Shooting Ourselves in the Foot

Well, here we go again…

You would think that after four serious attempts since June 1990 we would have a grip on the problems arising from our ever-so-generous owner’s automobile policy in this province. When are we going to learn that we’re not in the business of providing social benefits to those privileged to own an automobile?

It began with a simple two-page tort policy, two pages of immediate medical assistance to all drivers and occupants and a few more pages of other miscellaneous coverage. The industry controlled the product it sold. It also met the statutory requirements outlined in a pamphlet that could fit in a shirt pocket.

Not happy with the simplistic policy, we decided to go for all the marbles in 1990. And yes, for a short period of time, we had the bull by the horns. We tamed the bull on tort, but at the same time created a social accident benefits nightmare that would make Fidel Castro’s four-hour court defence in 1953, History Will Absolve Me, look like a child’s novel.

And yes, we also decided to take a chapter from “Ren Lvesque’s” book on “Insurance Reform for Capitalists” and brought in the Direct Compensation Agreement. Not a bad idea. We now charged the first party premiums on the car they were driving, in anticipation of damages caused by a guilty third party. Now that made sense. We collected both ways.

As prepared as usual, the industry never considered the possibility of a Bob Rae government in 1993.The new regime took the social benefits of 1990 and gave even more — and, oh yes, brought back some tort reforms that were given up in return for the social entitlements.

A new industry was created around the product we sold. Eventually the tail started wagging the dog.

But did we stop there? Of course not! As masters of our own demise, more and more reforms, concessions, regulations and statute changes were presented to government. Now, you must understand that government has limited knowledge about all of the aspects of automobile insurance, relying on us to get it right. But can we? Not a chance. When a more friendly government was elected in the mid 1990s, we decided more band-aids should be applied to our Titanic.

How about vehicle inspections? Yes, that was a great idea to catch all those “phantom vehicles.” Despite numerous calls to some insurers warning them about the costs associated with these inspections, not to mention the backlog of work on underwriters’ desks — and let’s not lose sight of the additional regulations in place surrounding these inspections — the insurers’ request to the government to allow these inspections was adopted. We all know how long that lasted. Common sense finally prevailed. I’ve actually had some insurers say to me today that they really didn’t want it. Give me a break. I wish I had purchased some Polaroid stock at that time.

With the number of claims increasing, we decided to get a little picky on what we wanted, perhaps too picky for a province that makes automobile insurance mandatory for the working stiff. Welcome filing rules. This is how we describe to the government the people we don’t want as clients.

It began with a few simple filings that included a few exceptions of acceptability. Now, after 15 years of getting away with some of the most ridiculous exceptions I’ve ever seen, we file exceptions that go on for pages. I swear these exceptions are put together by people who write riddles.

How about a cost-cutting tool? Why don’t we list what we’ll accept? Shouldn’t take any more than a note pad. Also, doing it this way might eliminate the insurers’ bureaucracy that writes these exceptions and the public branch of the beaurocracy that approves them.

THE RATING GAME

It’s funny how we have forgotten that we are in the insurance business. You know, the industry that measures risk — all risks — and prices accordingly? The industry that makes the insurance product available to everyone? Well, even that has gone out the window. We are now fragmenting the automobile insurance market to such low numbers that actuaries are starting to believe what they are starting now to conclude.

We have seen discounting that would make the late Honest Ed Mirvish envious. We have seen promises of gifts if you just get a quote from us. And, the best one yet: ‘You will become a better driver if you also insure your house with the same insurer.’ Explain that one to a driver.

The process of rating the automobile insurance product has lost its transparency and logic. The cost of providing a simple quote has gone from a one-minute phone conversation to an all-day, secretive process unknown to mankind. The difference in premium between one insurer and another is so great that you need binoculars to see the other side. Now that’s confidence in actuarial science.

What does all this mean? Less premium spread, less spread of risk, diminished productivity and less time for any agent or broker to do what they do best –sell, service and, yes, support the insurers they represent.

Profits used to come from good source underwriting of good and bad risk. Today, however, profits are anticipated by creating models that say if the square peg fits the square hole, the profit will come regardless of underwriting. What a sad commentary.

We’ve chased away all our young talent that used to be trained by seasoned risk assessors. Today, we have no hope of attracting good talent unless they truly believe that a call center mentality — i.e. placing square pegs into square holes –is something they want to do repeatedly for a future career. Automobile underwriting was a talent and an actuarial art. We’ve diminished it to finger-painting. Thank God we’re not allowed to carry guns in our industry. We’d all be limping.

If we don’t come up with a radical new automobile insurance product in this province soon, someone — or some political party with aspirations to seize or remain in power — will do it for us. And the public will welcome it with open arms. Not possible? Just watch. I don’t hear too many complaints from Quebec, Manitoba, Saskatchewan or B.C.

GETTING BACK TO BUSINESS

As harsh as this might sound, we’ve got to get back into the insurance business, scrap the automobile policy as we know it today in Ontario and begin from scratch.

It’s not hard to do. The difficult part is to find the right people to do it. Most importantly, we need to fight to take full control of the product we sell. In doing so, we should consider the true needs of the working public and claimants, not the needs of the indirect benefactors.

Lawyers run and control the tort portion of the equation, heath care providers run our SABs, and preferred shops and call centers run the physical damage portion. All have a combined equal stake in a product we own and sell. In 2005, the car rental companies decided they should take a shot at us as well. What they got was instant success with the new vicarious laws passed in the province. Where were we?

It used to be that we feared banks coming into our business. The truth is we should fear ourselves.