July 27, 2017 by Canadian Underwriter
A report released April 11 by the Ontario finance ministry “contains many useful learnings” for British Columbia’s government-run auto insurer, Ernst & Young LLP suggested in a report released July 24.
In Affordable and Effective Auto Insurance – a New Road Forward for British Columbia, EY commented that B.C.’s auto insurance system “has structural problems” and suggested the mandatory Basic Autoplan product needs to be redesigned.
“In B.C. today, claimants receive less than 60% of their premiums as benefits, with the remainder going to scheme costs including legal costs and disbursements,” EY said in the report, which was commissioned by Insurance Corporation of B.C., the crown corporation that runs Autoplan as a monopoly and that sells optional additional auto coverage in competition with the private sector.
“Best-in-class schemes around the world return approximately 80% of premiums as benefits to claimants,” EY said in the report. For example, Manitoba, Saskatchewan and the Australian state of Victoria return about 104%, 83% and 80%, respectively, of their premiums as benefits to claimants, EY reported.
EY included details on auto insurance schemes elsewhere in Canada, as well as in New Zealand, Michigan, Pennsylvania, Illinois and Massachusetts and three states in Australia (Victoria, Queensland and New South Wales).
In New South Wales, a new auto insurance scheme is scheduled to commence in December 2017, EY noted.
“A key feature of the new scheme design is a restriction on benefits for minor injury claims (where a minor injury is defined as a soft-tissue or psychiatric or psychological injury only),” EY said of New South Wales.
“Ontario has one of the least effective insurance systems in Canada,” EY said. “It is filled with disputes and inefficiencies, and a very high percentage of premiums is going to experts and lawyers rather than directly to claimants.”
In 2015, Ontario Finance Minister Charles Sousa appointed David Marshall, former president of the Workplace Safety and Insurance Board (WSIB), to review and make recommendations on auto coverage.
“The Marshall report (“Fair Benefits Fairly Delivered”, April 2017) contains many useful learnings for BC in terms of opportunities for creating a better and more efficient system,” EY said in Effective Auto Insurance – a New Road Forward for British Columbia.
In Ontario, Marshall suggested that neither insurers nor personal injury lawyers are to blame for the current state of affairs but insurers “are incented to close their liability with as little cash cost as possible and, hence, they introduce the practice of negotiating cash settlements with claimants in lieu of medical treatment, future wage and other future benefits” under the Statutory Accident Benefits Schedule, Marshall wrote.
Ontario should change its regulations “to include only broad principles and entitlements” for auto accident benefits and should establish an “arms-length regulator with a skills-based board” to oversee auto insurance, Marshall wrote in his report.
“In many ways, the need to have lawyers involved to negotiate settlements in what should be a straightforward, no-fault, accident benefits system signals a failure in the system,” Marshall added. “There should not be so much uncertainty that neither accident victims nor insurers are confident as to what constitutes fair benefit.”
In B.C., the Basic Autoplan had loss ratios of 106.5% in 2014, 115.6% in 2015 and 110.3% in 2016, EY reported, adding that ICBC had net losses, on basic mandatory auto insurance, of $257 million in 2015 and $280 million in 2016
“Fundamentally, auto insurance in BC has structural problems and requires major reform to resolve these issues,” EY said. “Very similar” to Marshall’s observations in Ontario, “these issues in BC have not materialized overnight,” EY added.