Auto Reforms

Since 2003, auto insurance products in several regions of Canada have been transformed. Driven by substantive reforms at the government level, these changes have answered some critical questions when it comes to how injuries are to be treated and how claims should be handled.

But the reform process also led to grey areas – and, in some cases, simply created new questions. As is often the case, especially in Ontario’s frustrating struggles with auto insurance, attempts to clarify one element of coverage or benefits result in unintended consequences elsewhere.

Alterations to auto insurance in Ontario in September 2010 and amendments to Nova Scotia’s product in April 2012 (with future changes slated for April 2013) represent yet more stages of reform. These top-down modifications by provincial governments require adjusters and claims professionals to sort through the details in actual loss situations on the front lines of client service.

As Fred Plant, president of Plant Hope Adjusters, noted at the CIAA/CICMA annual joint conference held in February: “They (politicians) come up with these ideas about what (auto insurance) should look like, throw it out there and leave it to us to figure out how it should work.”

The million-dollar question posed at this meeting was, “Did the reforms perform?” Unfortunately, the answer is a less than satisfying, “it depends.” Specifically, which region and what yardstick are you measuring – rate stability or claims cost control? The annual meeting examined the experience in four key provinces that have been at the centre of the reform process – Alberta, New Brunswick, Nova Scotia and Ontario.

For example, when it comes to premium stability, provinces such as New Brunswick and Nova Scotia have fared well since major reforms, such as minor injury caps, were introduced in 2003. The average cost of auto insurance in New Brunswick has declined by 34% since the minor injury cap was introduced in 2003, with current average premium of $813, according to Insurance Bureau of Canada (IBC). Premiums have remained remarkably stable in Nova Scotia, with yearly average premiums dropping by 25% from 2003-2011.

Alberta’s average premium at just over $1,000 has also held steady. Ontario experienced the biggest premium swings in the past few years, with average premium currently at $1,534.

“Auto insurance rates in Ontario are too high,” noted IBC vice president, Ontario region Ralph Palumbo in a May 2012 submission to a provincial government committee. “While four years ago, Ontario premiums were on average 25% higher than the next highest province – Alberta – today the average Ontario premium is now more than 45% higher than Alberta’s and almost twice as high as premiums in the Maritime provinces.”

What about loss experience? Again, Ontario is facing steep challenges when it comes to reining in “out of control” claims costs, according to Palumbo. The average accident benefits claim in the province is just over $56,000, more than four times that of New Brunswick ($12,698) and roughly nine times that of Nova Scotia ($6,371). There is a long list of culprits driving up expenses in Ontario – a huge mediation backlog at the Financial Services Commission of Ontario (FSCO), an increasing number of catastrophic injury claims (coupled with a long-awaited definition of catastrophic impairment) and an alarming rise in tort claims.

Yet other provinces also face latent claims cost bubbles, many of which may come to the surface in the months and years ahead. Nova Scotia’s introduction of an optional endorsement to purchase tort coverage in April 2013, along with a substantial bump up in the minor injury cap, could release the genie on injury loss costs. Alberta, which like the Atlantic provinces has seen constitutional challenges to its Minor Injury Regulation (MIR), may bear the brunt of increased judicial scrutiny on whether the MIR is too vague for meaningful application.

Various presenters at the CIAA/CICMA joint conference explored each of these province’s experiences with auto insurance reforms. Fred Plant discussed New Brunswick and Nova Scotia, while Sandra Corbett, a partner with Field Law, examined auto insurance changes in Alberta.

A panel of speakers on Ontario auto insurance reform – Becky Cameron, AVP, health care services, Aviva Canada; Dennis Giesbrecht, clinical intake manager, Lifemark Health Centre; Tammie Norn, CEO, ProFormance Group Inc; and Philippa Samworth, partner at Dutton Brock – was moderated by Eric Grossman, founding partner of Zarek Taylor Grossman Hanrahan. For this article, we will start with Eastern Canada and head West.

New Brunswick

The key issues before New Brunswick’s provincial Progressive Conservative government are two recommendations from an auto insurance working group, which were released in November 2011.

Specifically, the working group stated that the current definition of “minor personal injury” in regulations should be replaced with a new definition:

“A minor personal injury is a sprain or strain or whiplash-associated disorder, or a combination thereof, which results in minor consequences to a person’s life. ‘Minor consequences’ means that neither the impairments nor the limitations resulting from the injury last more than six months and a person substantially retains his or her pre-accident bodily functions, level of activities and participation in life.” This wording is similar to that contained in Alberta’s MIR.

The group also recommended that the minor injury cap amount be increased to between $4,000 to $6,000 from its current level of $2,500 – also with annual indexing to the consumer price index (CPI).

New Brunswick’s government had appointed the auto insurance working group as part of its election platform to re-examine the system. “Unfortunately, a lot of the changes in auto insurance in Eastern Canada are driven more by political ideology than functionality reality,” Plant said. “Where auto insurance has been highly politicized is in New Brunswick. “

The working group met with 40 witnesses across the province throughout 2011, including 12 accident victims. “One of the things that came out of it was that the (victims’) biggest problem with the auto insurance scheme was they had no access to information,” noted Plant. “They didn’t trust the adjusters or the company people they were dealing with. They didn’t understand what their rights were or how the system worked.”

Plant said that, in some ways, insurers may have been the architects of at least some of this confusion. He recounted that companies used a sliding scale to compare the minor injury cap payments to those for non-automobile related injuries. “So, if the most severe injury in a non-auto world was $30,000 and the maximum of the minor injury cap was $2,500, then insurers would look at a $15,000 non-auto injury and say, ‘we are only going to give them $1,250 under the cap,'” he said. “That ticked a lot of people off. They had no place to argue about it. Lawyers wouldn’t take it on.”

Plant observed that this prompted some of the constitutional legal challenges to the minor injury cap and the Conservative government’s striking of the working group to review the auto insurance system. The government is currently studying the recommendations, which also include a provision for improved communication with customers.

“There is no timeline on this, but it is coming,” Plant said. “At some point, we are going to have a change in the amount of the cap in New Brunswick and just how much of an impact this causes will be influenced by how tight the ‘minor personal injury’ is defined.”

Nova Scotia

“The place we are having the most fun in the East right now is Nova Scotia,” Plant said.

In Nova Scotia, the provincial government introduced regulatory changes to the minor injury cap that became effective July 2010. These amendments changed

the definition of “minor injury” to mean strains, sprains, and whiplash-associated disorders,
also similar to the definition in place in Alberta. But the government also increased the pain and suffering award limit under the cap to $7,500, with an index to inflation.

“Today, that limit is almost $8,000,” Plant noted, adding that the consequences of a minor injury in Nova Scotia can extend to one year, not the six months applied in New Brunswick. “I think that anybody who falls within the cap will be fairly compensated.”

However, those amendments represented only one aspect of Nova Scotia auto insurance changes. In April 2012, the provincial government brought in phase one of its two-part “Fair Auto Insurance Reforms,” which doubled medical and rehabilitation expenses from $25,000 to $50,000 (also increasing funeral expenses, death benefits, loss of income and principal paid housekeeper expenses, among other items).

For Plant, the “most interesting” part of the Nova Scotia reforms will take place in April 2013, the second phase of reforms and an exercise he likens to “nailing Jell-o to the wall.” With these changes, the government will bring in diagnostic and treatment protocols for minor injuries, direct compensation for property damage and, most controversially, an optional tort product for minor injuries.

“I think we could be heading toward the point where the cap won’t exist anymore,” Plant said. He noted that the optional tort endorsement raises several questions – how many consumers will actually pay for it (especially with the increased cap limits), how it will be explained to those consumers and how it will work between insurance companies who have claimants with different product options on the same claim.

“Exactly how that is going to work is anyone’s guess,” said Plant. “I don’t know of any other jurisdiction that has done this sort of thing.”

Ontario

“Fun” is not a word widely associated with auto insurance reforms and their progress in Ontario. Instead, several key issues confront independent adjusters as they try to sort through the maze of regulations, medical and legal issues in accident benefits and bodily injury claims. The September 2010 reforms, which involved 41 recommendations including a reduction in accident benefits rehab and medical expenses from $100,000 to $50,000, are increasingly seen as “a needed first step,” according to IBC’s Palumbo.

Several points of contention were raised at the CIAA joint conference panel on Ontario auto insurance. One key uncertainty is the backlog of more than 30,000 mediation cases at FSCO. The regulator has sent out notices to insurers that it wants to streamline these mediated cases and it has put procedures in place to move this process along. Panel moderator Grossman referred to this as “moving the elephant through the snake.” Insurers remain skeptical.

“There has been lots of talk that ‘the floodgates are coming,’ and this has been a conversation for a good year and a half with FSCO,” noted Aviva’s Becky Cameron. “The challenge we already face right now… is our claims team has a ton of pressure exerted on them by FSCO mediators to just get it done, get it settled. The unbiased perspective, as far as the

mediation process goes, isn’t happening now. If you quadruple the amount of effort it takes, I think it will sacrifice quality.”

A central problem with FSCO mediation cases is how insurers are, or not, informed of the registration process, according to lawyer Philippa Samworth. Currently, the application for mediation is not copied to insurance companies; only the regulator can register the actual case, which begins a 60-day process to set a mediation date, she explained.

“It just goes to FSCO and sits there in some big box bigger than this room filled with all these things and some little minion pulling one out every now and then,” Samworth said. “If only the insurer got a copy of it, and if that was mandatory, I think the backlog would be far less. Insurers could get those (minor) ones out of the system.”

The backlog issue is particularly acute with the residual impact on cost structure and premium stability for insurers. Many of the mediations involve treatments and cost guidelines under the minor injury guideline (MIG) in Ontario. How these cases are decided could “re-ignite the accident benefits cost spiral,” according to IBC.

Another significant cost development is catastrophic injury claims. Between 2004 and 2010, the number of no-fault injury claims rose 28%, while the count for large claims has more than doubled, IBC noted. Hospitalizations from motor vehicle accidents are down 12%, yet auto insurers are being presented with many more catastrophic injury claims.

While an expert panel presented its recommendations on the definition of “catastrophic impairment” to the Superintendent of Insurance in April 2011, insurance companies are still awaiting a final verdict. Grossman noted that courts in Ontario have tended to create a much more “inclusive” definition, meaning that a lot more people will qualify for enhanced benefits.

A pressing concern for CAT injury claims is the determination of psychological percentages for the “whole person impairment” criteria – what Samworth calls the “next emerging battle ground.”

What makes the determination of catastrophic injury even more difficult is the limited cap ($2,000) FSCO has put on assessments, according to Lifemark’s Dennis Giesbrecht. “The $2,000 cap has really been a fly in the ointment for us,” he said. “I think 90% of our assessments come in under that cap fairly easily, but it is the complex ones where there are massive files to wade through and significant legal and medical issues, which are challenging.”

If there are issues about the quality of a complex file, Grossman asked whether p&c insurers could replicate what life and disability insurers have done – hire medical people on staff to provide advice and guidance.

“I think there is a place for that,” said Tammie Norn of ProFormance. “In terms of types of injuries, adjusters don’t have the budget or timelines on the file to have every case looked at. For more complex types of injuries, I think there is room for that to provide recommendations on what you should be looking for and the questions to ask.”

The “interface” between accident benefits and bodily injury claims is another source of rising claims costs. The frequency of injury claims on the tort side has been rising, as has the average claims cost. BI claims now represent more than $2 billion in annual costs, according to the latest figures from IBC.

“I think this is something that insurers really need to look at, in terms of changing their practices from an investigative standpoint,” said Norn. “The BI side has always had the ability to rely on the AB file, which was full of information. Now, with the limited benefits, the information is not necessarily there. The insurer really needs to do investigations early on to understand the exposures, so it is not faced with a statement of claim two years down the road.”

Grossman noted that the “the best friend of a BI insurer is the AB insurer that does a good job of adjusting the AB file. The worst enemy of a BI insurer is the AB insurer that does a bad job of handling the AB exposures. If an AB file is handled well, it is well documented – you have independent examinations, surveillance. All of this good stuff can come out in the discovery process.”

Alberta

Two major issues of relevance in Alberta are the legal challenges to the minor injury regulation (MIR) and changes to the Alberta Insurance Act, some of which apply to auto insurance.

Minor injury is defined as a “sprain, strain or a WAD injury caused by (an) accident that does not result in a serious impairment” under the Alberta MIR. Damages for non-pecuniary loss for minor injuries in vehicle accidents are capped at $4,641 (as of January 2012). Field Law’s Sandra Corbett noted that the “sliding scale” that insurers applied in New Brunswick was rejected by an Alberta court in 2009.

Just as important, according
to Corbett, is what may be excluded from classification as a “minor injury.” She cited a Latin phrase “expressio unius est exclusion alterius,” which means that the mention of one thing may exclude others. If the injury is not mentioned in the MIR, it is likely excluded, such as bone fractures, dislocations, cartilaginous injury or psychological injury.

However, it is the definition of “serious impairment,” much like Ontario, that may cause the most problems with deciding which injuries fall within or outside the MIR. In Alberta, a serious impairment is defined as an “impairment of a physical or cognitive function:

(i) that results in a substantive inability to perform the:

(a) essential tasks of the claimant’s regular employment, occupation or profession

(b) essential tasks of the claimant’s training or education in a program or course that the claimant was enrolled in or accepted for enrollment at the time of the accident or

(c) normal activities of the claimant’s daily living;

(ii) that has been ongoing since the accident; and

(iii) that is expected not to improve substantially.”

Corbett noted that when this wording was introduced with the reforms in 2004, “I wondered why plaintiffs spent so much time on constitutional challenges to the MIR, when this definition (of serious impairment) lends itself to a lot of leeway in terms of interpretation.” At the time, she facetiously asked if a neck injury that prevented her from blow-drying her hair constituted a “serious impairment.”

“When you see what happened in the Sparrowhawk case, perhaps I wasn’t being so facetious,” Corbett said. “The plaintiff’s bar, who are very active in Alberta, are going to chip away at the regulation by submitting challenges to definitions like serious impairment.”

In Sparrowhawk v. Zapoltinsky (2012), the issue at hand was whether a jaw injury (TMJ) suffered in a car accident was a minor injury under the MIR. Ultimately, the court held that the plaintiff’s TMJ injury was not a minor injury based on three arguments:

• the tooth and cartilage injuries are not muscle, tendon, ligament or WAD injuries;

• the jaw injury caused serious impairment in that it created a substantial inability to perform a normal activity of daily living that is non-trivial for that person ; and

• all injuries treated principally by dentists are never minor injuries, as dentists are not certified examiners under the MIR nor are they identified as health care professionals under the treatment protocols (and therefore not authorized to evaluate whether an injury is minor).

“I think we were all a bit fearful that this sort of decision would be coming,” Corbett said. “The insurer on this case has not yet decided whether to appeal this case. Right now, it is just one trial judgment.”

Corbett also noted that in the ruling, Justice Shelley discussed the issue of whether the descriptions of minor injuries in the MIR and diagnostic/treatment protocols are unconstitutional because of their ambiguity. While that issue was deferred by the court for a different proceeding, “it really opens the door in Alberta for future constitutional challenges on whether or not the legislation is so vague that we can’t apply it,” she said.

On a different note, Corbett explained that some changes to the Alberta Insurance Act are of significance to auto insurance. In particular a new two-year limitation period for coverage lawsuits replaces the previous one-year period, a new dispute resolution process is being introduced after a proof of loss has been delivered to an insurer and electronic methods now can be used as a means of communication between insurers and insureds in some instances (but not for policy cancellations).

Other changes of note include new consumer protection measures that require insurers, agents and adjusters to provide full and clear disclosure of dispute resolution processes and limitation periods to clients who initiate claims. Fair practices regulations also include a provision permitting a person to apply to a court for an order for an advance payment on a personal injury claims being negotiated with an insurance company. All of the changes are effective July 1. _