around.