We share the exact same thoughts. However I figure that people across Ontario would be more than glad enough to join TAI since rates would be lower than the market rates. Most people just want a few more dollars in their pocket.
The biggest resistance to this will be from the Legislature. Some of the MPPs may feel a sense of embarrassment if Toronto were to begin the process of creating an auto insurance company to generate transit funding without their approval. This may very well jumpstart efforts at Queens Park to create a provincial auto insurance corp, similar to what you've proposed.
But if TAIC does what we all hope it will do, which is lower insurance rates across the board, where will the incentive be for people outside of Toronto to switch? Toronto already isn't very popular in the rest of Ontario, so if people start getting 15% off everywhere, they'll say to themselves "if my rates were just lowered with my existing provider, why should I switch insurers just so Toronto can get a few more KMs of subway?".
I'm fine with it being at the local level. I'm fine with it being at the regional level (Metrolinx). I'm fine with it being at the Provincial level. I just don't think that AIC should be banking on getting customers beyond the area in which their revenue funds infrastructure projects. Expand beyond that scope and you lose one of the two major benefits of switching to said AIC: infrastructure improvements in your area.
Based on the lack of response from Horwath et al, I would agree that starting at the municipal level may in fact be the way to go. Get a champion there, hype it up, and then hopefully someone at Queen's Park will pick it up and run with it, because they'll see the Province-wide implications of a similar, expanded program.