March 1, 2004 by Vikki Spencer
As claims managers and adjusters entered the new year they faced tough federal privacy legislation which presented a host of unknown factors to their work environment: public reaction, professional limitations, and whether the industry’s existing claims handling standards would hold up under the new rules. So, when both sides met at the annual Joint Claims Conference held in Toronto in early February, it was natural that the privacy regulations stole the spotlight.
It was positive news that greeted claims managers and independent adjusters when they met in Toronto recently, with the confirmation that adjusters would be amongst those designated as “investigative bodies” under the new federal privacy legislation. This message was delivered to both independent and company claims staff who met for the annual Canadian Insurance Claims Managers’ Association (CICMA) and the Canadian Independent Adjusters Association (CIAA) Joint Conference. With the implementation of the “Personal Information Protection and Electronic Documents Act” (PIPEDA) for insurers in January, great concern had been expressed about how the new legislation might hamper the ability of adjusters to investigate claims. But, with investigative body status, adjusters will be able to look into suspect claims with some immunity from PIPEDA’s constraints.
Industry Canada had made the application for status, on behalf of adjusters and private investigators, last November. And, as of early February this year, expectations were that the status would be formalized by month’s end.
“That’s a very positive development for your [insurance] industry,” says Ann Cavoukian, information and privacy commissioner for Ontario. But, she cautions, even with the status, insurers need to rethink their collection, use and disclosure of personal information. For one thing, the status does not exempt adjusters from obtaining consents on claims that are not suspect, she notes. As well, she observes, “in the past, the tendency has been to collect whatever was available…don’t collect what you don’t need”.
Cavoukian also voices concern regarding the “consents” being employed by the industry. “There has been a concern that the consents used by the insurance industry have been blanket consents. In my view that will no longer be acceptable.” As such, she expects the federal Privacy Commission will receive complaints in this area which will have to be investigated.
Cavoukian remains confident, however, that insurers (who were among those agreeing to the CSA standard on privacy which formed the basis for PIPEDA) are in good shape to comply with the federal legislation, as well as superceding provincial legislation in B.C. and Alberta.
Very few consumers have come to adjusters with privacy concerns since January, notes Keith Edwards of McLarens Canada, a trend he expects will continue. “Maybe 10%-15% [of customers] will be privacy zealots and challenge you on the privacy issues.”
Edwards points out, “insurers and adjusters have a contractual duty to the insured to adjust a fair outcome of the claim.” If adjusters and insurers have policies and procedures that clearly explain what is “reasonable” when it comes to the use of personal information, they will be in a far more defensible position should someone pursue litigation based on privacy statutes, he adds.
Another issue is who will bear the cost of privacy implementation, says Jim Eso, president of the CIAA and vice president of the B.C. operations for Crawford Canada. As adjusters face mounting expenses from soaring errors & omissions (E&O) coverage and threatened bad faith litigation, the cost of privacy compliance on top of that cannot be recovered through existing fee structures. This is particularly true given the move to inhouse adjusting and loss adjustment expense cuts from a dwindling pool of insurer clients.
From the perspective of brokers, the customer’s right will have to take precedence, maintains Bob Carter, CEO of the Insurance Brokers Association of Ontario (IBAO). If an adjuster were to approach a broker for client information, the broker would suggest going to the client directly because the information was collected for the purpose of selling a policy, not settling a claim. Consumers, particularly seniors, are confused about the new legislation and brokers are fielding a lot of questions, Carter observes. Answering such concerns is further confounded by the different systems/practices applied by insurers.
But, the industry’s “fear factor” relating to the privacy legislation may prove to be more “in the mind” than reality. Notably, damage awards in privacy cases are generally modest within a range of $10,00-$25,000, says Norm Groot, a litigation association with McCague Peacock Borlack McInnis & Lloyd. “The frauds that you’re investigating are generally much higher in dollar amounts than the damage awards.” To date, the privacy commissioner has not taken anyone to court, largely because once recommendations have been made, corporations have complied.
While privacy debate dominated the joint conference agenda, speakers could not avoid the topic of “public image”. The industry’s image is at an all-time low, speakers agree, although the source of that bad image may be debated. “We could battle the rest of the day on finger-pointing…The image sucks right now,” says Gordon Rasbach, vice president of accident benefits for Aviva Canada. He says that insurers, in a bid to compete with one another with faster response times, may have shot themselves in the foot. “[As a result] consumer expectations right now are too high.”
Overall, insurers have been “unreasonable” with customers, Carter maintains. The problems with auto insurance, where consumers have been refused coverage for a host of reasons, are now beginning to creep into the homeowners’ market, he points out. Insurers are finding “all sorts of interesting ways to deny coverage”, he adds. While Carter sympathizes with insurers on auto regulations, such as the “take all comers” rule, which have put pressure on insurer profits, he believes that the negative image of the insurance industry has put a damper on the once-strong lobby movement of independent brokers.
Carter adds that the announcement by Aviva Canada of a deal to sell personal lines products through President’s Choice does not help anyone’s cause with legislators. “It’s pretty difficult when the IBC is going to the government complaining about rates and they [Aviva] come out with something new that is a low-cost, low-rate provider.”