Changes that support permanent fixes to Ontario auto system needed

Progress on the Ontario insurance product will continue to stall out without changes to clarify injury definitions and to enhance transparency in the tort system, both of which are fuelling higher costs and hampering efforts to achieve government-mandated rate reductions, speakers suggested during P&C Crystal Ball 2015 in Toronto.

Barbara Taylor, director of policy, Ontario for the Insurance Bureau of Canada (IBC), said that changes outlined in Bill 15 are a good start and should help control some costs. Even so, a familiar problem – rising accident benefit (AB) and bodily injury (BI) costs – represents a clear signal that additional reforms are needed to the auto insurance product and the system, Taylor told attendees.

Data from the General Insurance Statistical Agency shows total claims costs per vehicle increased almost 12% between 2012 and 2013, she reported. Claims cost per vehicle, except for Comprehensive, was up in 2013, the most problematic of which are AB (up 10.5% from 2012) and BI (up 19% since 2011).

Taylor argued that rising costs in AB and BI demonstrate those in the “car accident business” – such as personal injury lawyers and med-rehab providers – are working around the latest reforms to find new ways to maximize pay-outs.

In response, IBC proposes that the provincial government adopt changes to bring much needed scrutiny, transparency and fairness to the tort system.

“We are asking the government to require personal injury lawyers and paralegals who represent auto insurance claimants to submit to the Superintendent all information about their fees – including contingency fee arrangements, disbursements, court awarded and settled costs, and referral arrangements,” she announced. The Superintendent would then review the information, assess the impact on auto insurance costs, and issue an annual report, she said.

Bill 15 changes include reducing from 5% to 1.3% the amount of pre-judgment interest that insurers must pay claimants on pain and suffering awards; implementing changes to the dispute resolution system, namely that disputes between people and their own insurers can only go to arbitration (not court); and adopting new rules to regulate tow truck operators and vehicle storage.

“These three measures combined will help to reduce costs and abuse of the system, though it should be mentioned that these cost reductions will not be realized immediately,” Taylor pointed out.

Greg Somerville, chief executive officer of Aviva Canada, agreed the “implications of the cost savings will be somewhere in the future.” As such, they cannot be considered “immediately as cost savings,” Somerville told attendees.

Taylor argued that Bill 15 changes alone are not sufficient to address the underlying problems with the auto insurance system. “Claims costs have been rising at a time when we need them to go the other way,” she emphasized.

Citing the already challenging government-mandated deadline for insurers to reduce premiums an average of 15% by this August (from August 2013), she said it is clear more substantial changes are needed.

While premiums have dropped an average of 6.5% to date, Taylor said, 8.5% more in reductions remains. “Rates simply can’t be pushed down any further without a corresponding reduction in claims costs.”

To do so, IBC has returned to a familiar refrain. Based on input from the industry, IBC is proposing to help control claims costs and support greater affordability for Ontario drivers by clarifying the Minor Injury Guideline (MIG) definition.

Taylor noted that the MIG and medical rehabilitation benefit cap were key changes in the 2010 auto reforms that provided people with minor sprains and strains pre-approved treatment, capping the amount of treatment at $3,500.

The 2010 reforms “did their job of stabilizing costs for a period of time, but it would appear that time is over,” Taylor said.

Definitions must be clear for the reforms to work as intended, she argued. “We have more and more cases where plaintiff counsel are challenging the definition,” she pointed out. “They are adding psychological conditions such as anxiety and stress – conditions that are difficult to prove – in an effort to escape the MIG.”

Cautioned Taylor, “The reality is we could be just a few bad decisions away from the MIG getting blown up and the floodgates being opened to higher and higher costs.”

Clarity is also need with respect to what qualifies as a catastrophic injury, Taylor argued. Claimants with less serious injuries have been able to access as much as $2 million in medical rehabilitation and attendant care benefits, she reported. “We need to make sure those benefits go to the people who actually need them. It’s long overdue for the government to fix the loophole that has been created.”

Somerville agreed there is a need to clarify injury definitions, suggesting a major overhaul, not just a few repairs, are in order to achieve a permanent fix.

The government must be bolder in addressing the cat situation, he maintained. “I don’t think we have a catastrophe claim problem in Ontario; we have a filter problem. We have people who are getting benefits associated with the catastrophically injured and getting through a filter that doesn’t really control the benefits associated with the injuries,” he explained to attendees.

“I just wonder if this system works for consumers,” Somerville said. What makes Ontario different and more expensive than other jurisdictions in the country is not tough to figure out, he said simply. “This is not rocket science; this is completely based on the richness of the product and what’s available.”

Pointing out that close to half of costs go toward non-treatment-related activities, Somerville said that “on that basis alone, the underlying product has some flaws and we’ve known that since 1994. There have been many attempts to try and fix the product, but the fixes have been temporary.”

The problem is the product itself, he argued, cautioning that by not dealing with the underlying, fundamental root cause of the problem, things improve for a time and then deteriorate.

“If the government takes on some of those bolder moves and addresses some of those concerns, I think we can actually see some meaningful costs come out of the system and meet the targets,” Somerville suggested.

Beyond requiring personal injury lawyers and paralegals to submit all information about their fees and clarifying and tightening the injury definitions, Taylor said that IBC also proposes reducing the eligibility period for medical rehabilitation and income replacement benefits claims, and reforming the rate regulation framework.

“I think we’re now in a position where there seems to be a common enemy, if you will, in 15% goalposts, and there seems to be a willingness to understand that if we’re going to get there, we actually have to do something significant,” Somerville said.

On a positive note, he added, “I’ve never seen the kind of willingness for everybody to get together and find a solution to this.”