Insurance industry optimism floated to new heights following the adoption of Ontario’s auto reform package in 2010

The euphoric state of the industry on the passing into law of the 2010 auto reforms is now metamorphosing into concern to be quickly followed by panic. Most of the positive factors of the reforms influencing pricing are not only evaporating as quickly as the winter snow, they are indicating disturbing trends in the other direction. The pendulum that had reputedly swung too far over to the insurer's side is now on the backswing and gaining momentum.

The Minor Injury Guideline (MIG) is absolutely critical to the success of reforms to the Statutory Accident Benefits Schedule (SABS) implemented by the Ontario government in September 2010. The MIG provides a cap of $3,500 in treatment costs (without prior approval of the insurer) for injured persons sustaining minor injuries. These are defined to include sprains, strains, whiplash injuries and whiplash-associated disorders, including associated sequelae.

In Scarlett v. Belair, John Wilson, an arbitrator with the Financial Services Commission of Ontario (FSCO), recently ruled the MIG was merely a guideline, not the law, and not appropriate, in this case, for an injury that arguably predominantly fell within the definition.

One of the most significant conclusions was that “the burden of proving that the claimants' injuries fall within the parameters of the MIG falls on the insurer.” Some evidence of a psychological impairment, which the claimant himself denied, a chronic pain diagnosis and temporomandibular joint disorder (TMJ) were sufficient to remove the claimant from the MIG.

The guideline is a “non-binding interpretive aid in deciding specifically whether Mr. Scarlett comes within the MIG,” Wilson held. “What it is not is a cookie-cutter application of an expense limit in every case where there is a soft-tissue injury present,” the ruling adds.

If the MIG decisions stay on this course, “for insurers, the MIG is not an effective tool for controlling costs,” defence counsel Daniel Strigberger, a partner in the Kitchener-Waterloo office of Miller Thomson, noted during the Canadian Defence Lawyers' (CDL) 4th Annual Accident Benefits Joint Plaintiff and Defence Seminar in April. Strigberger did comment, however, that the case was not groundbreaking from a jurisprudence point of view. The basis for the decision “doesn't pay attention to the wording in the SABS,” he noted.

Interestingly, the Ontario government's recent budget bill included a proposed amendment to section 268.3 of the Insurance Act that a guideline incorporated by reference in the SABS is binding.

While Scarlett is under appeal, it has set a road map for plaintiff counsel.

Loss costs: AB and BI
One of the key elements of any automobile injury restitution system is a balance between the costs of the no-fault benefits paid to injured victims by their own insurance company (AB) and the costs of tort claims made against the insurers of drivers who are at fault for accidents (BI).

Prior to the most recent reforms in 2010, industry stats for 2009 revealed that loss ratios for AB claims were 148% and 91% for bodily injury (BI) claims. The most recent numbers reveal that for 2012, BI claims had risen to 100.3%.

Bodily injury (tort) costs have risen from 26% of the net incurred losses in 2010 to 32% in 2011. FSCO has undertaken a study to determine how accident victims are actually compensated, but any insurer claims manager will say that BI claims are more prevalent, and becoming more difficult to settle.

The Insurance Bureau of Canada (IBC) noted before Ontario's Standing Committee on General Government that, despite a decrease in the number of accidents, there were 3,753 more tort (third-party BI) claims made in 2011 than in 2008, a 32% increase. An increase in BI tort costs was predicted by actuaries when SABS was modified, but with decisions like Scarlett, the corresponding reduction in AB loss costs may be gone with the wind.

Effect on premiums
The IBC refers to the Scarlett case in its submission, claiming “this makes all injuries non-minor until proven otherwise.”

FSCO's 61-page submission to the standing committee notes that rates had “stabilized” as insurer costs have come down due to changes brought about by the 2010 auto reforms, along with reductions in fraud and abuse of the system.

The industry is almost embarrassed to point out to outspoken critics that average premiums have actually fallen during 2012 by 0.26%, and in the first quarter 2013 by 0.03%. Hardly anything to get excited about!

The effect of the loss of the MIG on loss costs would be enormous on its own. Add to that IBC estimates that a mandatory premium reduction of 15% across the board would turn the 2012 results, which recorded a modest profit, into a loss of $2 billion spread amongst the 90 insurance companies selling auto insurance in Ontario.

The insurer's approach?
At an industry event in 2011, defence counsel and arbitrator Lee Samis reminded the industry that “we need to be careful as an industry always trying to figure out compartments to put claimants in rather than assess what treatment is best.”

Speaking at the recent CDL seminar, Mark Cekuta, alternative dispute resolution supervisor, accident benefits at RSA/Johnson, cautioned insurers to use the SABS “effectively and with common sense. An independent examination should not be required in every case to try and place the case within the MIG. If there is objective evidence of TMJ or other injuries not listed in the MIG, we should pull it out of the MIG.”
The MIG only creates another layer of complexity.

FSCO mediation and arbitration
No discussion of the uncertainty of results in Ontario auto is complete without reference to the delays in the mandatory system of resolving disputes between claimants and insurers. Under Ontario's Insurance Act, before a claimant can proceed with his or her dispute with the insurer in courts or in arbitration, the claimant must file for and participate in mediation. The mediations and arbitrations are conducted by FSCO.
John Lobo, manager of dispute resolution services at FSCO, has released stats showing the marked increase of mediations filed over the past four years. FSCO has undertaken several initiatives to address the horrendous backlog problem of 35,000 cases awaiting mediation, 80% of which originate in the Greater Toronto Area, and are making a dent.

The good news is that for the first time since 2009, the number of new mediations filed has actually declined in the 12-month period ending March 31, down 35% to 23,325 from a record 36,425 the previous year.

On the other hand, FSCO arbitrations have increased by 100% in the same period. As the backlog of mediations is addressed, this is expected to rise even more as claimants pursue their claims to the next level. After waiting for sometimes as long as two years for the dispute to be mediated, the claimant must now wait another year or more to pursue the claim in arbitration.

Needless to say, arbitration is a much more expensive process for insurers and claimants alike. Leading defence counsel Philippa Samworth and Phil Howell, FSCO's CEO and Superintendent of Financial Services, have both publicly said about the dispute resolution service, “It is not working.”

A political solution?
The Ontario government, in the midst of tumultuous times for the minority Liberals, is conducting a review of the Ontario auto insurance product. The Ontario Auto Insurance Anti-Fraud Task Force is actively seeking further legislative changes to assist insurers in fighting fraud. The committee to determine catastrophic injury guidelines has made its recommendations and is seeking changes. Several other committees are very active.

The NDP has once again raised the issue of auto insurance premiums in Ontario, the highest in the land. The New Democrats proposed an across-the-board cut of 15% in rates to which the government acquiesced to “start implementing.” On April 30, finance minister Charles Sousa was quoted in a Toronto Star article, aptly titled “Brace for roller coaster ride on auto insurance”, as saying, “Let's go 15% and let's go as fast as we can.”

In the provincial budget, released on May 2, Sousa reiterated the government's commitment to introduce changes aimed at meeting the 15% reduction target, although a specific timeframe was not given. The budget document notes the change will be made “within a period of time to be prescribed by regulation.”

As arbitrators and judges expand the definitions and erode limitations on coverage, and with auto insurance very much back in the political spotlight, interesting challenges lie ahead. Let's hope the roller coaster arrives safely at the end of the ride and does not derail first.

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