Stop or Go?

What’s going on in Ontario auto insurance? More than one may think.

On August 23, Ontario finance minister Charles Sousa announced details of the government’s plan to lower auto insurance rates by 15% on average. The provincial government initially committed to this target over an unspecified period of time as part of its deal with the New Democratic Party to pass the minority Liberals’ 2013 budget.

Budget legislation that passed in June 2013 gave the Superintendent of the Financial Services Commission of Ontario (FSCO) the power to set a rate reduction target by regulation and compel insurers to refile to achieve this target. The legislation also expands FSCO’s enforcement authority and grants it the power to license health clinics.

All through this process, the Insurance Brokers Association of Ontario (IBAO) has cautioned that rate reductions will take time and must be achieved in a responsible fashion. The rhetoric in government press releases, in IBAO’s view, unrealistically raised the public’s expectation for across-the-board reductions.

The IBAO wants lower rates for consumers, but representatives continue to believe a 15% premium reduction is aggressive and can only be achieved once the key recommendations of the Auto Insurance Anti-Fraud Task Force are implemented. Mandated reductions without identified cost savings could end up making things worse for consumers as insurers may exit certain segments of the market where they are losing money.

The IBAO was expecting to see progress made in identifying cost savings when the provincial government recently announced its next steps. The announcement did include a specific timeline for the promised rate reduction – 8% on average is the targeted reduction for the first year ending August 15, 2014 and 7% further by August 15, 2015. In addition, insurers are expected to refile for a 3% to 5% reduction by January 2014. The government believes that this reduction exists in the system arising from the last set of reforms.

What the government announcement did not include was progress on licensing health clinics, regulating the towing industry and implementing a new catastrophic definition. Without progress on these fronts, the two-year timeline for the 15% reduction looks even more challenging. Government representatives have said the government remains committed to moving forward with anti-fraud task force recommendations, such as the licensing of health clinics.

But the IBAO is increasingly concerned the promised changes will not occur in time to coincide with expected premium reductions.

While the two-year timeline announcement was highlighted in the media, what went largely unreported was a detailed policy statement by Sousa to FSCO published in the August 24, 2013 edition of the Ontario Gazette. The minister has the power to issue such policy statements, which FSCO “shall have regard to” in making decisions.

Of note to the IBAO is that FSCO is directed to study whether or not insurers are in compliance with the prohibition of credit scoring in auto insurance and to study the mandatory collision-reporting threshold under Ontario’s Highway Traffic Act. On the first item, the IBAO has raised concerns that credit scoring on home insurance may be subverting the credit ban on auto insurance given that the two products are often sold together with a discount; on the second, the IBAO has suggested that reporting a collision under an increased threshold for minor accidents should not be counted against a driver if that driver does not make a claim. The current threshold is $1,000, a figure that has not been adjusted in many years.

The policy statement also encourages FSCO to implement usage-based insurance, to look at the fairness of the territorial rating system and to explore ways to treat first-time drivers “fairly.”

With regard to the latter point, the IBAO believes the “First Chance” system in New Brunswick – which gives new drivers the benefit of the doubt and lower initial premiums – is worthy of exploration for Ontario. Only if a new driver is convicted of a traffic offence or is involved in a collision would his or her rating revert back to the customary low rating of a new driver.

DISPUTE RESOLUTION REVIEW

As part of the August 23 announcement, Sousa reported that the Honourable J. Douglas Cunningham, former associate chief justice of Ontario’s Superior Court of Justice, would conduct a review of the province’s auto insurance dispute resolution (DR) system. A well-functioning auto insurance DR system is of important interest to the IBAO as it directly affects the 6 million customers who our brokers represent. Broker customers are entitled to timely access to benefits they have purchased.

If there is a dispute between a customer and company in Ontario, either party must first go to mandatory mediation, followed by arbitration, and then the courts if either party is still not satisfied. Both arbitration and mediation are administered by and reside at FSCO. By law, either party is entitled to have mediation within 60 days of applying.

Figures from FSCO show that between 2007 and 2011, applications for mediation soared by 155%, from 14,281 to 36,496. This extraordinary increase resulted in a backlog that grew more than 1,000% from 2,496 cases in 2007 to 29,305 in 2011. By 2011, Ontario’s Auditor General in his 2011 Annual Report noted that mediation resolutions were taking as long as 12 months.

FSCO responded by taking remedial action to reduce and eventually eliminate the mediation backlog, something that was achieved this past August.

Despite that progress, applications for arbitration have skyrocketed during this period. In 2012-2013, 10,510 applications for arbitration were received, a 151% increase from 2010-2011, FSCO reports. The spike in applications seemed to coincide with the new set of auto insurance reforms that took effect September 1, 2010, which focused on tightening rules to fight the abuse of accident benefits (AB), claims for which had soared in the prior few years.

Clearly, Ontario’s auto insurance DR is failing when it cannot provide timely access to dispute resolution, a purpose for which it was originally designed. It is also incredibly expensive to sustain such a lengthy complicated process. And as everyone is well-aware, all Ontario drivers are paying for this through increased premiums.

That is why the IBAO welcomes this long-overdue review, not only so brokers can meet their responsibilities to help customers get the benefits they need, but also, hopefully, to reduce the overall cost of the system.

It is anticipated Justice Cunningham will deliver an interim report to Sousa in October, with a final report to follow in February 2014. The interim report is expected to include recommendations related to whether or not mediation should continue to be mandatory for all Ontario automobile insurance disputes, and what is the best approach to delivering that service.

As one can see, there are many moving parts that need to be addressed and there is no single solution to a better- functioning system. That said, responsible change needs to be the driving factor in order to succeed.