Ontario Auto Still Bent Out of Shape

Before Ontario introduced its auto insurance reforms back in September 2010, insurers sounded a cautionary warning that apears to be supported by 2011 Q3 statistics from the Office of the Superintendent of Financial Institutions (OSFI).

Prior to the implementation of the Ontario auto insurance reforms, insurers were concerned that whatever cost savings the reforms might be able to achieve on the accident benefits side might be offset by increasing costs on the tort/liability side.

The root of the insurers’ concerns at the time was a lack of clarity about what impact a proposed future catastrophic impairment definition might have on insurers’ costs. If the proposed definition of a catastrophic injury is too loose, for example, trial lawyers could opt to sue for damages in tort instead of trying to go through accident benefits instead.

An expert panel issued a report to FSCO earlier this year with recommendations on a new definition for catastrophic impairment. Thus far, we don’t have any public word from FSCO on what the new definition will be.  

Similarly, a promised new, permanent Minor Injury Guideline (MIG) was at the time — and still is — up in the air. The MIG determines which injuries will fall under the legislated $3,500 cap on minor injuries. If the cap is not tightly defined, insurers say, that might give trial lawyers an opportunity to take their claims outside the  framework of the MIG, potentially raising costs for insurers.

An interim MIG is now in place and is supposed to tide the industry over until a permanent one is established. Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), has indicated it expects the permanent MIG to be ready in 2014.

So with all of these “interim” transitional frameworks in place, what are the numbers showing one year into the reforms? Not surprisingly, the numbers are showing that accident benefits claims ratios are coming down. In some instances, insurers are actually starting to make money on the product again for the first time in more than three years. But sure enough, these gains have come at the expense of auto liability claims ratios, which appear to be on the rise.

OSFI’s 2011 Q3 figures show that claims ratios of Canadian federally regulated insurers on the auto liability (tort) side increased from 66.62% as of 2010 Q3 to 76.82% over the same period this year. In  comparison, auto liability claims ratios were at 65.66% in 2009 Q3, which makes the 10% difference over the span between 2010 and 2011 leap off the page.

The auto liability numbers are not much better — worse, in fact — for federally regulated foreign companies licensed to do business in Canada. Their auto liability claims ratio stood at 69.07% in 2009 Q3. That crept upward to 73.01% in 2010 Q3. By 2011 Q3, it was a whopping 114.02%.

Claims ratios higher than 100% indicate insurers are losing money in that particular area of auto insurance. So put simply, OSFI’s numbers suggest that even though Canadian insurers have started to make money on the accident benefits side of the auto insurance business, or at least not lose as much money (foreign insurers have seen their personal accident claims ratios go down from 220.6% to 129.1% over the past year), something is still amiss.

And that something is the recent escalation of auto liability claims costs. One year doesn’t make a trend, but the fact that these costs are increasing significantly even over one year points to the need to finish the job on auto reforms. This means something more than a transitional approach to catastrophic injury and the forthcoming permanent minor injury guideline.