Ontario stakeholders now have as a new guide 38 task force recommendations, released in November, on how best to proceed with efforts to combat auto insurance fraud in the province.
Generally well-received, the recommendations have been characterized by many as thoughtful and thorough. But it may be circumstances that have nothing to do with the meat of the proposals - from the possibility of longer timeframes imposed by the proroguing of the Ontario legislature to demands to flesh out recommendations before moving forward - that threaten to transform green light to red, at least in the short term.
Short-term forward movement will likely be important to sustaining momentum on what has become an expensive problem, one that KPMG pegs at $769 million to $1.6 billion annually and to which Ernst & Young might add $130 million to $260 million each year.
All indications are that this problem shows few signs of righting itself absent tough, concrete actions over time.
IN THE NEWS
Auto fraud in Ontario seems to be an increasingly frequent topic of conversation among government officials, elected representatives, regulators, insurers and all manner of players in related service and medical fields. But that apparent negative has a positive side.
The auto insurance fraud conversation was freshened recently with separate announcements about charges alleging fraudulent activities. In December, police for York Region - part of the Greater Toronto Area, the identified epicentre for auto insurance fraud in Ontario - reported that nine individuals had been arrested and charged as part of Project Sideswipe, on ongoing investigation.
York Regional Police alleged fraud revolving round staged collisions and false insurance claims at medical rehabilitation and assessment centres in Brampton, Toronto and Mississauga. Of the 41 charges, these include participate in criminal organization, possession of proceeds of crime over $5,000, money laundering, conspiracy and fraud. The nine charged individuals have been identified as current or former owners, principals, managers or key medical or legal service providers, while the facilities include medical assessment centres, injury treatment clinics, legal services offices and auto repair shops.
"For the first time, we see medical practitioners allegedly operating at private, for-profit medical clinics included in the charges," Rick Dubin, vice president of investigative services for the Insurance Bureau of Canada (IBC), said in a statement after the charges were announced. The nature of the criminal charges "speak to the suspected highly organized exploitation of the insurance system," Dubin added.
"It's not just about auto fraud, it's about organized crime," says Kadey B.J. Schultz, a partner with Hughes Amys LLP. Calling it a societal issue, Schultz says auto insurance fraud "is a way the criminals access money to fund their other much more harmful activities."
In January, talk of auto insurance fraud was also on the lips of the Financial Services Commission of Ontario (FSCO), which is expected to serve a pivotal role as Ontario's anti-fraud efforts roll out. FSCO announced 84 charges under the Insurance Act against two Toronto rehabilitation clinics and four people.
The clinics were each charged with seven counts of knowingly making false or misleading statements to an auto insurer to obtain payment for goods and services provided to an insured, and seven counts of engaging in an unfair or deceptive act or practice.
The long-awaited task force report, more than a year in the making, has inspired surprisingly consistent support. One example would be the Insurance Brokers Association of Ontario (IBAO), which supports the entirety of the report, says CEO Randy Carroll.
A few recommendations have attracted significant comment, including the call to license health clinics. The task force noted the provincial government should require the licensing of health clinics that treat and assess auto insurance claimants and empower FSCO to regulate their business practices.
Daniel Strigberger, a partner in the Insurance Litigation Group for Miller Thomson LLP's office in Waterloo, Ontario, regards the recommendation as the task force's most important.
Carroll would agree it is among the most important recommendations. In his view, the task force report makes clear that licensing health clinics is critical given the "explosive growth in accident benefit claims in the past three to four years that cannot be explained by health inflation, accident incidence or population growth."
Strigberger says it is essential, however, that the licensing program have teeth. "If a clinic is unlicensed, the insurer should not have to pay any expenses in relation to that clinic. If a clinic contravenes the terms of a licence, it should be subject to suspension and/or revocation," he argues.
"I have seen way too many claims where the dispute is solely between the clinic and the insurer - not the claimant and insurer. And in many such cases, it seems like the claimant's lawyer or paralegal is acting for the clinic and not the claimant," Strigberger reports.
In an open letter to finance minister Dwight Duncan, Rhona DesRoches, board chair of FAIR Association of Victims for Accident Insurance Reform, charges "the proliferation of poor quality [independent medical examiners, IMEs] in the system is undoubtedly part of the core problem of the backlog of cases waiting to be heard at FSCO."
Rocco Guerriero, president of the Association of Independent Assessment Centres (AIAC), noted in a letter sent to Canadian Underwriter last December that IME "companies undergo stringent quality assurance measures independently and by insurers to ensure they meet the highest standards and adhere to all regulations."
"We certainly support the development and even more important, the enforcement, of some kind of a standard for independent medical examiners so that we have more of a peer-to-peer review and comment area than we currently do," says Laurie Davis, executive director of the Alliance of Community Medical and Rehabilitation Providers.
As part of consumer education and engagement, Davis notes, it would also be helpful for the denial rate or patterns of IMEs to be known. "That would go a long way toward restoring some checks and balances to the system."
With regard to the task force's health clinic recommendations, AIAC suggests there is a need to better understand these before rushing forward. "We would want to sit down with government officials to better understand what a licensing regime would look like in order to determine if it would deliver real benefits to Ontario policyholders," notes AIAC, members of which perform the bulk of the neutral third-party assessments annually.
The association identifies what it regards as a hole in task force reasoning. The group "critically misses its core mandate of identifying how best to deter fraud when it fails to distinguish between the claimant-side assessment and treatment sector, and the work of the independent medical assessment for the insurer sector," AIAC adds.
"The task force's recommendations to create a new, large government bureaucracy to license and regulate many insurance support services, from towing to health clinics, is worrisome. We believe many more practical tools exist to prevent fraud, without finding new ways for the government to add large regulatory and licensing costs to the sector," the association contends.
"Health clinic licensing is a subset of giving FSCO more authority to investigate and enforce fraud and abuse claims. So the two go hand in hand," says IBAO's Randy Carroll.
The task force has recommended beefing up FSCO powers with regard to, among other things, the following:
• investigating and sanctioning unfair or deceptive acts or practices;
• overseeing and auditing the business and billing practices of health clinics and individual practitioners who invoice auto insurers;
• having a range of sanctions that can be applied where clinics are not following FSCO's business practice standards; and
• having investigators working in the private sector provide information to FSCO where it would be relevant to detecting, investigating and enforcing sanctions against those engaged in organized or premeditated auto fraud.
"We agree with the task force's observation that FSCO's mandate should change from the regulator of the auto insurance industry to the regulator of the auto insurance marketplace, and we support the recommendations that have been put in place to accomplish this," says Karin Ots, senior vice president of regulatory and government relations for Aviva Canada.
FSCO appears up to the task if comments following the announcement of the most recent charges are any indication. "When fraudsters falsify accident treatment bills, Ontario drivers take the hit through higher premiums," says Philip Howell, superintendent and CEO of FSCO. "FSCO will continue to crack down on those who cheat Ontario drivers by abusing the auto insurance system," Howell adds.
Ralph Palumbo, IBC's vice president for Ontario, has said the FSCO charges make clear "the need for the Ontario government to immediately implement the (task force) recommendations."
But some of those recommendations, including greater FSCO authority, will depend on amending legislation, which has been stalled by the proroguing of the provincial legislature.
"We are concerned the momentum for change will be lost with all the political instability Ontario is facing," says Carroll. "Even if a new premier makes this a priority, the opposition could bring down the government, which would delay implementation of the report for at least six months to a year."
Since the legislature is not sitting, "changes that do not require active participation from government should be the first priority," says Andrew Murray, president of the Ontario Trial Lawyers Association (OTLA). "A number of recommendations were directed to FSCO, and it is our hope that FSCO has already begun the process of initiating the necessary changes. Similarly, insurers were directed to collect and share statistics on the tow truck industry, collision repair facilities and health clinics, which we hope is something that is made a first priority," Murray adds.
IN THE WORKS
Scott Blodgett, senior media relations advisor for Ontario's Ministry of Finance, says amendments to regulations can proceed while the legislature is prorogued. A proposed Lieutenant Governor in Council regulation - posted January 9 - noted at the time that changes to Ontario regulations that address the statutory accident benefits schedule (SABS), disputes between insurers, and unfair or deceptive acts or practices were being considered. Specifically, the amendments related to the following task force recommendations:
• the government should reduce uncertainty and delay for those who have legitimate auto insurance claims by moving aggressively to amend the SABS to make it clear that insurers are required to provide claimants with a full explanation whenever refusing to pay for treatment, assessment or other benefits;
• the government should amend rules so that claimants play a more active role in helping to detect and prevent fraud, specifically by requiring claimants to confirm attendance at treatment facilities and receipt of goods and services billed to insurers, and by requiring insurers to itemize the list of invoices they have received when they provide a benefits statement to a claimant every two months;
• insurers should have the ability to examine a claimant under oath, where this is necessary to determine which insurer should be responsible for coverage, without prejudice to the right for an examination under oath that now exists;
• the government should add the following to the list of activities described as unfair or deceptive acts or practices subject to sanctions under the SABS - charging insurers much more for goods or services than the ordinary retail price, and requesting a claimant to sign a blank form; and
• the government should clarify the exemption for lawyers and paralegals in the unfair or deceptive acts or practices regulation so that it applies to lawyers and paralegals only when they are acting in a legal capacity.
In January, the government announced that draft changes, expected to take effect June 1, include requiring insurers to provide claimants all reasons for denying a claim; giving claimants the right to receive a bi-monthly, detailed statement of benefits paid out on their behalf; increasing the role of claimants in fraud prevention (e.g., require them to confirm attendance at health clinics); and making providers subject to sanctions for overcharging insurers for goods and services and banning them from asking consumers to sign blank claims forms.
Blodgett says that most of the task force recommendations do not include costs for the government. "The recommendations to be carried out by FSCO are cost-recoverable from the insurance industry," he notes, adding that if FSCO expands its anti-fraud investigation resources, "costs will be recoverable from the insurance industry which, in turn, should benefit from reduced fraud activity."
Palumbo says that government will need to do its part, especially with regard to FSCO and things like licensing of clinics and auditing of business practices. "What cannot happen is the fiscal restraints that the government is implementing now applies to this because if it does, I don't think the results that are anticipated by all stakeholders and the task force will be realized."
Aviva's Ots suggests "the most significant resources and costs required will be to implement the recommendations pertaining to the licensing and regulation of health care providers. The health care industry should bear those costs as the price of admission into the Ontario auto system."
Schultz says she does not have a great deal of optimism that the recommendations can be implemented in a timely manner without appropriate resources. Until there is some budget put to the effort, she notes, "I'm concerned that there's not going to be a lot of uptake on the recommendations because we need to have money to follow through."
Ultimately, savings achieved from reducing fraud will be "passed on to consumers through lower premiums," Blodgett says. Ots, however, is careful to temper expectations. "The favourable impact seen through any fraud reductions would help offset the inflationary pressures that the industry continues to experience. While we are consistently looking for ways to reduce the cost of insurance for all consumers, this initiative alone would likely not lead to widespread rate reductions."
Says Palumbo, "Until these reforms are acted on, it's difficult to say what is going to happen with premiums. And even when they are, it does take time to get the rotten apples out of the system."
In releasing the final task force report, finance minister Dwight Duncan noted that "a vital part of combating auto insurance fraud in Ontario is informing and engaging drivers so they can detect fraud and avoid becoming victims."
Public and consumer education is regarded as one way to keep momentum going. The public "cannot only help identify and prevent fraud, but to also understand and embrace the changes required to stamp it out," Carroll says.
Blodgett reports that the province has begun the process of bringing stakeholders together to implement the task force recommendation that government join forces with insurers to form an Anti-Fraud Awareness Implementation Group to put in place a consumer engagement and education strategy.
The Alliance of Community Medical and Rehabilitation Providers' Laurie Davis is pleased with the emphasis on consumer engagement. "People really do not understand the product."
The easiest recommendations to implement will be those directed at "insurers themselves as they are already uniquely poised to change their own practices and should have an inside track on trends, data and the release of such data," says the OTLA's Andrew Murray.
Davis says the alliance firmly supports having insurers provide more specific medical reasons for denial. "We think this contributes enormously to the dispute and also to the barriers for treatment of legitimate claimants," she adds.
"As providers and insurers wait on resolution of those disputes, there's a certain lack of clarity in terms of how the current system is working," she says. Dealing with the backlog is key "so going forward with any further changes, we can do so in a way that we won't feel like we'll be waiting months or years sometimes for issues to be resolved."
With regard to the backlog, Palumbo says "we need a new system, a system that will get the disputes resolved quickly so that insurers know exactly what it is that they're underwriting, what their costs are, and will make sure that injured claimants are treated properly."
With regard to the contents of the task force report, Aviva would have "liked to see more comprehensive recommendations on enforcement and prosecution, particularly as it relates to organized fraud," Ots says.
"Partnerships with Crime Stoppers and other key stakeholders in law enforcement are essential to beating increasingly sophisticated insurance crime," the IBC's Rick Dubin notes in a statement. "We believe that raising awareness and encouraging people to take the time to report insurance crime will significantly improve the detection and conviction of fraudsters," he adds.
Another missing piece in the report, Ots suggests, is that "the task force's scope of review did not include a review of the auto insurance product. Aviva believes there are systemic problems within the current product that the government needs to tackle in order to fully address the causes of fraud," she says.
The OTLA, for its part, has expressed concern about several recommendations "which are unfair to the members of the public, and add extra layers of cost and complexity to our insurance system. Specifically, we oppose the $500 penalty suggested for a missed insurer medical exam. This suggestion has nothing to do with combating fraud," Murray argues.
"Moreover, there are already drastic sanctions within the existing accident benefits schedule to deal with missed insurer exams," he contends.
Carroll's view is that the fee for missing appointments makes sense. "I get charged a fee if I miss a scheduled appointment with my doctor or dentist. Why should this not be the same for medical examination appointments?"
AIAC notes it has a general concern that many task force recommendations "seem to reflect a view that greater government involvement and regulation of auto insurance is the ultimate panacea." The group suggests "the Ontario public is unlikely to welcome the costs associated with a large, new bureaucracy or believe that greater government regulation will lead to reduced premium costs."
Despite the many positives, and the general support, "there is a lot of work that remains to be done in order to better understand what these recommendations would look like in practice," AIAC emphasizes.
"When fraudsters take advantage of the system, legitimate insurance claims may be delayed for people in real need," IBC reports. "The result is that all claimants have to go through the same tough system aimed at fraud artists and the extra costs for insurers result in higher insurance costs for everyone."
Passing regulations and passing legislation "doesn't accomplish much if it's not rigorously enforced," Davis adds.
"The fraudsters are the entrepreneurs. They are the ones who lead the harvesting of the insurance money. They are the ones who come up with the tactics and execution. They know how to make the money and they know how to make it quickly," Schultz says. "If we are constantly in a situation of responding, it's going to be hard to mitigate these losses in any real, tangible way."