Canadian Underwriter

Looking Under the Hood

December 15, 2017   by Emily Atkins, Editor

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Ontario’s mandatory automobile insurance system is deeply flawed—costs are out of control and benefits are not being delivered in a timely, conflict-free manner.

This is the principal finding of a report commissioned by the government, which was released on April 11, 2017 under the title “Fair Benefits, Fairly Delivered.”

In February 2016, David Marshall, former president and chief executive officer of the province’s Workplace Safety Insurance Board (WSIB), was appointed by the Minister of Finance to review and make recommendations on how to improve the province’s auto insurance system.

Emily Atkins, Editor

Marshall was specifically asked to focus on ways to reduce claims costs and uncertainty with a “focus on improving the efficiency and effectiveness of claims management in the system based on best practices in Ontario and other jurisdictions”.

He developed a comprehensive report, which weighs in at over 100 pages, looking at Ontario’s auto insurance system with an uncompromising eye.

“There is no magic bullet,” he says. “To achieve lasting value for its citizens, the government must push beyond the old methods of tinkering with aspects of the system and make some of the structural changes to the delivery system as recommended in this report.”

What’s wrong

Ontario has among the lowest automobile accident and injury rates in North America, but its drivers pay the highest premiums in the country. The average premium in 2015 was $1,448. That’s 24 percent higher than Alberta, double what Quebecers pay, and 55 percent more than the all-Canadian average (if Ontario is excluded). Together, Ontarians pay $10 billion a year in premiums.

Furthermore, out of total claim costs of about $4 billion in benefits, approximately $1.4 billion or 35 percent of the benefits costs are not going to accident victims. Claims take on average over a year to close and a third of accident benefit claims end up in dispute resolution. About 25 percent of claimants say they have developed serious, permanent impairments in spite of receiving expensive medical care.

“The central failing of Ontario’s auto insurance system—and the largest contributor to its cost— is the singular inability of participants to agree on what constitutes an appropriate medical diagnosis and treatment for injuries,” Marshall says. “The system has been diverted from its original goal: a medical safety net with ancillary financial compensation as a bridge. Instead it has become a system that is largely focused on cash rather than care. Paradoxically, the outcomes are not only more expensive but worse for injured parties.”

Marshall is careful not to lay blame for this state of affairs on any of the parties to the system, saying that the main problem is “not inefficiency or excess profits by insurance companies or the behaviour of claimants, providers or lawyers. It is the way the system is structured.”

Try, try again

He details years of tinkering with the system since mandatory insurance was introduced in Ontario in 1980. Since 1990, efforts have focused on tinkering with the no-fault system that was introduced that year to reduce reliance on the tort system.

“No-fault benefits have been increased and decreased, access to tort has been increased and decreased, cost control measures have been tried, anti-fraud measures have been introduced, freezing of insurance premiums has been tried and now a complete restructuring of the regulatory body is underway,” the report notes.

Marshall believes all these efforts have fallen short of successful reform because they lacked innovation. “Aside from a few new features, such as premiums based on driving behaviour (usage-based insurance) which are not widely available or purchased, the system is still delivering the same product in the same way it has for over half a century,” he says.

We need to look at how the industry has been structured and regulated, he asserts. “Ontario has devised a guaranteed safety net for victims of auto accidents and outsourced it to insurance companies without giving them the authority to decide how to deliver it.”

He sets out five goals that his recommendations are designed to meet:

  • Provide an adequate safety net for individuals injured in an auto accident
  • Benefits should be simply described and easily understood
  • Benefits should be easy to access without the need for legal counsel
  • Premiums should be affordable
  • The system should be able to adapt and innovate.


Marshall’s first recommendation is that Ontario not shift to a government-run model. He notes that the system in place, although flawed and not working well, is redeemable, and the costs of disrupting it would be too high in terms of job losses, interruptions in customer service and the high risk of failure after significant investments in time and capital to make it happen. He argues that the private sector is poised to introduce new technology and is better positioned to adapt to the rapid changes affecting the insurance industry today.

His second major suggestion is that Ontario’s existing no-fault benefits should not be reduced. While cutting costs is a worthy goal, it does not have to be at the expense of benefits. He points to Quebec, Manitoba and Saskatchewan as examples of provinces that have more generous no-fault benefits as well as lower costs than Ontario. He notes: “Analysis shows that a more generous no-fault system is fairer to accident victims than one which requires access to tort and does not require more cost.”

Catastrophic injuries

While the majority of Ontario’s accident victims are only slightly hurt, the province does need to take another look at the way it handles the one percent who are catastrophically injured. Marshall argues that the province should develop a system for lifetime management of care for seriously injured accident victims. He notes that once established this system could be extended for injuries caused outside of the purview of automobile insurance. Further, he says that lump-sum awards should be determined by an independent examination centre, based on objective measures, and delays in these awards need to be minimized. As well, insurers should make sure that seriously injured clients are given top priority and that they do not need to hire lawyers or other professionals to get compensation.

Programs of care

Since cost-based treatment limits promote litigation in the system and drive up costs, Marshall advocates for the immediate creation of programs of care for the most common types of injuries. They should be based on the Common Traffic Injury Guidelines, but the regulator should be equipped to continuously evaluate and improve outcomes and research new programs. He suggests that programs developed in other jurisdictions be adapted for use here.

In addition, Marshall recommends that the government allow the regulator to establish hospital-based, multi-disciplinary independent examination centres (IECs) that will recommend treatment plans for injured patients. Insurers would be required to follow the plans without dispute.

Checks and balances in these recommendations include a dispute resolution process that respects “the evaluation of the IEC without resorting to competing opinions from either party to a dispute”, regular quality control studies on the outcomes of the IEC care plans and a complete overhaul of the pricing of treatments to bring them into line with prices being paid by similar organizations such as workers’ compensation boards.

No cash settlements

Marshall strongly recommends that there be no cash settlements for accident benefits for medical and rehabilitation care. He does not advocate any restriction on cash settlements for lost wages or lump-sums for the catastrophically injured.

“The legislation never intended the auto insurance system to be a cash jackpot,” the report says. But, insurers are “incented to close their liability with as little cash cost as possible and hence they introduce the practice of negotiating cash settlements with claimants in lieu of medical treatment.”

He wants to see a cultural shift to avoid the gamesmanship in the settlement negotiations in favour of having claims handled on their merits. Claims would be closed once the patient recovers, with the option to return for more treatment if the condition caused by the initial accident recurs.


Thirty three percent of the time in Ontario the insurer and the claimant do not agree on fair compensation. Before the Licence Appeal Tribunal was started in April 2016, these disagreements were sent to mediation. But in 40 percent of those cases, mediation did not work and the cases went to arbitration.

Marshall points out that this adversarial situation was not intended to be part of Ontario’s no-fault system. Accordingly, he recommends insurers be required to establish an internal appeals process to divert cases from the external (legal) process. As mentioned above, decisions of the IEC are to be definitive, but in the event that a second opinion is required, a second IEC opinion should be sought; competing opinions from experts hired by either side would not be allowed.

Lawyers and tort

In his overarching desire to simplify, Marshall says: “There is clear urgency to make the accident benefits system simple and accessible without the need for legal representation.” He recommends banning or restricting contingency fees, requiring contingency fee arrangements to be field with the regulator, having settlement cheques paid jointly to the lawyer and claimant, and that claimants be notified in writing that they can appeal legal fees. As well, he wants accident benefits to be fully deductible from tort awards.

He also wants to regulator to analyze the use of legal representation and look at ways to further reduce the need for legal representation, but at the same time he also recommends continuous monitoring of the time it takes insurers to provide benefits to see if delays are harming accident victims.

Policyholders are paying for a tort system with very little transparency as to its costs and relative benefits,” he says. “And accident victims—who pay a high price for legal representation—are walking away with a lot less compensation than they ought to get. Furthermore, the tort system excludes access to drivers who are at fault, (approximately 30 percent of accident victims).”

To help balance the system, Marshall recommends: streamlining the tort system by prescribing documents that must be produced, allowing for earlier examination of witnesses, and ensuring that case management prevents delays. He also wants the regulator to monitor the costs of the tort system.

The challenge is to find the right balance between the freedom and right to sue for damages and the time and cost involved. After all it is fundamentally this reason why the no fault accident benefit system was created in the first place.

Innovation and pricing

Marshall asserts that in the coming era of disruption, auto insurers will need to become more innovative and consider new ways of doing business. He cites examples of car manufacturers—VW and Tesla—offering damage insurance bundled with the purchase of a new car in foreign jurisdictions. What happens, he asks, when consumers demand the ability to extend this to accident benefits and buy such a product here? To react the government will have to rethink how health-care coverage would be incorporated, as the existing regulations would be largely meaningless.

Likewise, Marshall notes the pricing approvals system is outdated, slow and expensive. The cost-plus-margin system of premium setting is unfair to consumers because it subsidizes inefficient providers. As well, the complexity of the system militates against insurers’ flexibility and ability to innovate.

US jurisdictions that have moved from price regulation have experienced premium reductions for close to 80 percent of drivers, Marshall notes.

New regulator

Marshall recommends the creation of a new independent regulator, which would have its own board and be staffed to act as the centre of governance for the province’s automobile insurance marketplace. Upon amendment of the Insurance act and its regulations, to include only broad principles and entitlements for benefits, the new regulator would be responsible for creating enforceable policies and guidelines that would not be subject to court challenge. The new regulations should encourage insurers to be in touch with clients so as to manage care and recovery.

Progress is already underway with the passage of the Financial Services Regulatory Authority (FSRA) act last December. The FRSA is established as a crown agency with a mandate to regulate the industry.

Insurance companies

While Marshall tried to spread blame around in the report’s introduction, in his recommendations he comes down quite hard on insurers, who, he says, “carry a share of the blame for their reputation as being difficult to deal with…During my inquiries I was surprised by how little effort, overall, the insurance companies were making to manage health care for their clients instead of managing costs.”

He notes that they blamed lawyers acting as intermediaries, but Marshall insists that, they need to stop closing claims with cash settlements, instead allowing injured persons to return for additional case as needed in accordance with their insurance policy. This will entail a change in the kinds of staff they rely on to manage claims, he says, moving “claims adjusters” to “case managers” with appropriate levels of medical and rehabilitation training.

The report also notes the insurers will need to compete “on service and cost” to ensure their continued relevance and value. He ends with a nod to the “deep and formidable talent pool” currently at play in the auto insurance sector, saying that with the “right attitude, both insurers and consumers can derive tremendous value.”

A cool reception

After Marshall submitted his report, the Ontario government consulted the public, extending the deadline for submission from the beginning to the middle of September. Results have not yet been shared with the province’s taxpayers.

Public reaction to the report has been mixed. Consumer advocate Ken Rubin, in a Hamilton Spectator op-ed, accused Marshall of bias and secrecy, implying he was in the pocket of the insurance industry, and calling for a truly independent, transparent review.

Lerner’s lawyer Peter Kryworuk said in a blog “Marshall’s recommendations, premised on eliminating the lawyers and experts, may save costs but will also deprive accident victims of access to justice in dealing with legitimate disputes regarding their entitlement to coverage and less treatment for their injuries.”

In a statement responding to the report The Federation of Ontario Law Associations questioned Marshall’s facts, noting, “We would submit that any suggestion of increasing claims costs should be thoroughly investigated by the provincial regulator. From our perspective, in light of the regulatory changes that have been put in place in the Ontario auto insurance system over the past six years, particularly when coupled with the Ministry of Transportation’s data on motor vehicle accident injuries, insurance claims costs should be decreasing, not increasing”.

FOLA went on to say that implementing Marshall’s plans will increase costs thanks to the creation of the IECs, and furthermore, that his suggestions about changing the rules around legal representation run counter to the Law Society of Upper Canada’s own rules as the regulator of the legal profession.

On the positive side, the Ontario Chamber of Commerce (OCC) and the Insurance Bureau of Canada (IBC)came down in favour of the recommendations.

“Mr. Marshall’s report provides a path forward that, if implemented, should lead to lower premiums for Ontario drivers without any reduction in the current level of accident benefits,” said Richard Koroscil, the OCC’s interim president and CEO in September. “The Ontario Government needs to move quickly on the proposed changes within Marshall’s report, with particular emphasis on those recommendations that will make auto insurance more affordable in the short term for Ontario drivers.”

Don Forgeron, IBC president, said at the organization’s AGM in April: “The current reality is that Ontario consumers still pay too much for their car insurance. There are too many players who profit too much from the car accident business. Some profit illegally through fraud.

We strongly urge the government to act—and act quickly. The government is moving forward with a new regulator—the Financial Services Regulatory Authority. Its mandate will be to focus on market conduct and innovation.

Our goal will be to ensure that FSRA, fully formed, fulfills the promise of a modern regulatory system for Ontario. A regulator that brings proportional regulation to the market. Regulation that balances consumer protection with innovation and helps create and maintain a strong, stable and competitive financial sector.”

Meanwhile, Ontario’s auto insurance premiums are still climbing. In the second quarter of 2017 rates climbed by 1.24 percent, and in July another 0.76 percent rise was posted. As Marshall said, it’s clear that the government’s “tinkering” to date has done little to alleviate the high premiums paid by Ontario consumers. What remains to be revealed is how the current government will react to Marshall’s recommendations.

Next issue: Can British Columbia’s government-owned auto insurance system  (ICBC) be fixed?

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