Tim Shia is perplexed and frustrated.

The 36-year-old Toronto musician has been trying for months to understand why the premiums he pays to insure two vehicles have gone up by 45 per cent since 2008, despite his good driving record.

That includes a jump of 26 per cent on his premiums in the past year alone.

“It was just a huge increase with no warning,” Shia said.

When he wrote to his MP and the insurance industry regulator for answers, they replied with form letters saying that premium increases are carefully regulated and within the law.

“The government agency that’s supposed to regulate this is obviously not doing a proper job,” Shia said. “A 26-per-cent increase in rates in one year means something is horribly wrong.”

Big changes are coming to auto insurance in Ontario this fall.

The insurance industry says the changes are needed to root fraud and waste out of the system, and that, if successful, premiums will eventually come down.

Starting Sept. 1, standard auto insurance policies in Ontario will pay up to $50,000 in medical and rehabilitation benefits, including assessment costs, for injuries that are not catastrophic. The new limit will be $36,000 for attendant care benefits.

That’s half the current level of benefits.

The maximum coverage on catastrophic injuries will stay at $1 million.

If you have a minor injury, your medical and rehabilitation benefits will be limited to $3,500 no matter what level of coverage you have chosen.

As well, starting in the fall, housing and home maintenance expenses of up to $100 per week will be paid only on catastrophic injuries, and income replacement benefits are being reduced to 70 per cent of gross income from 80 per cent of net income. The maximum payment is unchanged at $400 per week.

Consumers will have the option of buying additional benefits, but that means it will cost more for consumers who want to keep the same level of coverage.

There’s no question that Toronto drivers are paying the highest premiums in the entire province — and across the country.

Statistics from RBC insurance shows that a married couple with a clean record and two average vehicles will pay $4,682 per year in insurance in the GTA. The same policy would cost $3,495 in London, Ont.

In Ontario, the average cost per claim was about $53,000, up from about $30,000 in 2005. The average cost per claim in other provinces is just a fraction of that — $3,689 in Alberta, for example.

The real problem, the auto insurance industry says, is the spiraling cost of unnecessary assessments. For every $1 spent on medical treatment, the insurers are paying another 60 cents in assessments.

Insurance company executives say sketchy medical clinics and rehabilitation centres milk the insurance system by sending victims of minor accidents for dozens of questionable medical assessments.

“It’s a very rich system and a very litigious system,” said Barbara Sulzenko-Laurie, vice-president policy development from the Insurance Bureau of Canada. “It tends to grow into the amount of resources that are available.”

Executives at RBC Insurance recently described a case in which it received claims for 76 different treatments involving 50 different service providers — all from one car accident involving three people who suffered minor injuries.

The insurance company receives claims for everything from neuropsychological and orthopedic assesments to driving, sleep, neutritional and financial assessments to determine whether the accident victim has been unable to manage his or her finances. The assessment fees are paid to the clinic or medical professional.

The insurance company has three days to refute the claim and, in order to do so, must order its own medical report.

That means it can cost the insurance company more to refute a claim than approve it, said Catherine Honor, president of RBC General Insurance Co.

“There’s been abuse for sure,” said Natalie Dupuis, product manager for auto insurance at RBC Insurance. “Not to a great extent by actual consumers, but by the different parties that are involved in providing services to clients. There’s been fraud connected to this.”

That’s added a large hidden cost on what the policy needs to pay for and that affects prices.

Insurance companies say a lack of fraud legislation and complacency on white-collar crime mean that shady operators stay in practice.

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“I certainly believe the government could have gone much further,” said Norm Miller, finance critic and Conservative MPP for Parry Sound-Muskoka.

“They need to deal with over-assessments and fraud in Ontario. They’ve tinkered to stabilize prices, but we still have the most expensive auto insurance in North America.”

NDP justice critic Peter Kormos, MPP for Welland, doesn’t buy the argument that fraud is driving up costs.

“The insurance industry over the course of the past 25 years has used any excuse it can gather to argue for lower benefits and higher premiums. But it has failed to deliver fair premiums,” he said in an interview. “The reforms are all about insurance industry profits.”

Kormos is an ardent advocate for a public insurance system, which he says would offer lower and fairer premiums. “Good drivers pay less and bad drivers pay more and that’s what an auto insurance system should be all about. But in Ontario, it’s all about maximizing profit.”

Prior to 1990, Ontario had an at-fault insurance system. That meant if you got into a car accident, you hired a lawyer and you needed to sue in order to receive benefits.

Some argue litigation was plentiful and courts were clogged with auto accident cases. The government decided it could do a better job.

Under today’s no-fault system, the province mandates the same auto insurance policy for all drivers. While in other provinces, such as British Columbia, Manitoba, Saskatchewan and Quebec, the government also administers the system, Ontario is more of a hybrid: the government mandates the policy and the private, for-profit insurance companies collect premiums and pay out benefits.

“You’ve got this incestuous relationship between the insurance industry and the government trying to administer a system that is supposed to be in the public interest. As a result, the government is heavily affected by what the insurance industry says it needs and can and can’t afford,” said Erik Knutsen, a law professor at Queen’s University.

“The insurance industry asked for this system of assessments during the last reforms.”

“No one thought about how the government was going to administer this. The checks and balances aren’t there.”

In his previous practice, Knutsen acted on behalf of insurance companies and accident victims alike.

“I can tell you from both sides of the fence that the system is broken. This is a tragically broken, sad system and that’s the problem. These reforms will just add more complexity and delay into the system.”

In 2009, the insurance industry suffered its worst year since 2003. For instance, Ontario’s largest auto insurer, State Farm Mutual Automobile Insurance Co., lost $136.9 million, and Dominion of Canada General Insurance Co. lost $154.6 million.

The industry is allowed to raise premiums in response to rising costs. Increases are regulated by the Financial Services Commission of Ontario. The average of all approved changes for this year, across all companies, was 4.49 per cent.

But that’s just an average. Individual drivers, such as Tim Shia, can see rate hikes that are many times that, depending on what vehicles they drive, how often they drive, and where they live.

Still, the reforms are complicated and the insurance industry’s own surveys show that nearly half of consumers are not aware of the changes that are coming.

“I don’t understand how the average person standing in line for a double-double is supposed to make sense of any of this,” Knutsen said, referring to the reforms.