Ontario Auto, Setting the Course

Just one month after the Ontario Liberals were sworn into office last October, the government announced its first move to tackle the province’s auto insurance melee. And, it was a mighty unpopular move amongst insurers in the province, with rates for private passenger vehicles frozen for 90 days, as well as a mandated re-filing of rates to take into account an expected 10% decrease.

At the same time, the new government promised to bring in changes to the system to make these savings feasible – no small task given the historical losses suffered by auto insurers through five previous stabs at auto insurance reform. Insurers were still absorbing sweeping changes made by the previous Tory government under Bill-198, and while many of the reforms included in the bill received the industry’s blessing, anxious insurers waited to see what the new government would serve up. Into this maelstrom stepped Mike Colle, parliamentary assistant to the Minister of Finance, and the man charged with reforming Ontario’s auto insurance system.

STRIKING BALANCE

To some it may seem Colle had a political death wish, taking on the hugely unpopular and charged issue of auto insurance, which had stolen a good deal of the election spotlight. However, Colle says a prudent approach was needed to balance consumer concerns over rate with the need for a healthy insurance industry.

The rate freeze, he says, was a means of halting the publicly unpalatable premium increases making headlines, and a first step in reforming a system that was not working for policyholders or insurers. “It was basically a way of putting the brakes on the setting of premium costs and as a “time out” to make adjustments to stabilize the system, to make the market more competitive and to make the market accessible.”

Colle says that, against the publicity surrounding the rate increases, it was easy to lose sight of the need to have a workable system which could ensure insurance was available. “The forgotten thing in all of this is the need to have accessible insurance to meet the needs of all the people.” One need only look to Northern New Brunswick, where lack of coverage availability forced many drivers unnecessarily into the Facility Association (FA) – the industry’s pool for high-risk drivers – as brokers were left with slim to no private market options.

Insurers can take comfort in Colle’s understanding of the relationship between the rate crisis and rising claims costs in the auto product. “The biggest thing, it seems apparent to me, is that the real cost driver is minor injuries, minor crashes, fender benders. They seem to be taking up the industry’s time and too much money from the insurance pool.” Colle also points to cases where minor crashes are resulting in injury claims, the reality of which is debatable. Part of the problem, he admits is a public misunderstanding of how escalating claims costs lead to higher rates for everyone, and that when injuries are exaggerated, sapping up the industry time and money, the cost is ultimately passed on to policyholders. “People don’t make the linkage between the fact they [policyholders] are the insurance company…somehow we need to make people understand that.”

Insurers have borne the cross of this misconception. “There is this idea that insurance companies have this bottomless pit of money,” he says. “There is not enough money to take care of the opportunists in the system, the manipulators that are warping the system.”

Colle says the problems of the system may be “related more to insurance behavior than to driver behavior”. While road safety is an issue, the system needs to put a priority on those most seriously injured. To this end, reforms have already been introduced raising the fees for healthcare providers treating the seriously injured, while limits have been placed on minor and whiplash-related claims.

REDUCING COSTS

Even prior to taking office, the Liberals cited the need to refocus the personal injury component of auto insurance, including dismantling the designated assessment center (DAC) system. Recently, the Financial Services Commission of Ontario (FSCO) released for comment an outline of the new “expert assessor network” (EAN), intended to replace DACs. In releasing the EAN framework, FSCO says it is a response to the “adversarial, costly, time consuming, and complex” DAC system, echoing the thoughts of many in the insurance industry.

“The primary goals are to ensure that medical assessments don’t become an end unto themselves,” says Colle of the need to reform the system. “They [assessments] should be a clear, definable step in the process, not a self-perpetuating, expensive delay.” As such, Ontario needs to ask if policyholders can afford the financial burden DACs place on the insurance system, and if there is a more efficient way to offer medical assessments, he stresses. “Why is it every other insurance jurisdiction in North America does not have this assessment bureaucracy?”

The Liberals hope the EAN will be more focused on scientific evidence as the basis for diagnosis and objective assessments achieved by the random assignment of claims to qualified local doctors. FSCO expects the final EAN model to be announced by the end of June, and in place by the end of the year.

IN CONSULTATION

The Liberals hope to achieve a further 10% average premium reduction, something which will only be practicable if the system is subject to additional changes. Colle says thus far the industry has not been shy about offering up ideas for further reform. “Everybody’s been more than willing to offer suggestions. We’ve received a lot of feedback.” This includes not only insurers, but also the Insurance Brokers Association of Ontario (IBAO), medical providers, lawyers, the tow truck industry and bodyshop owners, amongst others. “We’ve had a good exchange of ideas.”

The government also wants to introduce some form of choice for drivers in their policy, Colle explains, so that policies can be customized to meet individual needs, and in the process cost less. For example, he adds, “why does a retired person on a pension need to pay for income replacement benefits? Why does a person with a total package in the workplace (with accident benefits, etc.), pay twice for these with their auto policy?”

Colle has been working with the IBAO and insurers to come up with new models, and adds that while the government wants policies to be better tailored, it does not favor the “no frills” option currently on the table in New Brunswick.

Insurers can also rest assured the Ontario government has no plans to look at public auto insurance as has been recently under review in New Brunswick. Colle says public auto is seen as a panacea, and becomes a theoretical debate taking the focus off the salient issues of auto insurance. “The intervention of the public versus private auto debate is a debate that takes us away from dealing with the root causes of the problems we have,” he comments. “By getting into a philosophical debate, we’re getting away from the real debate, which is making the system work.”

Governments also need to be pragmatic about the costs associated with starting up a public auto system. The price tag associated with establishing a public system – in New Brunswick’s case this has been tagged at about $82 million – is rich for the blood of an Ontario government tackling the legacy of a $5.6 billion budget deficit.

SIMPLE VIEW

While Colle does not come from the insurance industry, he says his former career as chairman and commissioner for the Toronto Transit Commission (TTC) brought him face-to-face with insurance issues (the TTC has its own self insurance program, “The Insurance Co.”). Prior to this, he spent 18 years as a high school history teacher in Toronto, where he continues to live with wife Sharon and their four children.

Colle’s government service began as a Toronto councilor, and in 1995 he was first elected to the legislature. In 1999 and 2003, he was successfully re-elected to represent the Eglinton/Lawrence area. During his time with the provincial Liberals, Colle has served as opposition critic for transportation, municipal and consumer affairs and Greater Toronto Area issues. With the highly complex auto insurance issue now a priority item, Colle says his view of the industry and its role is simple: “The main thing is providing good, affordable, accessible insurance to people.