Auto Insurance Reform: a Long Road for Ontario

The Insurance Bureau of Canada (IBC) forwarded a proposal to the Ontario government for the reform of the Ontario auto insurance system over a year ago. Much debate has since occurred, with the government having recently issued a consultation paper that provides very little direction in addressing insurers’ concerns. As such, the Ontario auto market, specifically healthcare related costs, continue to be a prime area of concern for the property and casualty insurance industry.

The insurance industry’s results speak for themselves: a paltry return on equity across the industry of 1.8% for the last 12 months, a loss ratio in Ontario auto that has reached 84% (higher than that experienced during the dismal days of Bill-164) on the back of run-away healthcare costs that continue to rise 14.3% annually. The current crisis in Ontario auto did not happened overnight. It dates back to the passage of Bill-59 in 1996. Everyone recognizes that the new legislation saved the industry from the disaster of Bill-164. But, contrary to the hopes of some, this reform did not solve all the problems festering in Ontario’s no-fault system.

Healthcare factor

The cost of providing medical and rehabilitation care for injured accident victims has risen ever since no-fault insurance was introduced in Ontario in 1990. Total industry healthcare costs have risen from $308 million in 1991, the first full year of the OMPP, to just over $1 million for 2000. Bill-59 was expected to stabilize these costs, and it did for the first year. However, the healthcare industry that has developed around no-fault insurance has quickly found its weaknesses, and they are now the foundations of a burgeoning industry of its own.

Dramatic action

The IBC told the government a year ago that, if dramatic action was not forthcoming soon, the auto insurance market was headed for a crisis. It was no longer time to talk about completing a minor review of the Bill-59 legislation. Instead, the industry tabled a major submission for the reform of the auto insurance system. Each one of our proposals were carefully costed to bring the Ontario auto insurance system back to balance — and to ensure its affordability. The overall purpose of our reforms was to control the runaway costs of relatively minor accident benefits claims, while ensuring suitable healthcare for injured accident victims, including those who are seriously injured.

After a year of the industry’s warning of impending disaster, the government finally recognized that the problems in Ontario auto have worsened and not improved, with each day passing continuing to enhance the criti7f the market. As such, this past September the Ministry of Finance issued a consultation paper on the review of the auto system, and asked all interested parties to respond to it by early November.

No direction

Unfortunately, the government’s consultation paper showed no sense of direction from the authority’s part, and asked for comments on a number of propositions that would increase costs for insurers even further. Nonetheless, “attention” is better than “no attention” at all, so the IBC used this opportunity to once again respond with its key reform proposals (mostly outlining the same issues of a year ago, although a few new items have emerged over the last 12 months). The IBC’s key reform measures include:

DAC system overhaul. The industry’s current routine is to settle accident benefit claims at a higher than real value to avoid sending a claimant to a DAC. When all expenses relating to a DAC assessment are taken into account — including possible recourse to mediation and arbitration, and the likelihood that at some section-24 assessments will be ordered along the way — it is not unusual for insurers to face between $7,000/$10,000 without any actual care having been dispensed to the claimant.

Some DAC assessments themselves have been known to exceed $25,000. The system has become expensive, slow and bureaucratic, and is used regularly by providers to extort unrealistically high settlements from insurers. The IBC recommends that DACs be restricted to an alternative dispute resolution role, with “front-line assessments” carried out by individual health practitioners accredited on a list maintained by FSCO. For all intents and purposes, those currently doing assessment work would continue to do so, only they would not be organized as costly as under the DACs with huge overheads. Fees payable by insurers for section-24 assessments should be severely capped, with DACs playing an ADR role that, should it find a practitioner has presented unreasonable or unnecessary treatment on two separate occasions, the individual healthcare provider should be suspended from FSCO’s authorized list. In this way, the industry would finally have some form of accreditation of providers.

Limiting treatments. We need to stem abuses by doing away with the current provisions in Bill-59 allowing for physiotherapists and chiropractors to provide a claimant with up to 15 treatments within the first six weeks of an accident without having to present a treatment plan. While this provision was designed to expedite treatment, it became a convenient way for some healthcare providers to inflate accident benefit claims.

Minor injury limits. To balance the effective controls needed on the large number of minor injury claims, measures are needed to ensure that seriously injured accident victims get the healthcare they need to return to their families and work. Concern has been expressed since Bill-59 came into force that the definition of “catastrophic impairment” is not adequate to deal with a number of seriously injured claimants. The government itself has raised the case of young people injured in accidents where, while their injuries may not be catastrophic, the life-time healthcare costs of treating injuries may exceed the basic accident benefit med/rehab limit under Bill-59 of $100,000. The IBC proposes that, to deal with such cases effectively, tort provisions under Bill-59 must be modestly expanded to allow all injured accident victims to recoup healthcare costs above and beyond AB limits through the courts. This solution will be more effective and less costly than making broad changes to the definition of “catastrophic impairment” — as recommended by a government advisory panel last year.

Collateral benefits. The whole gamut of collateral benefits in the auto insurance system needs to be cleaned up and clarified. The proliferation of group plans in recent years has placed many agents and brokers at a disadvantage, since they are unable to ask underwriting questions related to income and group benefit plans. As a result, many individual auto insurance policyholders are paying too much for their insurance. At the same time, a number of group and individual employee benefit plans are re-writing their policies to specifically exclude healthcare expenses related to automobile accidents. The IBC suggests that the government should allow all insurance intermediaries to rate on the presence or absence of collateral benefits, and to clarify that auto insurance is the secondary payer after all other collateral sources are exhausted.

Rate approval system. Regulation of auto insurance rates in Ontario needs desperately to be streamlined. The current requirement for a full actuarial filing to justify almost all changes in rates and risk classifications leaves Ontario with the slowest and most costly approval system in the country by far. It prevents insurers from responding quickly to events and introducing product innovations that cannot be demonstrated by old actuarial data. The recent announcement that FSCO’s “Respond to Market” expedited filing system will be expanded temporarily to permit insurers to increase rates in 2002 by 7% without the requirement of a full filing is welcome news, and the first sign that the industry’s pressure is finally bearing fruit. However, we need to go further in establishing a true “file-and-use” system in Ontario, similar to the rate approval procedures existing in other juris dictions in Canada.

Clearing the way

It is an ambitious agenda for auto insurance renewal that the IBC has been discussing with the government and other stakeholders for months now. Maybe that is why progress has been slow. There are, however, clear signs that the government recognizes that the time for action is now. We fully expect that an auto insurance package will be presented to the legislature at the earliest opportunity when it reconvenes most likely in April. You can be assured that we will be continuing to work with the government to ensure that a solution is ready.