Watching for the Gap

When the Nova Scotia government introduced its latest round of auto insurance reforms in November 2011, it did so after thorough consultation with the industry and careful research into what’s working well in other provinces.

The province’s reform package includes doubling mandatory no-fault accident benefits for medical and rehabilitation treatments to a $50,000 maximum and adopting minor injury diagnostic and treatment protocols, emulating those used successfully in Alberta. However, against the advice of industry, the government also chose to introduce an optional full-tort product.

These reforms comprise the second and final phase of auto insurance reforms in the province. The Nova Scotia government amended the definition of “minor injury” in 2010 to mean strains, sprains and whiplash-associated disorders, mirroring the Alberta definition, which had already been tested and proven workable in that province’s judicial system. It also tripled the pain and suffering award allowed under the minor injury cap to $7,500 and indexed it to inflation.

The recently announced reforms are appropriately focused on making sure collision victims get the treatments they need in a timely and efficient way.

But – and in the complex world of insurance, there is always a “but” – how these reforms are implemented will make the difference between a stable, healthy auto insurance industry and an industry in danger of slipping backward to the days of bloated claims and escalating premiums.

During this crucial implementation stage, Insurance Bureau of Canada (IBC) will work closely with the Nova Scotia government to identify where the pitfalls lie.

Potential Pitfalls

Here are some of the concerns we will share with the government. There are others, but these are the most significant.

First of all, doubling the accident benefits maximum just a year after tripling the minor injury cap will inevitably add costs to the auto insurance system. Without implementing safeguards, these new costs could put upward pressure on premiums.

Insurers are also concerned about the time gap between the implementation of the new maximum benefits and the implementation of the new diagnostic and treatment protocols. While the accident benefits will double to $50,000 in 2012, the diagnostic and treatment protocols will not be ready for adoption until 2013.

Experience from Alberta and Ontario shows the mere existence of protocols isn’t enough to balance higher costs related to enhanced benefits. It’s also crucial to engage and educate health care providers and their regulatory colleges on the efficacy of the protocols as necessary to improving health outcomes. As well, there needs to be an ongoing and proactive monitoring system in place to measure the effect of the protocols on health outcomes and costs.

IBC is therefore concerned that the implementation time gap between increased benefits and new treatment protocols could result in higher claims costs and another major strain on the system.

Working with Government

Fortunately, in Nova Scotia, the industry and government now have a productive working relationship that we anticipate will allow us to deal effectively with these implementation issues.

When I read through the Hansard record of the debate in the Nova Scotia legislature ahead of the vote on these most recent reforms, I was struck by how well informed both government and opposition party members were, particularly compared to the lack of such awareness during the 2003 reforms. I was also struck by how many MLAs spoke knowledgeably about the importance of a vibrant and competitive insurance industry in the province. In some instances, MLAs referred to IBC’s InsurEconomy, a report released in 2010 that measures the economic footprint of the Nova Scotia property and casualty insurance industry.

The relationship between Nova Scotia legislators and the P&C industry has come a long way since the days when, while in opposition, the now-governing NDP proposed nationalizing auto insurance. We believe a concerted government and community relations strategy, conducted by IBC over several years, has resulted in a much more productive environment in which to reform the province’s auto insurance system.

However, as anyone who works in insurance knows, the devil is in the details. Much still needs to be done to ensure the public policy objectives of government are realized, but not at the expense of a stable auto insurance system.

1  This report and a similar report recently released for Ontario are available at www.insureconomy.ca