Launching Ontario’s New Auto Product

Most of you will by now know the majority of the changes to become effective on Sept. 1, 2010 for all Ontario automobile insurance policy holders. Since the announcements of what were at the time “proposed” amendments in November, there has been a great deal of activity within the industry to ensure all stakeholders are aware of the coming changes, and have adequate time to respond in all arenas. Any change of this nature to the regulated automobile product requires filing changes, system changes, communication strategy changes, a large education effort at all levels and for all stakeholders, as well as an extraordinary effort to educate the consuming public.

In preparation for these challenges, the Financial Services Commission of Ontario (FSCO) struck the Reform Implementation Steering Committee. The committee encompasses representatives from the insurance industry, the legal profession and medical and rehabilitation professionals. The steering committee is charged with overseeing the work of four subcommittees, including the:

• Accident Benefits Claims Forms Advisory Committee;

• Automobile Insurance Forms and Endorsements Advisory Committee;

• Automobile Insurance Rating/Underwriting Technical Advisory Committee; and

• Consumer Information Working Group.

IBAO CEO Randy Carroll sits on the steering committee. IBAO president Bryan Yetman sits on the automobile insurance rating/underwriting technical advisory committee. IBAO vice president Debbie Thompson sits on the automobile insurance forms and endorsements advisory committee. IBAO marketing manager Samantha Sampson and I, Paul Taylor, sit on the consumer information working group.

THE NEW REGULATIONS

Ontario introduced the new regulations on Mar. 2, 2010. All will become effective on Sept. 1, 2010. FSCO Bulletin A-01/10 will explain in greater detail the impact of each new regulation. A summary of the changes is as follows:

Ontario Regulation 34/10

34/10 is a new Statutory Accident Benefits Schedule. Each of the other regulations released alongside this one will amend existing regulations, but 34/10 will replace the old SABS in its entirety. In an effort to stabilize the cost of the product, the government has decided to restructure the accident benefits schedule to provide lower levels of standard coverage. The amended schedule will include new options allowing consumers who wish to do so to maintain their existing level of coverage after Sept. 1. This approach is very consumer-friendly for the vast majority of Ontario policyholders. The legally required coverage will be more affordable; those who wish to continue with the same level of coverage they have now will be able to. Our challenge as an industry is to make sure the consumer understands what the new standard coverage is, and that they have options should they choose to exercise them.

For example, policies that renew on or after Sept. 1, 2010 will have a new standard limit of $50,000 for medical and rehabilitation benefits for non-catastrophic claims. In addition, there will be a new standard limit of $36,000 for attendant care benefits for non-catastrophic claims.

New options have been created allowing consumers to buy back their previous non-catastrophic limits of $100,000 for medical and rehabilitation and $72,000 for attendant care. The existing option for an additional $1 million dollars will remain. In addition, the caregiver benefit and payment of housekeeping expenses now only apply in cases of catastrophic impairment, unless a buy-up option is exercised.

Other cost-saving measures are also being implemented within the new SABS. For minor injuries, the medical and rehabilitation benefit, including any assessment or examination costs for minor injuries, is limited to $3,500. Each assessment will be individually capped at $2,000. Many approved forms are being retired or eliminated, and there will be some consolidation and simplifications of rules governing claims processes. These changes should lessen the administrative expenses that currently absorb so much of the coverage limits.

Ontario Regulation 35/10

With 34/10 replacing the existing SABS effective Sept. 1, 2010, the new Ontario Regulation 35/10 retires the old SABS and outlines transitional procedures for accidents that take place before September 2010.

Ontario Regulation 36/10

36/10 amends the existing R.R.O. 664 1990 (Automobile Insurance).This regulation has created a new endorsement for the automobile products, the O.P.C.F. 48 and the O.E.F. 87, both entitled: “Added Coverage to Offset Tort Deductibles.” These endorsements are first-party coverages; they will help respond to offset the current deductible on bodily injury settlement amounts. If a $30,000 deductible is imposed, the endorsement will provide $10,000 to the insured. If a $15,000 deductible is imposed, the endorsement will provide $5,000. In effect, the endorsement is a deductible buy-down for the bodily injury tort deductible.

36/10 also changes the standard D.C.P.D. deductible from $300 to $500. This will largely be a non-issue for most consumers; if a policy is currently in force with a $0 deductible, then it will renew as such following Sept. 1.The impact will likely be felt more during the filing process than at the consumer level.

Ontario Regulation 37/10

Ontario Regulation 37/10 amends the existing regulation 534/06 Unfair and Deceptive Acts and Practices (UDAP). IBAO has taken a strong stance against the use of credit information during the underwriting process for personal lines insurance policies for the last number of years. The association is very pleased to see the new changes, the strengthening of language and, it believes, clarification of the intent of the UDAP regulation. Most notably, the regulation now contains a definition of “credit information” that has been added to the list of lifestyle and financial factors prohibited from use in rate and classification. Additional language clarifies that credit information cannot be used to interfere or make difficult the quoting process for consumers, nor should it be used to increase difficulty in obtaining a rate or hinder the binding of a risk in any way.

Also, a provision is added that requires an insurer to provide the best rate available to a consumer from any of its affiliated insurers, provided of course that the consumer would qualify for the premium offer. The affiliated insurer must be available through the same distribution channel. IBAO interprets that to mean: an insurer that uses the broker distribution channel must provide rates for all its related companies that also distribute products through the broker channel. IBAO’s member brokers’ licenses demand they place the interest of the consumer first, while insurers sometimes prefer the placement of business with an arm that does not provide the most favourable rate. This new provision removes any possible conflicts of interest to the benefit of the industry, and most importantly, the consumer.

Ontario Regulation 38/10

This regulation is short and modifies the current Disputes Between Insurers regulation 283/95. The new regulations require insurers to provide timely access to applications for benefits to claimants, prohibits an attempt by an insurer to dissuade a potential claim or redirect the claim to another insurer and requires the insurer that receives the completed application to provide the benefit without delay. The intent is clearly to ensure there is no complication or barriers for eligible claimants to receive benefits.

Ontario Regulation 40/10

The statutory condition for appraisal is amended to remove the requirement of the insurer’s consent. An insured can request an appraisal process be used and the insurer must comply.

WORDINGS

The changes bring with them the need to modify the OAP1, the OAP4, the application and certificates for both, as well as a number of endorsements. Any endorsement that references the accident benefits cover or related options needs to be modified. New endorsements have been created to provide the legislated option for consumers to reduce their tort deductible.

IMPLEMENTATION

The implementation of the new Sept. 1 automobile policies, Statutory Accident Benefits Schedule, new endorsements and consumer education will be the primary focus for the IBAO in the upcoming months. The IBAO has scheduled a road show visiting 26 locations; at each of these locations, the association will make a three-hour presentation outlining the changes. The presentation will also address the broker’s role in the new procedure and rollover. The presentation will be made twice at each location, once in the morning and again in the afternoon. The intent is to allow brokers to split their staff up to attend the sessions, allowing the business to continue to run through the day of the training.

In addition to our travel plans, we will offer Webinars to cover the same material, making it available to those who were unable to attend our sessions while in their area. We will cover the details of the regulatory changes, as well as the potential process and workflow changes for these renewals, and discuss how we can support their businesses through this period.

Already we have had more than 4,000 members pre-registered for these sessions. We anticipate between 8,000 and 9,000 total attendees before the sessions are finished. The sessions are open to non-member brokers as well as other industry partners.

The association expects a considerable amount of time will be spent discussing policies that overlap the Sept. 1 renewal date. Policies issued before Sept. 1, 2010 will continue in force until their renewal date, with their existing limits of coverage in force, unless the consumer requests a change.

If a consumer’s renewal is in June, then the policy will be issued with the existing statutory accident benefit limits in place and will continue in force until the following June with the same limits. Upon renewal, the coverage will change to the new standard policy. However, the administrative changes introduced by the new SABS will take effect under this policy should an accident occur following Sept. 1. While the $100,000 limit may exist on the consumer’s policy for medical and rehabilitation expenses, the new $2,000 limit for each assessment will apply.

Consumers whose policies renew in June will also be able to request that their coverage be changed to the new standard accident benefits level of coverage after Sept. 1. Insurers may endorse the policy to make the change, or may cancel and rewrite the policy. For many consumers, the likelihood may be that this change will not provide much benefit. With the recent rate activity, policies issued close to the September implementation date may see some easing of rate to move to the new standard policy, but those whose policies renewed prior to April will likely have received their renewal based upon a previous rate filing for their respective insurer. As such, the new standard coverage may be at a comparable cost to their existing level of coverage, or may offer such a small amount of credit that there will be no benefit. The consumer will in most cases be better served to maintain their higher standard limits until their renewal.

CONSUMER EDUCATION

Consumer education throughout the next year to two years will become a very high priority for the association and its members. In June, consumers will begin receiving communications from insurers regarding the changes to their policies, and they will be looking or more information. The consumer working group is currently finalizing consumer communication material; this is intended to ensure a consistent and accurate message is delivered to consumers about these changes. Three documents are currently being finalized: 1) an early awareness mailer, 2) an expanded explanatory document outlining the new changes and consumer options, and 3) a final document for renewal enclosures reminding consumers their policies have changed.

The early awareness mailer will act as the first notification to Ontarians that their policy is changing. It will outline the current coverage limits, and explain that new options are available. It will not provide a great deal of details. Rather, it is intended to provide a summary or introduction of the idea the coming change.

The expanded explanatory document will provide more details about the changes to the coverage; the intent of the changes as a cost stability measure; and a more detailed explanation of the options available under the new policy.

The renewal enclosure document will act as the final reminder that the coverage under the policy has changed. This document will be produced in plain black and white, and will be presented in a manner that it could not be mistaken for marketing material. The language on these documents will be prescribed; it will become the required standardized messaging for the industry to use. All consumers will therefore receive the same messaging and receive a consistent description of the changes. For our members, it simplifies the initial conversations with their consumers, since they should all be starting with the same common level of knowledge.

IBAO will make available to our members each of these documents in a customizable manner, allowing each of our members to brand the documents and fliers with their own company logos and colours where appropriate. We will explain this in more detail at our educational sessions. We will also be creating a number of consumer-focused vignettes about the changes to each level of coverage affected. The association will be making these vignettes available through its Web site for members to embed into their own. The association has already had a number of inquiries from its insurer partners, asking how they can support our members in their effort to educate their consumers. IBAO envisions many announcements in the coming months, outlining different support mechanisms the association can help orchestrate to better help brokers better serve their customers.

THE BROKER ADVANTAGE

The automobile product has fundamentally changed with these regulations. Additional options contained within the product make it all the more important that the consumer fully understands the extent and scope of the coverage offered by the OAP1 and OAP4. Consumers will need to be better educated about the potential impact of their coverage decisions, and better counselled as to their options. As independent insurance brokers, our value proposition has always been our ability to provide expert advice to our clients. In the last number of years, the automobile product has been somewhat commoditized, with advertising campaigns aimed to inform consumers of the “sameness” of the insurance they’re buying. The discussions around the purchase of this product now will be very different than they have in the past. More consumers will look to an advice-based, consultative expert with whom to discuss their insurance needs. The expected consumer notifications around the product changes will likely begin in June, and the association’s role is to prepare its members well for the consumer questions they’re likely to begin hearing.

With September renewals being issued in July, and consumer awareness campaigns beginning in June, we don’t have a great deal of time to prepare our industry for these changes. IBAO is confident it will meet the challenge and its consumers will be better served by the new structure of the product, their chosen insurance company and their insurance broker.