Fixing Ontario’s auto system

The jury is out on the Ontario government’s latest plan to cut rates and reduce fraud in the province’s troubled auto insurance system.

The Fair Auto Insurance Plan, unveiled last December by Finance Minister Charles Sousa, committed his administration to a number of fresh initiatives, just months ahead of an expected election.

Gordon Rasbach, vice-president of legal and fraud management at Aviva Canada, says he’s encouraged by the plan. Still, as a former police officer, he’s inclined to cast a skeptical eye on the announcement—and not just because of its timing.

“It amounts to a recognition of the problem, and an intention to act, which is something that we have wanted for a long time,” he says. “My concern is that we have had previous expressions of intent and cause to be excited.… But the action doesn’t always follow.”

Back in 2013, the governing Liberals promised to reduce auto insurance rates by an average of 15% across the province within two years as part of a budget deal. But the 2015 deadline came and went, with the rate drop only approaching halfway to the target.

That prompted Premier Kathleen Wynne to claim the 15% mark was always a “stretch goal,” but by the end of 2017, the target had edged further out of reach, with rates just 5.5% lower than 2013.

“When a good part of your practice is devoted to providing assessments for insurance companies, you end up trying to impress them with denials.”

In the meantime, a report by David Marshall labelled the province’s regime “one of the least effective in the country.” Marshall, the former CEO of the Workplace Safety and Insurance Board, delivered his withering assessment in April 2017 after finding that the average Ontarian paid an annual insurance premium more than 50% higher than the national average of $930.

In response, the province adopted a number of his recommendations in its latest plan, including the development of standardized treatment plans for common, less serious injuries; independent assessment centres for those at the severe end of the injury scale; and a Serious Fraud Office (SFO) to investigate and prosecute organized cheats.

Pete Karageorgos, the Insurance Bureau of Canada’s Ontario director of consumer and industry relations, says the Marshall report resonated with its members, particularly for its comprehensive nature, which he says represented a departure from recent approaches to change within the industry.

“Every few years, we’ve been getting a new set of minor reforms and updates,” Karageorgos says. “Assuming that this plan is implemented, hopefully we can finally set aside all the tinkering and get on with providing an insurance product that helps those people who are injured in crashes to get the services they need to get them back on their feet quickly.”

“There have been a lot of band-aid solutions,” adds Brian Purcell, the president of the Insurance Brokers Association of Ontario. “On paper, this plan looks good, and we’re confident that the solutions they are proposing will work.”

Tackling fraud

Acknowledging that fraud costs consumers as much as $1.6 billion per year, Sousa said in a news conference that previous efforts to lower premiums had not gone far enough, and that auto insurance fraud had “become an industry.”

At the heart of his plan to crack down on the problem is the SFO. The dedicated office, which was also recommended by a previous anti-fraud task force in 2012, would combine investigative and prosecutorial resources to go after serious systemic cases.

“When someone cheats, we all pay. That’s something we’ve highlighted for a long time, and that finally has to be addressed,” the IBC’s Karageorgos says.

But Rasbach is not convinced that the SFO alone can do the job.

“Of course it’s a step in the right direction, but you need to get to the root cause of fraud, and the SFO is not going to do that. It’s going to be there to address the symptoms of our broken system,” he says.

By focusing on the most serious cases after they’ve had the opportunity to fully develop, Rasbach says that the best-case scenario for the SFO will see it skimming a few of the worst offenders off the top, while the bulk of the offenders continue to thrive in the cesspool of corruption below.

He says Ontario’s system is riven with fraud, split mainly between those in the business of treating injured claimants, and those who deal with damaged vehicles.

Rasbach calls for a more coordinated approach that will see the governing bodies for lawyers, healthcare providers and other professionals identifying rogue operators within their ranks.

“Then they have to mete out discipline as they find breaches to their codes of ethics,” he says. “Regulatory bodies need to take much greater responsibility in understanding their own members’ role in all of this.”

Insurers, too, have a part to play, according to Rasbach. He says providers who are opaque about their own fraud detection efforts are preventing the industry from getting ahead of the issue.

“We’re probably the only country in the Western world whose regulators don’t compel insurers to report fraud. Some will do so voluntarily as part of their business practice, but many don’t, and the result is that nobody really knows how big this problem is.”

“We’re probably the only country in the Western world whose regulators don’t compel insurers to report fraud,” he says. “Some will do so voluntarily as part of their business practice, but many don’t, and the result is that nobody really knows how big this problem is.”

The lack of communication between insurance providers also allows bad actors to avoid detection for longer, Rasbach explains.

“If you’re in one of these supply chains habitually reaching into insurers’ pockets, and one takes issue with you, then you can just move on to the next. In the end, consumers are left high and dry because they are the ones paying,” he says.

Aviva recently released its own report, pegging the cost of fraud to Canadians at $2 billion per year. Rasbach hopes to make it an annual report in an effort to raise awareness of the problem.

“Until people start to realize how broken the system is, it’s going to stay that way,” he says.

Rasbach says he draws hope from another element of the provincial plan, which enacted Marshall’s recommendation for the establishment of a new independent regulator for the industry. Legislation has already been drawn up to create the Financial Services Regulatory Authority (FSRA) of Ontario, a rule-making body set to launch in April of 2019.

Dealing with the seriously injured

Marhsall’s report also expressed frustration that consistently plunging accident and fatality rates on provincial roads have not been matched by a concomitant fall in claims costs. In fact, a system “filled with disputes and inefficiencies” was driving expenses in the opposite direction, with a large portion of premiums “being used to pay experts and lawyers,” rather than flowing to injured people, he concluded.

The standardized treatment plans and independent assessment centres for seriously injured parties proposed by the provincial government emerged from Marshall’s “care not cash” prescription for fixing the auto insurance system, which he argued would shift the focus to the needs of patients.

But the ideas have raised a stink among personal injury lawyers, who say their clients have already paid the biggest price for the modest reductions in premiums since 2013.

Amendments to the Statutory Accident Benefits Schedule enacted in 2016 resulted in a series of cuts, including entitlements for “catastrophically impaired” individuals, the group of accident victims with the most life-changing injuries. The legislative changes slashed the combined limit for attendant care and medical rehabilitation services in half, from $2 million to $1 million.

Darcy Merkur, a partner at Toronto personal injury boutique law firm Thomson Rogers, says that he supports the idea, in theory, of a binding-decision maker to settle disputes over the reasonableness of medical care.

“The problem is who they’re going to put in charge of running these assessment centres,” Merkur says. “If you had frontline treatment providers who understand the importance of access to treatment, that would be one thing, but all the indications are that assessors will be picked by an insurer-focused committee.

“When a good part of your practice is devoted to providing assessments for insurance companies, you end up trying to impress them with denials,” he adds.

In addition, Merkur worries the independent examination centres proposed by the provincial government sound suspiciously like the old Designated Assessment Centre system that was abandoned in 2005 for adding bureaucracy and cost to the system.

“Instead of better care, I think we’re going to end up with less care,” he says.

Rick Orr, a former president of the IBAO and the principal at Orr Insurance Brokers in Stratford, Ont., says his chief worry about the examination centres is that there are enough of them dotted throughout the province to prevent his customers and others in rural settings from being forced to drive long distances to get assessed.

“There have been a lot of band-aid solutions. On paper, this plan looks good, and we’re confident that the solutions they are proposing will work.”

“I can see the merit in these centres, but it’s access that concerns me. If a client of mine is injured in winter, how are they going to get themselves seen?” Orr says. “Sometimes, an idea takes hold in Toronto, but they forget to think about the rest of Ontario.”

The province’s promise to conduct a rate-factor review has also raised red flags for rural brokers such as Orr.

One of the factors identified for study in the provincial plan is geographic territories, “to ensure that people in certain parts of the province are not subject to unfairly high rates.”

“As someone who’s not in greater Toronto, that sounds like a horrible idea. If Ontario became one geographic territory for the purposes of rate setting, their premiums might come down by 25%, but everyone else’s would be increasing by the same amount,” Orr says. “If you choose to live where all the accidents are, you should pay for that.”

IBAO president Purcell, whose brokerage serves the small community of Spencerville in Eastern Ontario, urges the new FSRA to proceed cautiously when it comes to rate setting.

“Any big change can be very disruptive,” he says. “We have had a very competitive auto insurance market for the last few years, which has been a great benefit to consumers, and we don’t want to upset that by altering regulation practices too abruptly.”

__________________________________________________________________________
Copyright © 2018 Transcontinental Media G.P. This article first appeared in the April edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.