January 1, 2004 by Scott Knight
In theory, the Designated Assessment Center (DAC) is a solid concept: An impartial third-party assessment center overseen by the provincial regulator, the Financial Services Commission of Ontario (FSCO), to resolve disputes between insureds and insurers relating to entitlement of medical treatment benefits under an auto policy. Theory, however, does not always translate well into “reality”.
Such can be said for Ontario’s DAC system which, since its introduction in 1994, has undergone extensive revision with ultimately little improvement achieved in efficiency or cost-reduction. It is in this light that I join the ranks of those calling out to “scrap the DAC!”
The clich, “if you forget the past, you are destined to repeat it”, could not have been written better with the DAC in mind. The DAC was introduced in January 1994 under Bill-164. The decision of a DAC, as presented in a comprehensive medical report, was presumably intended by the legislation to be “the final word” in overruling other medical information.
The real weakness of the early DAC system, however, was its lack of weight in arbitration. The earliest “DAC cases” brought to arbitration resulted in the reports issued being given no more validity than any other medical report. This, essentially, cut the legs out from under the DAC system before it even had a chance to walk.
Bill-164 also required insurers to provide insureds with a choice of several DACs to choose from. This selection process was immediately wrought with problems, the most common being the insurer and insured not agreeing on the same DAC facility. By 1995, the legislation was amended with the “closest DAC” rule, which determined that the closest DAC facility to the insured’s location would be used for assessments – this system remained in effect until October of last year.
The introduction of Bill-198 by the Progressive Conservative government shortly before being ousted from office last year brought in “DAC reforms” with a focus on reducing fees through increased competition. In keeping with a key tenet of this reform, being that increased competition will drive costs down, the choice of the appropriate DAC was once again switched to a choice of DAC facility as mutually agreed by both insureds and insurers. Where agreement cannot be achieved, FSCO will make the final determination once the parties have submitted more forms and processes. Sound familiar? Is history repeating itself?
Bill-198 also heralded in “pre-approved frameworks” (PAFs) to the DAC system. This applies to quick determinations made for specific injuries. And, last but not least, the new regulations introduced the “short form DAC”, which is a DAC conducted by a file/paper review (I am personally concerned that doctors/specialists who have never met me will under this system now make determinations on my injuries).
In preparing this commentary, I spoke with several friends and acquaintances at insurance companies, defense and plaintiff counsel and evaluators. All agreed that the DAC is a concept that has “had its day.”
Unfortunately, there is a misplaced perception that the removal of the DAC system will harm the consumer by eliminating an avenue to an unbiased medical assessment process. I would argue this perception has been perpetuated by the DACs themselves in response to the risk of their own demise. Well, is it true? Will the removal of the DAC system have a negative impact on consumer protection? My opinion is “no!”
My observation is that DACs are expensive, inefficient, monopolistic and bureaucratic with a vested interest in their own self-preservation. The question insurers should therefore be asking is why an added “expense layer” to the dispute resolution process has not only been allowed to survive several legislative cost-reduction amendments to the auto insurance product, but that the powers of DACs have actually been enhanced through Bill-198.
To determine the “efficiency” or “true value” of the DAC system, insurers should evaluate all the DAC assessments performed on claims files and identify how many did not result in further dispute resolution via mediation/arbitration, court or a cash settlement. I cannot recall one instance where following the receipt of a DAC report the insured person accepted the findings and closed their claim file. In this respect, I cannot fathom how the expense of the DAC process is rationalized.
Notably, it is not uncommon to find two to three DAC reports on one claim dispute file, with each generally costing about $3000-$4000. Why the additional reports? Well, an insurer is required to submit a rejected treatment plan to a DAC and it is possible to receive several treatment plans for different modalities subjected to the DAC process. Not to mention the potential for a different DAC to comment on whether an insured person is entitled to income replacement/caregiver or non-earner benefits.
With the “cost” of accident benefits being the prime concern of insurers in the industry’s drive to bring about auto insurance product reform, the elimination of the DAC system will directly cut out the expense of thousands of dollars per claim while at the same time streamlining the dispute resolution process. Disputes will be resolved quicker as parties are permitted access to a forum that permits discussion or renders a decision, i.e. mediation, arbitration or court.
Furthermore, history has demonstrated that those who wish their “day in court” are going to pursue that avenue regardless. Instead of adding thousands of dollars in unnecessary processes to eventually enter the dispute resolution arena, simplify the process to permit rapid access to a forum that permits resolution.