Reinventing the Insurance of Wheels

It is with a heavy heart that I commit this idea to paper, because we are all well aware of how much time, effort, dedication and consultation went into the most recent round of Ontario auto reforms.

The government consulted stakeholders; took its time to get it right; balanced the needs and interests of all parties; implemented cost containment measures to help insurers get a handle on their claims costs; tried to explain clearly to policyholders what was going on; designed carefully- scripted messages that would help take some of the heat off insurance brokers in explaining the new product.

For all of this, the government and the regulator should be applauded.

But in our heart of hearts, most people in the industry must know these reforms aren’t going to work for long.

That much seemed clear in a 15-minute presentation by trial lawyer John McLeish, senior partner at McLeish Orlando LLP, at the National Insurance Conference of Canada in Montreal in September.

Simplifying his argument greatly, McLeish noted that “sprains,” as defined in the new Minor Injury Guideline (MIG), include torn ligaments and tendons. Since these injuries fall under the definition of a “minor injury” in the MIG, benefits payments for such injuries on the no-fault accident benefits side are capped at $3,500.

McLeish argued these very same injuries would be considered “serious” on the tort side. A construction worker with a torn anterior cruciate (ACL) or a rotator cuff (shoulder) injury, for example, could lose “hundreds of thousands” of dollars of lost income as a result of such an injury. This would meet the legal threshold of a “serious and permanent” injury under tort, McLeish argued.

Upon hearing this, you could almost sense the industry saying to itself: “Here we go again.” These reforms are barely one month old, and already the hybrid no-fault/tort system in Ontario rears its ugly head. Contain insurers’ claims costs in accident benefits, and out these savings go in the form of tort (court) awards. Contain tort costs, and accident benefits costs run wild.

The problem here is the business model: Ontario’s hybrid system of no-fault accident benefits and tort simply doesn’t work. There are too many avenues for money to flow out of the private insurer’s coffers. If there was ever a time to re-invent the wheel, this would be the time.

Granted, the Insurance Bureau of Canada left no stone unturned when it approached the latest round of reforms. Nevertheless, its counsel, Randy Bundus, who moderated the very same NICC panel at which McLeish made his comments, clearly struck a chord with the audience when he asked the panelists: If you could design whatever auto reform system you wanted, what would it be?

The insurance industry should be preparing its answer to this exact question in anticipation of the next (inevitable) round of reforms. Bundus’ question prompted an interesting round of discussion about other private passenger auto insurance models — full tort, full no-fault, the Quebec model (insurers pay for the physical damage to the car; the government pays for health care), as well as the suitability of other private passenger auto insurance schemes in Alberta, New Brunswick, Nova Scotia or Newfoundland. Some have even wondered whether Ontario might go the way of the public auto model as seen in B.C., Saskatchewan and Manitoba.

This discussion is healthy and essential for the future of the Ontario auto product, which accounts for a quarter of the country’s property and casualty premiums. The industry should conduct this debate right now.

Why now? Because if some kind of consensus can be reached within the industry within the next two years, the new model — whatever it may be — will have the benefit of being a credible, well-researched, popular, thoroughly vetted, and perhaps even policyholder- sanctioned alternative that could replace the current hybrid system as early as the next round of reforms.

It might be a social faux pas to suggest more effort is required when everyone is battle- fatigued from the most recent round of reforms. But the efforts made now to come up with a truly alternative model could have enormous payoff well down the road.