Insurance company profits under microscope

Monday, 06 May 2013 07:00, Written by Judy van Rhijn

Competing financial statements were on the table as hearings on the auto-insurance industry before the standing committee on general government resumed in mid-April.

The flurry of financials is the result of an MPP advisory sent out by the Ontario Trial Lawyers Association in March 2013 that alleged the Insurance Bureau of Canada is misinforming officials about insurance premiums, claims costs, and profits. It pointed to the “embarrassing” increase in profits since the 2010 reductions in benefits and claimed the insurance system now greatly tilts in favour of insurers.

“We called them out,” says Andrew Murray, president of the OTLA. He notes the strong wording of the letter stemmed from data available on the web site of the General Insurance Statistical Agency that assists insurance regulatory authorities with governance, accountability, and oversight. “There is a fine level of detail collected from premium and claim information that lets regulators see if the aggregate industry is providing a return that is inadequate or excessive or unfairly discriminatory,” says Murray.

The Insurance Bureau of Canada responded by publishing an actuarial analysis from JF Cheng and Partners on March 28, 2013, and then a KPMG LLP-authored analysis of Ontario private passenger automobile insurance results for 2008-12. The actuarial analysis relied on data from the Beyond 20/20 database and KPMG used information from the Office of the Superintendent of Financial Institutions. Both reports cited shortcomings in the statistical agency data and the challenges in drawing conclusions from it.

Murray addressed the different approaches when testifying before the resumed standing committee hearing. “I said to the legislature that it shouldn’t be this hard to find out the figures,” he said.

“I asked that the auditor general do an independent review and ask what the savings have been.”

The OTLA analysis showed the cost of claims was $6.5 billion, an amount representing 56 per cent of premiums.

“The IBC says $8.15 billion,” says Murray.

“There is a $1.5 billion gap, which is way too much money to have a philosophical discussion about.”

The OTLA suggests the industry’s own data shows injured accident victims have paid the price for the sector’s dramatic turnaround through restricted coverage and limited treatment. Its members report seeing many cases where people have run out of treatment dollars either because they fall under the minor injury guidelines or they’ve exhausted their $50,000 in medical and

rehabilitation coverage.

The NDP has also relied on the statistical agency data to demand a premium reduction from insurers. During an opposition day on April 10, the NDP introduced a motion to have the Financial Services Commission of Ontario mandate a 15-per-cent reduction in auto insurance premiums within the next 12 months. The Liberals supported the motion. The NDP cited statistical agency figures that show the insurance industry’s benefit costs dropped by $2 billion following the 2010 auto insurance reforms without any corresponding reduction in premiums.

In its submission before the standing committee, the Insurance Bureau of Canada reiterated its contention that rising costs are resulting in premium increases and that the best way to combat them is through reforms tackling fraud and the mediation backlog in the province. It professed a willingness to reduce rates if the government addresses those matters.

The Insurance Bureau of Canada representatives relied on the actuarial analysis that found a return on equity of 5.5 per cent in 2012. It also referred to the KPMG report that stated: “Despite the improvement in results, return on equity remains well below the 12 per cent permitted in FSCO’s pricing model and well below returns on equity that would be expected by most private businesses.” A 3.6-per-cent reduction in premiums, unless accompanied by decreases in claims costs, would wipe out industry profits, the report noted.

“It shouldn’t be all about the reduction of premiums,” says Murray.

“Let’s not lurch from one crisis to another. Let’s look at longer horizons. We will probably need to ratchet up [minor injury guideline] benefits to $10,000 or $15,000, so let’s not apportion all the savings to reduction of premiums. Let’s deploy it holistically to make it a better system.”

The OTLA talks about what it calls the three Ps: profit, premium, protection. Murray compares it to a three-legged stool. “Don’t just lop off the premium leg and put the protection side out of balance.”

Another study that will be of interest in the debate is the review conducted by FSCO of the 12-per-cent benchmark for the insurance industry’s return on equity. The review follows recommendations by the auditor general in 2011 and is expected to be complete by the spring.

Another arena where industry profits are sure to arise is the renewed consideration of the catastrophic impairment provisions. The provincial government has reopened the issue by starting stakeholder consultations not restricted to medical experts as was the case with last year’s review by FSCO.

“Where’s the fire?” asks Dale Orlando of McLeish Orlando LLP in relation to the catastrophic impairment review. “They’re searching for a solution to a problem that simply doesn’t exist. Around one per cent of claims are deemed catastrophic. On a claim-by-claim basis, it’s a lot of money, but in the scheme of things, there’s no evidence that there’s been an upswing in costs.”

Why Ontario?s $3,500 minor injury cap is too low

By: Ellen Roseman On Your Side, Published on Sat May 04 2013

You’re driving along when another car rams you from behind. You feel pain and stiffness. Later, you’re diagnosed with whiplash.

Under the law, you’re entitled to accident benefits from your auto insurer. But whiplash is considered a minor injury, with benefits capped at $3,500.

You have little to spend on rehabilitation treatments not covered by Ontario’s health care system. Too soon, your benefits are exhausted.

The $3,500 limit is lower than it sounds. Insurance companies can include the cost of assessments in that amount. Moreover, insurers can cut you off at the preapproved amount of $2,200. Additional coverage is optional.

Lucas Szajek was driving when his car was rear-ended in December 2011. He and his wife have lasting injuries.

“My wife has chronic neck pains and has lost much of the feeling in her fingers. This recently resulted in her burning her hand quite badly,” he says.

“I’m much better, though my rib is popping out every now and then. The insurance company refused to cover more than $2,200 for my treatments and cut off my wife at about $3,500.”

Szajek found an entire industry of doctors doing accident assessments for insurance companies.

“They charge $950 per assessment,” he says. “As long as they rule in favour of the insurance company, they get business. If they don’t, the insurance company moves on to the next doctor or clinic.”

Unfair assessments are a common complaint. Many injured people don’t feel they get objective results when an insurance company orders the tests.

Rhona DesRoches was in a 1994 car accident that left her and her husband injured. She became militant after seeing her husband fight for benefits for almost a decade.

She’s the chair of a one-year-old advocacy group, Fair Association of Victims for Accident Insurance Reform, which has 100 individual and corporate members.

“It’s the most common thing I hear,” she says. “Members tell me they’re disqualified from getting benefits after an independent medical assessment.”

She talks about the $3,500 limit, known as the MiG (minor injury guideline). If it’s only a guideline, why do 80 per cent of those injured in car accidents end up there? And why do they have to hire a lawyer to get more coverage?

The MiG was challenged successfully for the first time this year at a Financial Services Commission of Ontario arbitration. Belair Insurance, the defendant, says it plans to appeal.

Nicole Corriero, the lawyer who argued for the plaintiff (Lenworth Scarlett), says the changes made by the Ontario government in September 2010 aren’t well known or understood.

“Many clients I deal with have no idea how significantly reduced their benefits are. That’s because, despite the severe cuts made to available benefits, premiums have increased,” she told me.

“Most insurance companies have used this change to do across-the-board refusals on all benefits the second they see someone suffering a soft tissue injury — regardless of the complicating factors involved that may warrant treatment beyond the $3,500 cap.”

In its recent budget, the Ontario government promises to bring down the cost of car insurance. It wants to license clinics that treat injured people after some have been caught padding insurance claims.

DesRoches, who speaks for accident victims, wants to see more focus on the harmful practices of insurance companies.

“We’re against fraud of all sorts, such as inflating the cost of a claim. But what about deflating the cost of a claim? This happens when insurers say you’re not injured when you are,” she argues.

British Columbia’s publicly owned auto insurance system discloses how much assessors earn each year working for insurance companies. She wants Ontario’s private insurers to do the same.

“By making this information transparent, the public would be alerted to the potential for bias when medicolegal assessors become beholden to the private insurers for the lion’s share of their income,” DesRoches says.

Accident victims are finally speaking up and having their voices heard in the industry-dominated debates about insurance costs. It’s about time.

Ellen Roseman writes about personal finance and consumer issues. You can reach her at [email protected] or www.ellenroseman.com

Insurance fraud is insurance fraud

By Alan Shanoff ,Toronto Sun

First posted: Saturday, May 04, 2013 07:00 PM EDT

Updated: Friday, May 03, 2013 07:51 PM EDT

Ontario has made significant changes to the auto insurance system – capping benefits and streamlining the process – but it’s not yet clear what impact that’s had on limiting fraudulent claims.

If it’s insurance fraud for injured people deliberately exaggerating their injuries to inflate insurance claims then shouldn’t it equally be considered insurance fraud if insurance companies deliberately deny or delay payment of valid claims? To examine this question let’s take a look at the recent decision of Saskatchewan Queen’s Bench Justice M. D. Acton when he recently awarded aggravated and punitive damages in the sum of $4.95 million to be paid by insurance companies American Home Assurance and Zurich Life Insurance for their reprehensible treatment of welder Luciano Branco.

Here’s what these 2 insurance companies did to incur the wrath of Justice Acton. AHA was under contract to provide the equivalent of workers’ compensation benefits to Branco. In order to exploit what they thought was Branco’s vulnerability they withheld monthly benefits for periods of 18 months, 6 months and a whopping 8 years. All this to push Branco into accepting a low ball lump sum cash settlement. They even had the nerve to suspend payments when they were unable to receive a medical update from the doctor they appointed to assess Branco!

Zurich was under contract to provide disability benefits to Branco. Zurich delayed payments for 7 years after approving Branco’s claim. During that period Zurich, also made low ball offers to Branco.

This wasn’t even a close case. Branco was a dedicated, hard-working employee who had a perfect attendance record prior to suffering 2 injuries to his right foot. He underwent unsuccessful surgery and was left with a well documented, but rare disorder causing chronic severe pain and significantly reduced function of his right leg. By refusing to make the contractually obligated payments, the insurance companies made it impossible for Branco to cover his living expenses. His marriage suffered and he was forced to rely on handouts from his daughter. His daughter in turn was forced to move into smaller, less expensive accommodations in order to fund the payments to her father. He was forced into moving in with his 79 year-old mother. Branco was fortunate that his lawyer agreed to postpone payments of legal fees until conclusion of the case.

You’d think the insurance companies would have come to court and explained or tried to explain their egregious conduct but no, they didn’t. No witnesses were called by either insurer in any attempt to explain their actions —that speaks volumes. There was no reasoning given for the bad faith conduct of the insurance companies, other than the obvious — they were trying to take financial advantage of someone they thought was vulnerable.

Insurance is intended to provide peace of mind. Disability insurance is intended to provide an element of financial security to an injured person. Disability payments are intended to replace a portion of the disabled person’s lost income payments. For many, as with Branco, the payments are necessary to provide funds to pay for shelter, food and clothing. Denying payments for years for no reason other than to attempt to push someone into a low ball settlement deserves the court’s condemnation. The court took pains to condemn the conduct of both insurance companies and wondered how frequently this type of conduct occurs and how often claimants have buckled under and accepted insurance companies’ unreasonably low offers. We’ll never know. The numbers are buried in the files of insurance companies.

That leaves insurance companies and their lobbyists to spin the story that the examples I pull from the courts and arbitrations are the exceptions, that most claims are handled in a professional manner by insurers.

But is such conduct fraud? Surely the deliberate denial or lengthy delay in payment of a valid claim in order to force an unreasonably low settlement is as bad if not worse than injured people deliberately exaggerating their injuries to inflate insurance claims.

Fraud is fraud no matter on which side of the ledger it occurs.

IBC to NDP: Pass the budget bill

Unnecessary amendments to Ontario budget will delay driver savings

May 3, 2013

Linking cost reductions with lower premiums is the only way to ensure a viable auto insurance product in Ontario, according to Insurance Bureau of Canada (IBC).

“Today’s budget begins the long process of further improving the auto insurance system in Ontario,” said Don Forgeron, president and CEO, IBC, in a press release.  “Introducing reforms to lower costs is the first step in reducing rates for drivers.”

Read: Will Ontarians go to the polls over auto insurance?

As announced earlier this week, the government is proposing to tackle auto insurance fraud, transform the dispute resolution system, and base benefits on medical evidence.  Legislation to implement some of these measures is being introduced today.

“We are calling on the NDP to support quick passage of the budget bill in the legislature and at committee.  Making unnecessary amendments will only delay drivers from realizing savings,” added Forgeron.

Read: IBC says rate cut won’t fix Ontario auto problems

The budget also commits the government to look at additional cost saving measures, such as provincial oversight of towing, and amending the definition of catastrophic impairment in the Statutory Accident Benefits Schedule. Also encouraging is the government’s commitment to have an independent annual review of the system with a view to further reforms.

“As we have always said, the auto insurance system needs regular maintenance to ensure it is working for consumers,” said Forgeron. “We want to work with the government and all stakeholders to develop workable solutions to the complex problems that plague the current auto insurance product.  We are hopeful that the NDP and will support these much needed reforms, and not stand in the way of lower costs and, by extension, lower premiums for consumers.”

Follow us on Twitter at @CITopBroker for updates on Ontario 

Ontario budget proposes changes to rate-filing process, regulation to reach 15% reduction target

DAILY NEWS May 2, 2013 4:23 PM

By: Harmeet Singh, Online Editor

2013-05-02

Ontario’s Liberal government released its 2013 budget Thursday, outlining potential changes to the rate filing process, the return-on-equity benchmark for insurers and measures aimed at addressing fraud, all part of the larger target of a 15% average reduction in auto insurance premiums.

Earlier in the week, the government announced it would introduce legislation and amendments aimed at making the 15% average reduction for Ontario drivers, using a figure that the provincial NDP said the government would need to meet to have its budget supported and avoid an election.

Thursday’s budget included more details on how the government plans to meet that target, with Finance Minister Charles Sousa calling high costs in the auto insurance system “a drag on our economy.”

The timeline for premium cut is still unclear, with the budget document citing that the change will be made “within a period of time to be prescribed by regulation,” which would be set out in the government’s future legislation.

In a press conference, Sousa said that the timeline is dependent upon how quickly the budget measures are passed, but that changes would begin within a year.

If the government’s legislation is passed, insurers would be required to offer lower premiums to drivers with safe driving records, but the budget didn’t include specifics on how much lower the premiums would need to be, or when insurers would have to make their changes.

Budget measures would “give FSCO some teeth”: Sousa

If passed, the government’s plan would also see the Superintendent of Financial Institutions having the authority to call on insurers to file their rates, rather than having to wait for insurers to come forward to propose changes to their rates.

The government also said its legislation would “call on” the Financial Services Commission of Ontario (FSCO) to reduce the return-on-equity (ROE) benchmark used for rate filings, which currently stands at 12%. The government has not yet said how much lower the benchmark should be or the timeline for the change.

New “expert” reports on costs, dispute resolution system

Citing the goal of increasing accountability and transparency, the budget calls for “a new independent annual report by outside experts” to examine the impact previous reforms have had on costs and premiums. The report would also look at industry costs and premiums and would need to include recommendations for further steps needed to meet the 15% average reduction target. It isn’t clear yet when the report would be expected.

The government’s plan would also see FSCO consolidating its statutory auto insurance reviews. Currently, FSCO conducts a two-year review of the Statutory Accident Benefits Schedule (SABS), a three-year review of the rates and classifications system and a five-year review of the auto insurance system generally. The change outlined in the budget would see FSCO providing one consolidated review, although the period for the reviews to be conducted hasn’t yet been outlined.

In terms of dispute resolution (the mediation and arbitration backlog), the government said it plans to appoint an “expert” to review the system and propose amendments this fall, although it wasn’t specific about who that expert would be.

The government’s plan would also call on the regulator to provide an interim report this year on the progress of the Minor Injury Treatment Protocol project.

Regulation coming for health clinics?

Unsurprisingly, the budget document also included anti-fraud provisions, including expanding the Superintendent’s “investigation and enforcement authority” over fraud prevention, a recommendation made in the Auto Insurance Anti-Fraud Task Force’s final report last November.

If passed, the government’s legislation would allow FSCO to regulate health clinics and other practitioners that invoice auto insurers, also a recommendation originally laid out in the task force’s report.

“Further study” will be conducted for cat impairment, towing industry changes

The budget did not include specifics on amending the catastrophic impairment definition in the SABS, or a plan to potentially regulate the towing industry, both controversial aspects of Ontario’s auto insurance system. Rather, the government said it will “conduct further study and consultation” on those issues and other potential cost-reducing initiatives.

The Auto Insurance Anti-Fraud Task Force’s report did call for more regulation of the towing industry, and the issue was touched on during recent hearings on auto insurance held by the Standing Committee on General Government, which includes members of provincial parliament fro

Ontario to cut auto insurance premiums by 15 per cent

ADRIAN MORROW

TORONTO — THE GLOBE AND MAIL

Last updated Wednesday, May. 01 2013, 1:34 AM EDT

Ontario plans to slash auto insurance premiums by an average 15 per cent, empowering a regulatory body to force insurers to cut their rates.

The tough new measures, announced by Finance Minister Charles Sousa Tuesday, go further than the government had previously been willing to go in offering relief to drivers. They demonstrate how badly the minority Liberals want the backing of New Democratic Leader Andrea Horwath, who demanded the insurance cut as a condition for backing Mr. Sousa’s budget later this week.

The plan is full of potential pitfalls. Insurers have repeatedly warned that imposing such a cut could lead companies to reduce benefits or refuse to insure people in order to make up for lost revenue. Some insurers may even leave the province or lay off staff.

But Mr. Sousa framed the move as a matter of fairness. It will save the average household $225 per year and give rate reductions to nine million people, he said.

“It’s essential that we take this step forward … We need to reward safe drivers who share our roads and we need to look out for them,” he said at an east-end auto repair shop. “Let’s address the critical issues that cause premiums to rise and ensure the savings are passed on.”

The government’s strategy includes giving the Financial Services Commission of Ontario more power to crack down on fraudsters and to oversee health clinics that invoice insurance companies. It would also set binding guidelines around benefits to be paid out to accident victims in a bid to speed up court and arbitration cases between people who get into car crashes and their insurance companies.

Such moves are intended to increase industry revenues. Initially, the Liberals wanted to implement such measures and allow the savings to trickle down to consumers over time.

But on Tuesday, Mr. Sousa went further, announcing that he will bring in legislation ordering a 15-per-cent average cut to premiums and mandating that insurers give bigger discounts to drivers with the safest records.

These measures will take effect as soon as the legislation is passed, Mr. Sousa said. However, he would not commit to hitting the 15-per-cent target within one year, as the NDP had demanded.

The insurance industry was pleased with the anti-fraud measures Mr. Sousa announced, but said the government has to do more to make companies profitable if it wants them to achieve the 15-per-cent rate cut.

“We aren’t thrilled with the government ordering that kind of reduction. But we understand with the political climate,” said Ralph Palumbo, Ontario vice-president of the Insurance Bureau of Canada. “In order for it to be effective, the government has to bring in reform to the product that is commensurate with a 15-per-cent rate-reduction target. The province still has to do more work to reduce the costs in the system.”

For instance, he said, the government must find a way to clear up the backlog of arbitration cases and firm up the definition of a catastrophic injury, which would allow companies to more accurately predict how much they must pay out in benefits.

While Ms. Horwath has said she will likely not make a decision on the budget until she has several days to analyze it, the Liberals are making it as hard as possible for her to turn it down.

Premier Kathleen Wynne has met, in full or in part, most of the NDP’s demands: The budget will contain money to reduce waiting times for home care, four new programs to create 30,000 jobs for young people and welfare reform. Mr. Sousa has also asked his federal government counterparts to crack down on companies that dodge corporate taxes.

The budget will be tabled Thursday.

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.

THE STATS
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.

Ontario budget 2013: Victims? advocates worry about auto insurance reform

Medical professionals and litigation lawyers say an important constituency is being left out of the debate over Ontario auto insurance premiums: accident victims.

By: Kristen E. Courtney Special to the Star, Published on Tue Apr 30 2013

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Medical professionals and litigation lawyers say an important constituency is being left out of the debate over Ontario auto insurance premiums: accident victims.

The NDP has made a 15-per cent cut to premiums one of its key demands to support a Liberal budget that will be tabled May 2. Finance Minister has said the budget will include measures to gradually reduce premiums in some form.

The push for lower premiums is sure to be popular with drivers. But the medical professionals who treat accident victims and lawyers who advocate for them predict the result will be lower benefits for many of those injured in car accidents.

Ontario went through a similar debate about auto insurance premiums in 2010.

“The goal then was a 10 per cent reduction in premiums, but what happened was that the industry said that we had this really inflated system that was costing too much, and that we had to start reducing the amount of benefits that was available to people,” says Patrick Brown, a Toronto personal injury lawyer who specializes in motor vehicle accidents.

“Every step of the way, there has been a reduction in benefits.”

In most cases a maximum of $3,500 is now available to pay for an accident victim’s medical and rehabilitation costs — a dramatic reduction from the $100,000 that was once available to cover costs.

“We now have some of the most restricted benefits in the country,” says Brown. “No other province has this $3,500 limit.”

Rhona DesRoches, Chair of the FAIR Association of Victims for Accident Insurance Reforms, adds: “People aren’t getting the rehab they need . . . The $3,500 is gone within months.”

The Insurance Bureau of Canada, the industry’s main lobby group, has called on government for a commitment to tackle insurance fraud, and for a clearer definition of “catastrophic impairment” — a designation reserved for the 1 per cent of victims who are most seriously injured. The bureau says these steps are needed to reduce claims costs and, in turn, bring down premiums.

“Our priority is making the product, making auto insurance, affordable and stable for the drivers of the province. It is still too expensive, but unfortunately, it’s the costs in the system that drives that,” says James Geuzebroek, VP of communications for the bureau.

The cost to insurance companies of providing accident benefits needs to be reduced if premiums are to come down, he adds. “I’m not sure the accident victim has a good knowledge of what’s needed and what isn’t. They often just trust the process that they’re in, and trust the medical provider . . . But we want to make sure that it’s the right level of care that they’re getting — no less and no more.”

While just exactly how the premium reductions will be achieved has yet to be revealed, Ontario’s finance minister has already pledged to address fraud in the system, while a committee at Queen’s Park has been tasked with making additional recommendations as part of a broader study on auto insurance. Central in the debate has been the insurance industry’s request for clarity on the catastrophic impairment designation.

Dr. Charles Tator, renowned Toronto brain injury doctor, is concerned about the possibility that catastrophic impairment is redefined. The redefinition backed by insurance industry “does not give an accurate measure of disability,” he says. For example, “someone who has no use of their hands at all — someone who can’t make a meal, can’t brush their teeth, can’t wash themselves” could be ruled noncatastrophic, and would not have access to sufficient medical benefits to get rehabilitated.

“This is the big scare right now, says Brown, “they’re trying to make it harder for people to fall into the catastrophically-injured category . . . it would be absolutely awful for some people.”

The savings the industry is realizing as a result of the 2010 reforms are significant and these should be returned to the consumer through premium reductions, Brown adds, “but by no means should this be by reducing the number of accident victims who qualify as catastrophic.”

Kristen Courtney is an environmental lawyer and a Fellow in Global Journalism at the Munk School for Global Affairs.

News Release- Reducing Auto Insurance Premiums for Ontario Drivers

New Ontario Government Reduces Costs, Cracks Down on Fraud, and Passes Savings onto Consumers

April 30, 2013 11:45 am

Ministry of Finance

The new Ontario government is proposing a strategy that would reduce auto insurance premiums by 15 per cent on average. 

To achieve this reduction, the government will introduce legislation that would, if passed:

0.                  Require a premium reduction of 15 per cent on average.

0.                  Require insurers to offer lower premiums to consumers with safe driving records.

0.                  Provide the Superintendent of Financial Services with the authority to require insurers to file new rates.

0.                  Expand and modernize the Superintendent's investigation and enforcement authority, focussing on fraud prevention.

0.                  Give the Financial Services Commission of Ontario the authority to license and oversee health clinics and practitioners who invoice auto insurers.

0.                  Make the Superintendent's Guidelines, incorporated by reference in the Statutory Accident Benefits Schedule, binding. 

When fully implemented, this strategy would benefit over nine million drivers and would decrease overall premiums in Ontario by $1.5 billion a year, and reduce the average annual premium per insured vehicle by $225. 

These changes build on the government's existing plan to reduce rates and crack down on fraud to help protect people and build a prosperous and fair Ontario.

Quick Facts

0.                  The strategy would build on the success of the government’s 2010 reforms and a series of fraud prevention changes in January 2013. It also addresses additional recommendations proposed in the final report of the Auto Insurance Anti-Fraud Task Force and builds on actions the government has already taken to combat fraud and protect consumers.

0.                  In 2012, rates decreased 0.26 per cent.

0.                  Accident benefits claims costs increased by 118 per cent from 2006 to 2010, despite a reduction in the number of auto accidents, number of people injured in auto accidents and the severity of injuries suffered over the same time period.

0.                  From 2004 to 2012, auto insurance rates increased 11.4 per cent in Ontario, while the Consumer Price Index rose 18.4 per cent.

Brace for roller coaster ride on auto insurance: Cohn

By: Martin Regg Cohn Provincial Politics, Published on Tue Apr 30 2013

On auto insurance, Charles Sousa is in the driver’s seat.

But Ontario’s finance minister admits he is steering the province into uncharted territory with his Thursday budget by taking an unexpected left turn.

Promising to deliver a sharp 15 per cent cut in car premiums, Sousa’s goal is to keep the NDP on board for the ride — so that his minority Liberal government remains roadworthy.

The New Democrats make a compelling case that auto insurers are profiting from lower payouts to accident victims. Now, wielding the balance of power in the legislature, NDP Leader Andrea Horwath is demanding a 15 per cent cut in premiums as her price for propping up the Liberals (not to mention seven other budget requests ).

Related:

Accident victim wins challenge to Ontario’s $3,500 minor injury cap

Keen to reduce his own exposure to political risk — a budget defeat would trigger a spring election — Sousa is warning the insurance industry to brace for financial peril.

“There will be a 15 per cent target reduction,” Sousa tells me, pushing his finger into a conference table.

Interviewed in his corner office overlooking Queen’s Park, as OPP constables patrol the halls to guard against unauthorized budget leaks, the treasurer says he has chosen his path.

“Let’s go 15 per cent and let’s go as fast as we can.”

That means not only lower premiums, but reduced profits — the latter mandated by law. New legislation will dial down the targeted rate of return for the auto insurance industry, from about 12 per cent now to less than 10 per cent.

But not everyone will see an immediate 15 per cent cut in their rates. As ever on insurance matters, beware the fine print.

First, the good news: the government wants to reward good drivers most. Henceforth, car insurers would be required to give people with clean records the best rates and reductions.

Second, the average news: the 15 per cent cut would merely be an industry-wide average (as sought by the NDP) — not an across-the-board requirement. People living in high-traffic, high-fraud, high-cost regions might still bear the brunt.

Third, the unclear news: Sousa isn’t saying how fast he can deliver on his target, and how he’ll enforce it.

In politics, timing is everything.

Horwath wants the decrease “by the end of 2013.” The Liberal target is “within the first year” of the budget’s passage — effectively a deadline of roughly mid-2014. Sousa acknowledges this timeline “will be the subject of debate.”

The legislation would “instruct” the regulator (Financial Services Commission of Ontario, or FSCO) to target a 15 per cent reduction via “guidelines.” This would be achieved by a lower rate of return, and a promised crackdown on rampant fraud that has pushed costs far higher than other provinces and is blamed for rising premiums.

It’s unclear how far these combined measures will go toward achieving that 15 per cent (average) decline over time, but Sousa is adamant that the target will be met. “I need FSCO to have that oversight.”

Auto insurance has been a death trap for governments of all political stripes in recent decades. New Democrats botched the issue when in power in the early 1990s (reversing their promise of public auto insurance); the Mike Harris Tories allowed rates to soar; now the Liberals are faulted for similar hikes.

“I need everyone’s buy-in,” Sousa says. And not just on auto insurance.

He vows to meet or exceed most other NDP demands — including modest welfare reforms, youth job-creation funding and expanded long-term care for seniors.

Ultimately, though, he thinks Horwath will have to heed public opinion.

“Even the NDP, even the Conservatives are going to look at this budget and say, ‘Jeeze, they put stuff in there that’s good for us, that’s good for the public, things that we share in common.’ ”

And if the New Democrats say, No?

“I always welcome input,” he says diplomatically, choosing his words carefully. “This is politics. We’re in a minority situation, so I recognize a need to work with the opposition. But I also recognize a need to govern and to get it done.”

As treasurer, Sousa can’t afford to play financial broker in a game of political poker, because he presides over a depleted treasury. Recent budget deficits of roughly $10 billion won’t be eliminated for another four years — while the accumulated debt soars toward $300 billion. Meanwhile, economic growth remains sluggish and the outlook is bleak, depriving the treasury of robust tax revenues.

Against that budgetary backdrop, “We’re not gonna be buttering things up,” Sousa warns.

Brace for a roller coaster ride on auto insurance — and everything else on the NDP’s list.