November 11, 2019 by Greg Meckbach
No-fault insurance is not a silver bullet that is going to solve the auto liability problem, but it can be helpful to insurers, provided that the coverage is not too generous, suggests the head of Canada’s largest property and casualty insurer.
“I think that the no-fault product for both car repairs and bodily injury can be a very effective product, provided that it is not overly rich, so as to invite third parties to take advantage of the richness of the product,” said Charles Brindamour, CEO of Intact Financial Corp., during a recent conference call.
During the Q&A, a securities analyst alluded to recent mainstream media reports around reducing the rights of plaintiffs to sue in British Columbia for auto accidents. The CBC recently quoted Attorney General David Eby as saying a full no-fault system is not something he is looking at, but something similar might be considered.
“I don’t think no-fault is a panacea to automobile insurance issues,” Brindamour said Nov. 5 when asked about no-fault in B.C. “It’s a calibrated one to get the job done. But far more important, in my view, is choice and private competition.” Brindamour commented during the earnings call, in which he discussed his company’s financial results for the three months ending Sept. 30.
Canada-wide, the industry-wide loss ratio in 2018 in auto liability was 71.4%, up from 67.3% in 2017 and 62.3% in 2016, A.M. Best Company Inc. reported this past September.
In B.C., motorists would get better outcomes with open competition, whether it is no-fault or tort, Brindamour said last week.
B.C.’s NDP government does not plan to open up mandatory auto insurance to competition. Proponents of public auto insurance have pointed to Ontario has an example of a jurisdiction where rates are still rising even though consumers have choice. That said, the B.C. Liberals recently started calling for an end to the Insurance Corporation of British Columbia’s monopoly.
A big issue in B.C. is sustainability. ICBC reported Sept 10 it had a combined ratio of 118.9% on basic mandatory auto insurance in three months ending June 30, down from 136.6% for the three months ending June 30, 2018. ICBC reported an underwriting loss of $1.58 billion in the year ending Mar. 31, 2019, down slightly from an underwriting loss of $1.66 billion in the year ending Mar. 31, 2018.
In 1990, Ontario introduced a system that limited the right of plaintiffs to sue for non-economic losses. Reforms that took effect in the 1990s were expected to reduce the frequency of liability claims, reports a 2012 paper commissioned by the Insurance Bureau of Canada, The Design of Auto Insurance Systems: Research and Implications for Ontario. That report was written by professors Sharon Tennyson, Mary Kelly and Anne Kleffner of Cornell University, Wilfrid Laurier University and University of Calgary respectively.
“I think no fault has very good characteristics, provided that the coverage offered to the drivers is commensurate with the actual needs of the drivers, as opposed to being overly generous, as we have seen historically in Ontario,” Brindamour said during the earnings call, in the context of a question about auto reform in B.C. “I think some of the reforms that are in the pipeline are ones where governments across the land are trying to take abuse out of the system and really right-size the coverage that is being provided.”
Increasing accident benefits was not the only change the B.C. government brought in. Another reform intended to cut litigation costs was a rule limiting auto personal injury lawsuits to a maximum of three expert witnesses. That rule was declared unconstitutional in the recent B.C. Supreme Court ruling in Crowder v. British Columbia (Attorney General). Initially the rule was expected to save ICBC $400 million this fiscal year and $30 million every year thereafter.
In Crowder, Justice Christopher Hinkson found that the new rule restricts a core function of the court to decide a case fairly upon the evidence brought to it by the parties. As such, it violates the intent of the 1867 Constitution Act, which Hinkson said it to prohibit the federal or provincial government from abolishing a “core jurisdiction” of a provincial court.
The disruption to the legal system from no-fault’s introduction in 1990 has yet to settle down. It continues to inspire in-fighting from the challenge to prove its governing principles. But that is only one of the continuing problems with Ontario Auto Insurance. Unlike houses, commercial buildings, it fails to address the otherwise historic underwriting rule of “letting the punishment fit the crime”. If I heard that once, years ago, during an age of innocent disposition, I heard it a hundred times. The application of premium to risk was never an issue with auto insurance until the early ’80’s when the standard rules of rating folded in on themselves. Competition for business became a competing drag race and premiums were given discounts before they were earned. Lawsuit settlements took up to three years for rating offsets to apply and by that time, underwriting loss ratios were just below full percentage or teetering over it. Operating costs were depressed to countervail the flow of loss dollars. The digital age has not made auto insurance less of a problem but if “letting the punishment fit the crime” means appropriate rating for auto insurance, then taking a step back could be a meaningful change for the future.
I believe that the no fault system, discriminates against the elderly. They are often retired, and have no pay compensation, they are not as mobile regarding going to appointments, they do not have the time left in their lives to spend years to prove their injuries are permanent or life altering. A person convicted criminally after a car accident should be open for being sued for pain and suffering he caused.