Mending The Gap

After 18 years of band-aid solutions, the Ontario auto insurance system is in need of a major reform in order to reduce rising claims costs and halt increases in premiums.

The current system is far too complex and vulnerable to over-utilization; it is a system that is not promoting early recovery and cost-stability, according to Insurance Bureau of Canada (IBC).

As claims costs continue to rise, premiums will need to be drastically increased unless changes are made to the system during the five-year auto review.

Since the inception of a no-fault system in Ontario with the Ontario Motorist Protect Plan in 1990, there have been three reforms intended to address rising costs. While there were improvements, these lasted only a year or two before costs began rising again. “Savings from the latest reforms, implemented in 2003, have now eroded to the point where the affordability of the product is threatened once again, posing a serious threat to market stability,” IBC noted in its submission to the superintendent of financial services at the Financial Services Commission of Ontario (FSCO). “Overall rate increases approved by the Financial Services Commission of Ontario in the last two quarters are a sign that the mounting pressures on claims costs have begun to affect premiums.”

In Ontario, we have a “broad product administered in a very expensive way,” according to Linda Paccanaro, vice president of claims, Kingsway General Insurance.

The level of benefits available under the Ontario Statutory Accident Benefits Schedule (SABS) system is unprecedented as compared to other provinces. There is $100,000 available for medical and rehabilitation services, while in other provinces this is as low as $25,000. Benefits are more limited in other provinces, while in Ontario more money is being spent on accident benefit and bodily injury claims costs per vehicle than in Alberta or the Atlantic provinces. Claims costs per vehicle for all coverages hit $1,034 in Ontario in 2007, an increase of 18 per cent over 2004, the IBC notes. The biggest contributor, according to the IBC, is the rich first party injury benefit package. In 2007, accident benefit loss costs per vehicles rose nine percent, bringing the increase since 2004 to 24.7%. The average cost of an accident benefit claim in Ontario is nearly $38,000. The loss ratio for all auto claims in Ontario has increased by 17.1 percentage point since 2004. For every dollar an insurance company receive from premiums, 80.1 cents is paid out in claims.

The costs of examinations have doubled in the last four years due to multiple examinations and assessments, Leonard Sharman, spokesperson, The Co-operators, notes.

Industry data suggests that medical assessment costs have increased from $100 million in 2004 to $300 million in 2007, Karin Ots, Senior Vice President, Injury and Casualty Claims, Aviva Canada, points out.

The cost per vehicle for attendant care has risen by 101 per cent between 2004 and 2007, while caregiver benefits have risen by 146 per cent for the same period, according to the IBC. For every dollar of paid medical treatment in 2007, another 60 cents was added in assessment costs.

“Housekeeping costs are one of the fastest rising cost drivers in the system,” Barbara Sulzenko-Laurie, vice president of policy at IBC notes. “Our estimates are that in 2007, something like $130 million spent on housekeeping and home maintenance benefits.”

Rising claims costs coupled with declining premium levels means a negative loss ratio. Industry data for 2007 suggests that the loss ratio for accident benefits coverage is 100 per cent, Ots says. “All of this affects insurers’ profitability, which in turn negatively impacts affordability, availability and stability for consumers.”

Average premiums are higher for drivers in Ontario as compared to Alberta and the Atlantic: $1,311 in Ontario, compared to $1,055 in Alberta and an average of $831 in the Atlantic.

“Unfortunately for Ontarians, the higher level of spending isn’t resulting in a high level of recovery,” Ots notes.

What works

Studies have shown the earlier treatment is implement, the higher the prognosis for recovery. Because of the nature of the auto insurance system in Ontario, injured parties are able to get the care they need quickly and work towards returning to their daily activities as soon as possible. This improved with the introduction of the Pre- Approved Framework (PAF) and its emphasis on science-based treatment, according to Sulzenko-Laurie.

The PAF guidelines allow clients immediate access to appropriate treatment within the given timeframes at a set fee, according to Angela Veri, national director of customer relations, Sibley & Associates, Inc. “This has already been a successful model in the Workplace Safety and Insurance Board programs of care and it is an important facet for ensuring quick intervention for the majority of motor vehicle injuries (whiplash associated disorders),” she adds.

Additionally, the SABS regime strives to provide an adequate level of benefits for catastrophically injured claimants regardless of fault. The benefits provided to catastrophically injured claimants far exceed those offered in any of the other provincial auto regimes, Ots notes.

From the perspective of the medical and rehabilitation community, there are more stringent processes and protocols in place as a result of Unfair or Deceptive Acts or Practices (UDAP), while insurers are being careful to select vendors which are most appropriate to service territories, disciplines and expertise. Internal and external audits are being conducted more frequently to ensure that a client is being provided with the most appropriate service and treatment if deemed reasonable. Furthermore, service standards have risen due to faster turnaround times for insurer examination reports, Veri points out.

What does not

However, significant abuse still exists in the system, including the exploitation of OCF-22s, which are a request for assessment. There are frequently blank forms being sent in for the health care practitioner to sign off, versus sending out forms that are carefully and completely filled out. “These, in turn, are forwarded to insurance adjusters in huge abundance placing an unnecessary strain on valuable resources,” according to Ian Elliott, national director of clinical services, Sibley & Associates, Inc. “This prevents adjusters from taking time to carefully evaluate each OCF-22 and results in multiple, unnecessary assessments.”

From the insurer side, the negatives are almost too many to enumerate, according to Ots. The SABS regime is highly process driven, bureaucratic and complicated, in addition to being unfriendly to consumers and extremely expensive for insurers to administer. Health care providers have little accountability and there are no incentives to get people better, she adds.

Additionally, there are large limits for medical and rehabilitation expenditures and a full array of ancillary benefits, such as attendant care, home maintenance, housekeeping, according to IBC.

“The system is too rich,” Sulzenko- Laurie notes. “It’s the richest in the package of benefits in North America, probably even the world, and as a result of it being so rich and having been so rich for so long the $100,000 maximum for non-catastrophic injuries has become a sort of target for injuries of any level of severity.” This has resulted in a steady and exorbitant increase in claims costs for all injuries, especially minor injuries. Furthermore, people are staying on claim for longer durations, receiving a wide variety of benefits available under the accident benefit system. “It’s becoming, according to what our members are telling us, routine that someone who has a minor whiplash injury receives housekeeping and maintenance support for weeks on end,” she notes. “The basic package allows for reasonable and necessary services up to $100,000 in heal
th care expenses and $72,000 in attendant care and so that has encouraged more and more largess on the part of the people who are proposing treatment plans and services for people who are injured at any level of severity.”

Additionally, many of these expenses do not have to be proven. When it comes to housekeeping and attendant care, if it is deemed incurred, it must be paid without any proof the work was done. The burden of proof has been removed, Paccanaro notes.

Far too much money is spent on assessments that do little, if nothing, to promote healing. For every dollar spent on treatment, there’s another 60 cents being spent on assessments, which have become a separate income stream for the medical rehabilitation community, according to Sulzenko-Laurie.

Sometimes its insurance companies asking for it and other times it the health care side saying its required, she notes. The most common document the insurance companies are seeing from the health care professional is the OCF-22, which is a request for assessment. This is the provider-initiated assessment that comes before the development of a treatment plan — which may never even materialize. An insurer is only able to challenge a benefit request by referring it to an outside advisor, which often requires an in-person assessment.

For Suzanne Amodeo, manager of business development, national care team, Bayshore Home Health, the forms are simply not user-friendly: There is no direction on how to fill them out, the same information is transferred from one form to another, social workers — those best qualified to act as case managers — are not allowed to sign treatment plans and time and money is wasted trying to fill out the forms and those costs have to be absorbed somewhere. “There are forms to do forms,” Amodeo muses.

The system is very labour intensive in terms of managing the claim due to the vast amount of paperwork involved and the numerous deadlines, according to Paccanaro. There are penalties for being late and it is difficult to refute a claim, not to mention expensive. The file needs to be managed internally, there are penalties for interest and there are assessment costs in order to stop the benefit or refuse part of the benefit, essentially meaning an insurer must assess any claim it wants to dispute.

Furthermore, in addition to paying for assessments to refute a claim, an insurer has to pay to go to mediation or arbitration or trial. “Even if you win you lose,” Paccanaro notes. “It still costs me more to refuse to pay or to reduce the payment than I would have paid if I had just paid it. That then becomes a vicious cycle.”

Ots adds the FSCO dispute resolution system is a problem. “Decisions are made by arbitrators who are not judges and the impact of the decisions often have significant negative impact on the profitability of the industry,” she points out.

Additionally, the number of people that meet the catastrophic ceiling seems to be on the rise. “Application of catastrophic or the criteria that allows you to break the catastrophic threshold has been watered down a bit,” Paccanaro says.

The SABS defines catastrophic impairment as:

• paraplegia or quadriplegia,

• amputation or other impairment causing the total and permanent loss of use of both arms,

• amputation or other impairment causing the total and permanent loss of use of both an arm and a leg,

• total loss of vision in both eyes,

• brain impairment in respect of an accident that,

•a score of nine or less on the Glasgow Coma Scale, as published in Jennett, B. and Teasdale, G.,

Management of Head Injuries, Contemporary Neurology Series, Volume 20, F. A. Davis Company, Philadelphia, 1981, according to a test administered within a reasonable period of time after the accident by a person trained for that purpose, or

• a score of 2 (vegetative) or 3 (severe disability) on the Glasgow Outcome Scale, as published in Jennett, B. and Bond, M., Assessment of Outcome After Severe Brain Damage, Lancet i:480, 1975, according to a test administered more than six months after the accident by a person trained for that purpose,

• subject to subsections (2) and (3), fairly straightforward by insurers, the interpretations of the definition has changed lately. This is in part due to some decisions the courts have made over the last few years when examining the definition of catastrophic.

Furthermore, money gets used up quite quickly with such things as custom built homes, or major home modifications. “A million dollars can go a long way, but not if you’re eating it up at those chunks,” Paccanaro notes, adding the thought often becomes that whatever the accident benefit side doesn’t pay, the tort side will, which makes both the accident benefit and bodily injury blow up.

“Other provinces have some pretty lucrative benefits . . . but I’m not sure any other impairment or combination of impairments that, in accordance with the American Medical Association’s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in 55 per cent or more impairment of the whole person, or

• subject to subsections (2) and (3), any other impairment that, in accordance with the American Medical Association’s Guides to the Evaluation of Permanent Impairment, 4th edition, 1993, results in a class 4 impairment (marked impairment) or class 5 impairment (extreme impairment) due to mental or behavioural disorder.

While the determination for catastrophic impairment was thought to be that the other provinces have the extent of bureaucracy and some of these other fine tunings that we have here,” she notes. “That’s what I see that’s driving up my costs.”

“It takes me twice as many adjusters to handle the same number of files today as it did 10 years ago,” she explains. “Everything I do is a bunch of paperwork and a bunch of assessments. It’s really hard to come to any agreement with the claimant because you’ve got your hands tied. Almost every accident benefit claim I get gets represented.”

The system is almost set up to be argumentative, Amodeo notes, pointing out that in a publicly funded system people communicate with each other coming to one decision regarding injury and treatment, whereas in Ontario, there can be multiple conclusions and multiple treatment plans by different people.

“There is a fundamental principle that needs to be respected in the interest of fairness and also in the interest of trying to keep auto insurance costs to consumers as stable as possible,” Sulzenko-Laurie comments. “What’s the fairness in the fact that someone is injured in a motor vehicle accident and they are entitled to Cadillac care and someone who is injured in another situation that is not insured or is not the result of a motor vehicle accident directly or indirectly that they receive workers compensation level of care or that they receive the public health system’s level of care which is deemed adequate for the general public.”

What to change

There are recommended changes from both the insurance and the health care community. Some of the most common recommendations made to FSCO include:

Maximum Limit for Medical/ Rehabilitation and Assessments

“We identified the sheer size of the benefit package that the SABS makes potentially available to claimants, their providers and representatives as a root source of the inexorable rise in claims costs in Ontario,” the IBC noted in its submission to FSCO. “Thus, as long as the $100,000 in med/rehab expenditures and abundant amounts of attendant care, housekeeping, assessments and other services are perceived to be available for any injury, there will remain a powerful incentive for over-utilization of services, as well as outright abuses, such as referral payments and using the AB claim to build up for a tort threshold challenge.”

In light of this, the IBC is recommending that the maximum limit for payments for medical/rehabilitation and provider-initia
ted assessments be limited to $25,000 for non-catastrophic claimants.

“The amount of resources for injured individuals should be more tailored to the severity of the injury,” Sulzenko-Laurie says. “And the vast majority of [non-catastrophic] injuries can be well accommodated within a much lower maximum limit and for minor injuries . . . limits should be indeed much much lower than that.”

Pre-Approved Framework (PAF)

The PAF was intended to provide quick, medically-proven treatment for those who sustain minor injuries in order to ensure early recovery. According to RSA’s submission to FSCO, the reduction in claims costs after the implementation of the PAF were short-lived because the injuries defined under the framework are limited and therefore the system is underutilized. “The expansion of the criteria for the PAF, in conjunction with hard caps on treatment costs, will encourage early intervention for individuals in motor vehicle accidents and assist in controlling costs,” RSA noted.

The IBC recommends that the first term of treatment for those with sprains, strains, skin wounds, non-extensive burns and or sequelae pain syndromes and psychological manifestations is the PAF with no additional assessment through the PAF period unless on referral from a physician specialist.

The basic treatment envelope should be enhanced by $500 to permit examination or treatment if psychological manifestations are present, while post-PAF assessments and treatments by all provider types should be subject to a hard cap of $1,500. There is to be no access to attendant care, no access to in-home and worksite assessment and ancillary benefits for housekeeping and home maintenance should be limited to the first two weeks, the IBC suggested.

Submissions from health care providers recommended that by removing the restriction on other benefits, such as attendant care and disability, participation in the PAF might increase.

Definition of Catastrophic Impairment

In light of how the courts, arbitrators and medical community have been interpreting the definition of catastrophic impairment — leading to an increased number of people meeting the criteria — the definition of catastrophic impairment should be amended, according to a number of insurance company submissions to FSCO.

“Clarification and interpretation regarding the catastrophic benefit entitlement needs to occur, as many assessors and adjusters are unsure how the interpretation of the Desbiens decision should affect their response,” Elliott notes. “This results in costs responding to rebuttals.”

The Co-operators noted that the definition should be evaluated to determine whether combining physical and psychological disabilities in catastrophic impairment is appropriate. If this combination should remain, then The Co-operators is recommending that the percentage be increased to 65 per cent Whole Person Impairment (WPI) from 55 per cent before catastrophic impairment is triggered.

“During the process of review of the catastrophic impairment SABS definition, it is critical that the current judicial and arbitral interpretation which respects the contribution of psychological impairments to whole person ratings be maintained,” the Ontario Psychological Association (OPA) noted in its submission. “We must not return to a system which does not allow a true whole person impairment rating or one which does not allow the insured’s psychological impairments to be combined with other impairments. Discrimination against those with mental and behavioural impairments should not be reintroduced in any revision of the catastrophic SABS.”

Attendant Care and Housekeeping and Home Maintenance

“Caregiver benefits, housekeeping or home maintenance benefits, and attendant benefits costs should be controlled by reviewing and reducing the level of benefits provided,” the Canadian Association of Direct Response Insurers (CADRI), noted in their submission to FSCO. “Where caregiver, housekeeping or home maintenance or attendant care services are provided by immediate family members, coverage for these expenses should be reduced or limited to the minimum hourly rate.”

For Paccanaro, the caregiver should be required to show that they are capable of providing care to the injured.

Currently there is $100 per week for 104 weeks (excluding catastrophic impairment) for housekeeping and home maintenance. The IBC recommends that attendant care benefit be limited to $20,0000 aggregate.

For those individuals with minor injuries, medical evidence does not support the need for attendant care, in-home or worksite assessments, extensive housekeeping or home maintenance, according to RSA’s submission. The insurer is recommending that housekeeping benefits be limited to two weeks for those with minor injuries.

Currently in the SABS, the word “incurred” has been interpreted to include payment for services never received. RSA recommends that “incurred” be replaced by “services rendered.” Other insurers also voiced that the word incurred should be clarified to mean only expenses actually paid, with the IBC adding that these benefits should not be paid to claimant family where no economic loss has occurred.

The Ontario Society of Occupational Therapists (OSOT) proposed that housekeeping and home maintenance benefits be increased annually with a cost of living arrangement, noting that the $100/week benefit has not been changed since 1996. The OSOT noted that for those who are substantially unable to complete housekeeping and home maintenance, the amount is inadequate to cover all tasks adding that the benefit amount remains the same whether the individual is in a one bedroom apartment or a one acre farm.

Requests for Assessments — OCF-22s

Multiple submissions of OCF-22 forms is putting excessive premium dollars into the hands of the assessor rather than the insured person and treatment provider, according to The Co-operators submission to FSCO. “If the number of OCF-22 assessments on non-catastrophic impairments is limited by number of time or dollar limit; this would greatly reduce expenses without adversely impacting on a client’s ability to purse treatment needs,” the company suggested. “Expenses payable under section 24 should be included in the medical and rehabilitation limits of the client as set out in section 19.”

Veri suggests that measures to verify that regulated health care professionals are utilizing OCF-22s correctly be implemented. Additionally, she recommends looking into whether the OCF-22 process is even a valuable one.

Various submissions from the health care community suggested that assessments are necessary to determine treatment plan, but suggest that submission guidelines be implemented to ensure that the most appropriate proposals are submitted and to facilitate the handling of these.

The OSOT is in support of streamlining assessments in order to better utilize the money for treatment, provided that the claimants access to assessments, benefits and treatment is protected, it noted in its submission.

“Consistent with our overriding concept of putting patients’ needs first, we also want to find ways to reduce any applications that are inappropriate and excessive, since this creates a drain on the services that are needed, reducing the availability and affordability of benefits and violating consumer protection,” the OPA noted in its submission. However, the OPA suggests that the approval of assessments (OCF-22s) and the subsequent assessments to prepare treatment plans (OCF-18s) are an integral part of the treatment and rehabilitation process and not realistically amenable to any proposed caps and restrictions.

Future without reform

Currently, Ontario drivers pay, on average, five per cent of their disposable income on auto insurance — more than the three per cent paid by Albertans and Maritimers. Actuarial analysis predicts that without reforms to reduce accident benefit and bodily injury costs, average premi
ums in Ontario would have to rise roughly 18% in 2009, the IBC notes.

“I don’t know whether an increase will be avoidable but to the extent that we can limit it, that’s our goal,” according to Sharman, adding that if claims costs continue to rise, premiums will have to increase unless some pretty serious reform is made. “[We are] at the precipice and now is the time to take incremental and reasonable action to avoid really having to jack up premiums quickly.”

Small band-aid solutions are no longer the answer, however, as they serve to reduce claims costs only for a short period of time.

“Making minor changes to the regulations serves to control claims costs for the short term only,” Irene Bianchi, vice president of claims and corporate services, RSA, wrote in the company’s submission to FSCO. “The complexity and ambiguity of the legislation result in loopholes and perpetuate the creation of new heads of damage that undermine the intent of the legislation. This gives rise to abuse of the system and rising claims costs. We encourage the Legislature to take full advantage of the five year review to make changes that will ensure adequate benefits for injured parties while maintaining affordable automobile insurance for Ontario consumers.”

———

“Other provinces have some pretty lucrative benefits… but I’m not sure that the other provinces have the extent of bureaucracy and some of these other fine tunings that we have here.” Linda Paccanaro