Auto Machination

The Ontario government recently revealed some details of its plans to reduce private passenger auto rates, pledging to require insurers to re-file rates, with the aim of reducing premiums by 8% next August and by 15% over two years. In response, the provincial brokers’ association suggests mandated reductions in auto premiums must be made in a “responsible fashion” or there is a risk that insurers will leave the segment entirely.

The Ministry of Finance announced August 23 it will expect a report in January 2014 from the Financial Services Commission of Ontario (FSCO) to show an approved rate reduction of 3% to 5%.

Currently, carriers must submit proposed rate changes – along with supporting actuarial data – to FSCO for approval. FSCO and its actuaries then review the data and insurers’ assumptions regarding claims costs, expenses and investment income to ensure that the proposed rates are not excessive, but are also not going to impair the carrier’s long-term solvency.

Until August 23, FSCO’s return on equity benchmark was 12% and that has now been reduced to 11%. The same day, the finance department announced it is giving its Superintendent of Financial Services the authority to require insurers to re-file rates – a measure the government promised May 2 when it tabled its budget. In the budget, the minority Liberal government promised it would aim to reduce private passenger auto premiums by 15%.

Industry-wide target

Then on August 16, amendments to the Automobile Insurance Rate Stabilization Act (AIRSA) came into effect. The act “establishes an industry-wide target reduction” by 15% of the “average of the authorized rates that may be charged by insurers” for private passenger auto, with a two-year target. The law now requires carriers, when filing an application, “to propose rates and a risk classification system that contribute adequately to the achievement of” the 15% target.

“Our expectation… was that we would see progress made in identified cost reductions resulting from fraud, but what we heard were more promises of change and not enough action,” states Randy Carroll, CEO of the Insurance Brokers Association of Ontario, in a press release. “There is an inherent risk that the result of today’s announcement could result in future availability and affordability concerns for consumers in this province. Regardless of the type of business that you are running, you cannot reduce revenue without implementing cost reduction measures and expect to succeed, it just doesn’t work.”

The goal of cutting premiums by 15% came at the behest of the New Democratic Party (NDP), which has 20 out of 107 seats in the legislature. The ruling Liberals have 50 seats and the government survived because the NDP voted in favour of the budget. Two months before the budget was tabled, the NDP called on Premier Kathleen Wynne to direct FSCO to gradually reduce average, industry-wide private passenger auto premiums by 15%.

At the time, NDP politicians said that auto reforms implemented in 2010 resulted in $2 billion in savings. 

Reforms cut claims costs

The Insurance Bureau of Canada (IBC) has noted that in 2010, carriers lost a combined total of about $1.7 billion on Ontario auto, and made a profit of $233.2 million on written premiums of $10.3 billion in Ontario auto in 2011.

The return to profitability in 2011 followed a series of reforms, including a $3,500 cap on injuries falling under the Minor Injury Guideline (MIG), which can include a variety of injuries including sprains, strains, whiplash associated disorders, contusions, abrasions and lacerations.

In addition to the cap on the MIG, the reforms that took effect in 2010 included reductions, for non-catastrophic injuries, to medical, rehabilitation and attendant care benefits. The standard auto policy now mandates $50,000 (down from $100,000) in medical and rehabilitation benefits and $36,000 for attendant care (down from $72,000).

Then on August 23, 2013, the Ministry of Finance announced it plans to reduce unexpected costs by making the Superintendent’s Guidelines on accident benefits binding. It also plans to “explore” other cost reduction initiatives, such as provincial oversight of the towing industry and “addressing collision repair practices.” The government also plans to “crack down on fraud.”

That commitment to fraud reduction “is a good first step; however it will still be some time before these measures are in place producing savings,” IBC stated last month in a press release.

“On a positive note, the government has signalled its intent to implement further reforms in order to resolve long-standing problems that plague the current auto insurance product. That is a welcome development,” it adds.

The Auto Insurance Anti-Fraud Task Force, which released its final report last November, recommended that the province “require the licensing of health clinics that treat and assess auto insurance claimants” and to give FSCO the power to regulate their business practices.

It also recommended the early assignment and continuity of Crown attorneys in large complex auto insurance fraud prosecutions and called on the province to ask the federal government to “move quickly” to pass Bill C-12. If passed into law, Bill C-12 would amend the federal Personal Information Protection and Electronic Documents Act (PIPEDA) so that a company could disclose personal information about a person without his or her knowledge or consent if the disclosure was made “to prevent, detect or suppress fraud when it is reasonable to expect that the disclosure with the knowledge or consent of the individual would undermine the ability to prevent, detect or suppress the fraud.”

The goal of changing PIPEDA would be to remove any “undue limitations” on the ability of insurers to pool claims information to combat fraud, the anti-fraud task force noted in its report.

The task force also recommended the province move “aggressively” to “address the current backlog of mediation cases” before FSCO and to “develop a more robust dispute resolution framework.”

On August 19 of this year, FSCO announced that it had eliminated the backlog of applications for mediation, though applications for arbitration are increasing. In 2012-2013, FSCO received 10,510 arbitration applications, nearly double the 5,260 received in 2011-2012.

Task force recommendations

Other recommendations from the task force included:

• providing a “range of sanctions” for FSCO to apply “in cases where clinics are not following FSCO’s business-practice standards, including giving FSCO the ability to limit or curtail a regulated facility’s access to the Health Claims for Auto Insurance system”;

• developing “protocols” for active information sharing about suspicious cases among the investigative divisions of FSCO, the Workplace Safety and Insurance Board (WSIB) and the Ontario Health Insurance Plan (OHIP); and

• having FSCO “explore the development of protocols” to permit its investigators to exchange information with investigators from the federal government, including Canada Revenue Agency.

Some of the recommendations have already been implemented in regulations that took effect June 1 of this year.

For example, the Unfair or Deceptive Practices Act, now makes it illegal to request, require or permit an insurance claimant to sign an incomplete claim form.

The Statutory Accident Benefits Schedule (also known as Ontario Regulation 34/10) now gives carriers the right to request confirmation – in writing -that goods or services were provided to the insured person, when either the claimant submits an invoice to the carrier for payment for goods or service, or when someone else submits an invoice on a claimant’s behalf.