Time To “Reset” Ontario Auto System

The auto insurance reforms suggested by the Financial Services Commission of Ontario (FSCO) are essentially a wash, Barb Addie, a principal at Baron Actuaries, argued.

Addie’s article, Ontario Auto -Control-Alt-Delete?, is featured in the MSA/Baron Outlook Report: Q4-2008.

In it, she notes the overall Ontario auto direct loss ratio reached 84 per cent and its average expense ratio 25 per cent in 2008, leading to a combined ratio of 109 per cent. Even if investment income had been healthy, “this still implies a return of equity of less than 1 per cent.”

Accident benefits calendar year loss ratio climbed to 124 per cent in 2008 from 2007’s 103 per cent, Addie noted. “The underlying trends are in the 12 per cent to 13 per cent range, so just keeping up with the costs will require substantial and sustained rate increases.”

Several sub-coverages — including housekeeping, examinations and caregiver disability income — have trends in excess of 20 per cent, she added, noting that the trend analysis was completed using data from before the economic meltdown.

Ontario’s system is simply too expensive,” she wrote. “Tweaking a few accident benefits rules and regulations will not bring the system under control. Increasing tort costs with such rich first party benefits makes no sense.

“We’ve tried controlling Ontario auto, we’ve also tried altering it to little avail, maybe it’s time to go ahead and delete it.”

“Perhaps the time has come to reset the system, move back to full tort with minimal accident benefits coverage. It seems very unlikely that the system would cost more, it would be less complex and there would be substantially less opportunity for fraud.”