Opting out of auto insurance coverage to lower premiums is a 'costly mistake,' says Nainesh Kotak

As auto insurance rates skyrocket in Ontario, drivers in the province can now opt out of direct compensation property damage coverage. The province says its aim is to give Ontario drivers more options. Founder of Kotak Personal Injury Law Nainesh Kotak says that the change is a poor solution for consumers faced with unaffordable insurance.

This type of coverage insures drivers who have been in an accident and were not at fault for the cost of damages to their vehicle, the loss of the vehicle, or damage to the vehicle’s contents. Under Regulation 664 of the Insurance Act, drivers can elect not to recover these damages by providing written confirmation to the insurer.

Kotak says that the only circumstance in which it would be sensible to opt out of this coverage is if the insured is driving a car worth less than $2,000 and would not pay to fix it if in an accident.

“It's a very costly mistake to opt out of this type of coverage,” he says.

Instead of addressing insurer profits, the government is trying to reduce premiums by making benefits optional, says Kotak. He is concerned that as people struggle with inflation and rising food and housing costs, some may jump at the opportunity.

A spokesperson for Ontario’s Ministry of Finance told Law Times that allowing drivers to opt out of direct compensation property damage coverage is part of the province’s multi-year strategy to improve the auto insurance system. The ministry announced “The Blueprint for Putting Drivers First” in 2019, saying the province was “taking action to fix the broken auto insurance system that has led to Ontario auto insurance rates being among the highest in the country.”

“This is an important change the government is making to give drivers more options,” says the Ministry’s spokesperson. “For example, for those who own older cars that are worth less than the cost to insure them.”

“The government remains committed to ensuring all drivers have as much choice as possible when it comes to auto insurance.”

The changes come as auto insurance rates have soared in Ontario.

Since 2021, average auto insurance rates in Ontario have jumped by $12 percent, according to rates.ca. In Toronto, the average driver saw a hike of 19 percent over the same period, and the rate increase for the average Mississauga driver was 17 percent. In Brampton, auto insurance rates shot up by 39 percent between 2021 and 2023.

Part of Ontario’s Blueprint for Putting Drivers First is to enable insurance companies to offer more discounts and “innovative new products, such as pay-as-you-go insurance.” The province also committed to combatting fraud, reducing red tape, launching electronic proof of auto insurance, and promoting more competition in the auto insurance market.

Premiums are shooting up along with insurance industry profits, and Kotak says that there should be more transparency among insurers and the Financial Services Regulatory Authority of Ontario (FSRA), which regulates them, should only approve “legitimate rate increases.” He says the Insurance Act and the Statutory Accident Benefits Schedule are supposed to be consumer protection legislation, and opting out of direct compensation property damage coverage would only deny the consumer essential benefits.

“The pendulum has swung so far in favour of insurance companies to the detriment of the insured person in the province that there has to be a reckoning someday. We need an overhaul.”

“We have an extremely one-sided system where those who are injured in accidents don’t get properly compensated, don't get proper treatment, don't get proper financial compensation, where insurance companies continue to make profits,” says Kotak. “The only remedies the government can think about is to allow the opting out of direct property damage compensation, which is going to hurt the insured person.”

Russ Courtney, spokesperson for FSRA, says auto-insurance rates are rising due to several market conditions. These include inflation, which impacts the price of auto parts and labour costs; the return of driving behaviours to pre-pandemic levels; supply chain disruptions; and a record increase in auto theft.

“FSRA reviews and approves proposed rate changes using a rigorous process,” he says. “Past profits or losses are not used to justify proposed rate changes, which are based on estimates of the future. An insurance company needs to charge enough to pay future claims obligations, cover its future operating expenses and earn a reasonable profit.”

Courtney says FSRA strongly encourages consumers to seek advice from an insurance agent, broker, or provider before opting out of direct compensation property damage coverage.

Kotak recommends that drivers assess their risk tolerance and financial situation if they consider opting out of coverage. To lower insurance rates, drivers have the option of usage-based insurance, designed to reward good driving behaviour with cheaper insurance coverage by downloading an app and installing a plug-in into the car that tracks speed, rate of acceleration, braking, time of day, and distracted driving. But Kotak warns that usage-based insurance could also expose drivers to higher rates.