Claims costs for Ontario auto insurers “still out of control”: IBC

Claims costs for Ontario auto insurers remain high despite the gains realized as a result of the provincial reforms in 2010, notes the Insurance Bureau of Canada’s (IBC) submission to the Ontario Committee Hearings on Auto Insurance on May 28.

“While the September 2010 reforms were a needed first step in reducing the pressure on no fault injury costs, claims costs are still out of control,” IBC’s vice president for Ontario Ralph Palumbo told the hearings.

The Standing Committee on General Government passed a motion Apr. 16 to strike the select committee, which is holding public hearings to propose recommendations to the minority government.

Palumbo listed four reasons why claims costs remain high, namely mediation backlogs, an increase in catastrophic injury claims, an increase in bodily injury costs and the persistence of auto insurance fraud.

“First, there is an excess of 30,000 unresolved claims cases awaiting dispute resolution at [Financial Services Commission of Ontario, FSCO] and these have undetermined costs,” Palumbo said. “Depending on how these cases are decided, it could re-ignite the accident benefits costs spiral.

“I cannot stress strongly enough how this backlog is a major risk to insurance premium stability. Claimants don’t know what their benefits will be and insurers don’t know how much their claims are going to cost.”

Second, Palumbo said, the number of catastrophic injury claims is rising faster than other claims. Between 2004 and 2010, the number of no-fault injury claims rose 28%, while the count for large claims has more than doubled.

Hospitalizations from motor vehicle accidents are down 12% and yet auto insurers are being presented with many more catastrophic injury claims, Palumbo said. “This is a mystery.”

Third, bodily injury (BI) claims costs on the tort side are increasing rapidly. Palumbo said latest available figures show that the frequency of these claims has been rising, as has the average claims cost. BI claims represent more than $2 billion in annual costs.

“It is very concerning that the volume and average cost of these types of claims appear to be rising so rapidly, Palumbo said. “BI is on the same track accident benefits were before the 2010 reforms and more needs to be done to assess the causes and what can be done to alter this concerning trend.”

Finally, fraud persists in the Ontario auto insurance system.

“Many [insurers] are currently in the process of preparing responses to a FSCO [Statutory Accident Benefits Schedule] questionnaire about their internal practices to address fraudulent and abusive claims,” Palumbo said. “Companies have taken significant steps to enhance their claims management process — for some companies this has meant wholesale restructuring of their claims departments. As well, consumers are becoming more educated.

“We want to continue this momentum because society as a whole will benefit from fighting this crime.”