Insurance News – Monday, May 4, 2015

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Monday, May 4, 2015:

  • What would happen if Uber drivers became owners instead of independent contractors or employees? These Denver cabbies are making it happen.
  • Will Google Auto Insurance Comparison change the auto insurance industry?
  • Auto insurance reforms once again trying to work their way through the Michigan state legislature.  The State Senate has passed a bill but whether it makes it through the House is not clear.
  • An Uber executive recently touted the potential for self-driving cars and Uber cars with no drivers.
  • The Montreal taxi bureau has seized 40 UberX vehicles.
  • J.D. Power reports that auto insurers continue to miss the mark to improve the customer experience in Canada.

Insurance News – Tuesday, October 28, 2014

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Tuesday, October 28, 2014:

  • Japanese insurer is about to launch a smartphone service that warns drivers when their vehicles are approaching locations where traffic accidents frequently occur.
  • Companies such as Google and Amazon may pose some of the biggest threats to insurers, as consumers increasingly trust technology behemoths to provide services such as insurance.
  • A recent study concluded that Americans wasted $124 billion sitting in traffic in 2013 and traffic cost the average household $1,700 a year.
  • Insurance Bureau of Canada warns UberX drivers about insurance coverage  (or lack of it).
  • The use of anti-fraud technology by insurers in North America is on the rise however, many companies are still struggling with the deployment of proactive predictive analytics tools because of resource constraints, according to a study.

HCAI Data: Most MIG Claimants Continue to Receive Some Treatment After Completing MIG Treatment

The IBC has now published the standard HCAI reports for the first half of 2014. The document provides over 75 pages of aggregate data collected by HCAI going back to 2011. HCAI was made mandatory on February 1, 2011.

The standard reports are published on an “accident half year” basis. In accident half year statistics, the experience of all claims with accident dates in the same accident half year is grouped together. The accident half years are defined as calendar half years, with January to June being the first half and July to December being the second half for each of the stated years.

The chart below provides some insight into what might be happening to MIG claims over time. Although as many as 75% of claims are classified as strains and sprain and should fall under the minor injury definition, only a fraction of those claims receive MIG treatment only. A majority of those claims actually receive treatment within the MIG and additional treatment outside the MIG, likely when the MIG funding is used up.  However, that is not to day that they are actually “escaping” the minor injury definition and cap.  The average cost of treatment for strains and sprains is under $3,000.

One must be careful interpreting this data.  One might want to conclude that the number of claims receiving only MIG treatment has been increased over time based on the chart below since each accident half year, fewer claims are receiving both MIG and non-MIG treatment. However, the newer claims are likely still open and many of those in the MIG only category move over time into the MIG and non-MIG category.  When you compare data from previous reports you begin to understand how the data continues to develop.  I had previously reported that for the first half of 2013, 48.3% of strains and sprains received MIG treatment only and just 23.2% received both MIG and non-MIG treatment.  The most recent report indicates that only 26.7% of these injuries have only received MIG treatment and now 53.8% received both MIG and non-MIG treatment. These numbers will continue to develop further.

It’s Time That The Insurance Industry and Regulators Begin Accommodating Ride-Sharing Services

Uber, a San Francisco-based company estimated to be worth $17 billion (U.S.) is aiming to shake up the taxi business in Toronto.

Uber is reported to operate in more than 140 cities in 40 countries around the world, offering taxis, limos and car-sharing services, allowing customers to bypass traditional taxi companies and brokerages to request a ride using their smartphones.

When Uber first set up in Toronto in 2012, city of Toronto officials informed the company that it needed to get a brokerage licence. Uber disputed the request and has been insisting that it is not a taxi service, but rather a technology company, and therefore not subject to licensing requirements. The city has since hit Uber with 35 bylaw infractions and now the city is headed to court in an attempt to get an injunction to shut down the service. 

Toronto Mayor-elect John Tory is correct.  Uber and similar ride-sharing services aren’t going anywhere.  Consumers like these new services and that’s why there are using them.  Using a smartphone app, you will be told when the vehicle will arrive, who is the driver, the rating of the driver, the cost of the ride with tip and will allow you to pay for the ride without handling any cash.  No need to be standing in the cold or wet on a street corner waving your arm frantically trying to get a passing cab to stop.

The current regulated taxi model is archaic and costly.  The city limits the number of plate owners which has created wealth for plate owners who are often not the drivers. The dispatcher system is out of date when technology allows drivers and consumers to link up directly.  However, there is a lot of money tied up in the current system.  To make matters worse, the regulators appear to be very tied to the existing model.

The one thing that Uber is not short on is money.  They will fight this court battle as they have in other jurisdictions.  They typically come out on top.  Regulators should be designing new regulatory models to accommodate new technologies not fight them.  For example the Ontario Ministry of Transportation is working on a regulatory framework for driverless vehicles.  The insurance regulator and the insurance industry needs to develop insurance products that reflect these new technologies whether it is driverless cars or ride-sharing services.  

The insurance industry needs to recognize that ride-sharing is likely here to stay and properly underwrite these risks to protect drivers and their clients.

Ontario’s 25-Year No-Fault Journey

On September 15, 1989, Murray Elston, Minister of Financial Institutions, announced the unveiling of a new plan to address rising auto insurance costs in Ontario. The plan would provide a “social safety net” where everyone injured in an auto accident would receive compensation without the need to sue. This trade-off between reduced tort access and enhanced accident benefits was meant to reduce costs in the system and stabilize premiums.

Move forward 25 years and the introduction of the Ontario Motorist Protection Plan (OMPP), the first no-fault auto insurance plan in the province, celebrates its silver anniversary on June 22, 2015. 

The Ontario system is nothing like any other private system or no-fault system. It has a broad range of accident benefits, access to tort, complex entitlement rules and an overburdened dispute resolution process. It also has the highest rates in the country. At approximately 25% of Canadian property and casualty industry premiums, the health of the Ontario auto insurance product is important to the industry. Many ideas have been tried over the years, but none have addressed cost pressures in the system for anything more than a short period of time.

WHY WAS NO-FAULT INTRODUCED?

Following the 1985 Court of Appeal for Ontario decision, McErlean v Sarel et al., the insurance industry grew concerned about liability claims which, in turn, precipitated a liability crisis. Liability insurance costs shot through the roof and capacity was scarce. Little changed when the case was reversed on appeal in 1987, albeit on liability. Ontario had a serious liability problem that went beyond drivers. The crisis was affecting many institutions, including small municipalities and charities. In response, the Ontario Task Force on Insurance was appointed to study problems of availability, affordability and adequacy of general liability insurance in Ontario.

Although the focus of the task force report, released in May 1986, was not auto insurance, it did include some recommendations concerning auto insurance and tort reform.

A more in-depth analysis of the automobile insurance issues raised in the report were tackled by Mr. Justice Coulter Osborne, appointed in November 1986 to report on the tort system of compensation for injury by automobile accident, the consequences of the implementation of a no-fault automobile accident insurance scheme, and the merits of public versus private automobile insurance delivery systems.

Justice Osborne’s Report of Inquiry into Motor Vehicle Accident Compensation in Ontario, issued in April 1988, identified rapidly increasing loss costs for third-party liability bodily injury claims in the early 1980s without offsetting premium increases as the basis for the auto insurance “crisis.” The report recommended the following:

  • retaining the existing system of combined no-fault benefits and unlimited tort recovery, but expanding the type and level of no-fault benefits; 
  • forgoing public delivery of automobile insurance; and 
  • forgoing a no-fault insurance system. 

Faced with a continuing rate inadequacy problem, the Ontario government responded by introducing a no-fault product, believing it would be less costly. In September 1989, following extensive research and consultation, the government announced its intention to introduce the OMPP. Threshold/no-fault insurance came into effect June 22, 1990. Colleen Parrish, former director of policy for Ontario’s Ministry of Financial Services, says “it was hoped that the OMPP would be more consumer-friendly and many claims under the threshold could be settled with the involvement of just the claimant and insurer. Legislation addressed some of the volatility in the marketplace and went beyond the introduction of partial no-fault.”

 WAS NO-FAULT A GOOD IDEA?

Despite current concerns, the ability to access accident benefits following an accident was an important feature and still is. Kathy Bardswick, president and chief executive officer of The Co-operators Group Limited, maintains that “the industry supported no-fault because they believed it would allow more money to flow to accident victims quicker, and more of each claim dollar spent on injury would actually go to rehabilitation and support the injured party rather than in support of the administration of the tort system. Too often in a pure tort system, it was taking far too long for many accident victims to see financial support for their recovery. In addition, a no-fault system would provide insurers with the opportunity to deal directly with their own clients through the claims process.”

So what went wrong? Bill 164.

The NDP government abandoned its initial intention to introduce a government-run auto insurance scheme in favour of another set of reforms. On January 1, 1994, Bill 164 replaced the OMPP with a complex no-fault schedule and eliminated the ability to sue for economic losses. Designed for a public insurer, the requirements could not realistically be delivered by the private sector.

That system lasted less than three years with the passage of Bill 59, launching Ontario’s third no-fault system within a decade. Although Bill 59 restored some of the balance that existed under the OMPP, it retained the broad range of accident benefits, complex entitlement rules, and the overburdened and protracted dispute resolution process introduced under Bill 164.

Further reforms rolled out from 2003 through 2010, including those relating to health care provider fees and assessment, pre-approved treatment guidelines and an increased deductible for court awards for pain and suffering, as well as introduction of additional “checks and balances” upon the elimination of the designated assessment centre (DAC) system.

In 2010, standard accident benefits were scaled back, optional benefits were expanded and a minor injury definition and treatment cap were introduced. Over the past three years, additional reforms have been introduced to address fraud, but even these measures have increased the complexity of the system.

Today, the system is overly complex and confusing. It is an entitlement system with far too much moral hazard. The problems first appeared under the OMPP, became worse under Bill 164 and have never been properly addressed.

Philip Howell, former Superintendent of Financial Services, accurately describes today’s system as “part insurance and part social program.”

Many people contend it is as adversarial as the tort system. Consequently, lawyers are heavily involved in the accident benefit system, something that was not contemplated when no-fault was introduced 25 years ago, and has led to more disputed claims and higher transactional costs.

There is little accountability within the system. As soon as there are adverse conditions, the insurance industry begins to pressure the government into make changes. Rather than force the industry to take more ownership, the government is inevitably co-opted into yet another round of reforms. This ongoing tweaking has only made things worse. Nick Gurevich, founder and past chair of the Ontario Rehab Alliance, suggests that “insurers are hooked on frequent government intervention. This removes insurers’ motivation to search and implement long-term internal system improvements.” Since 2010, there have been 31 new or amending auto insurance regulations.

WHY HAVE RATES REMAINED HIGH? 

High auto insurance premiums in Ontario are driven by a number of factors. Some factors are unique to Ontario, such as urban density, weather and demographics, but many people believe the product largely contributes to stubbornly high rates. Ontario’s Insurance Act stipulates that auto insurance policies are second-payers to other public and private insurance plans, including the public health care system. However, the government has allowed the second-payer status to erode.

Eric Grossman, a partner at Zarek Taylor Grossman Hanrahan LLP, says “the public health care system has been downloading costs to auto insurance for years.” Not only public insurance, but private insurance plans have been allowed to write in auto accident exclusions in their policies.

Rob Sampson, a former Ontario minister with responsibility for auto insurance, agrees. “It is easier for insurers to pass on costs to drivers or persuade the government to make further changes than to address problems on their own. The product has become over-regulated and there is no confidence in the marketplace to manage costs,” Sampson contends.

Bardswick says she believes “there has been too much tinkering and not enough fundamental and significant change to improve the overall cost benefit equation long term. With each tinkering, the system has become more complex, more costly to administer, with any immediate cost savings quickly disappearing as players in the system adjust to the changes implemented. The regulatory burden has also driven out much of the ability or desire to innovate.”

The high cost of handling claims has become a serious problem. Greg Somerville, president and CEO of Aviva Canada, indicates that 48% of accident benefit costs are for non- treatment related activities.”

Grossman notes “the irony of the system is that the high cost of fighting claims encourages settlements which are incentive for more disputes.”

 Finally, fraud, something no one is able to either accurately quantify or define, continues to place cost pressure on the system. While everyone agrees a staged accident is fraudulent activity, not everyone is prepared to accept the notion of opportunistic or soft fraud.

HOW DO YOU FIX THE SYSTEM?

Many people would welcome a system that was simpler and would allow most accident victims to navigate the system without a representative. There is a lot of nostalgia for the OMPP because stakeholders remember it as a system that had few rules and procedures and fewer disputes.

However, it would be naïve to think that the OMPP would not have evolved. It would not have necessarily developed into the existing product, but there would have been pressure to reform the system as a result of growth in the rehabilitation sector, adverse arbitration and court decisions, increased involvement of lawyers, pressure for more consumer protection provisions and fraud.

The accident benefits system has been eroded over the past few years, but it must be acknowledged that eliminating these benefits does not eliminate those costs from the system. Some stakeholders would like to see a system with quite modest accident benefits and any additional compensation provided through tort. However, that would bring the industry full circle to the pre-OMPP, which experienced significant cost pressures.

It is the concept of using an insurance system to provide a social safety net that is flawed. The current no-fault system resembles a government program with special compensation and eligibility rules for caregivers, retirees, the unemployed and students. Bryan Davies, former CEO and Superintendent of Financial Services, says he believes that “if the government wants to provide a social safety net, then it should be delivered by government.”

So what is the answer? The Ontario product has always been different than what exists in other jurisdictions, but looking at elsewhere may not provide an answer. A made-in-Ontario solution should include private insurance companies continuing to provide third-party liability coverage and physical damage coverage, while the government creates a not-for profit Crown corporate to deliver accident benefits.

A single adjudicative body would introduce significant efficiencies, standardize claims practices and eliminate the adversarial nature of the product. Insurers would collect premiums on behalf of the Crown corporation, which would inform insurers how much to charge for accident benefit coverage based on accident benefit and overhead costs. This system would require reduced advocacy and a scaled down dispute resolution process, there would be no settlement of accident benefits, and claims would remain open as long as there were insurable losses to pay.

It is time for the government to get away from tinkering with the system and eliminate the existing design flaws. A public debate is badly needed. The past 25 years has not been a total failure, but it is not working.

*Published in the June 2015 issue of Canadian Underwriter

Insurance News – Tuesday, August 12, 2014

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Tuesday, August 12, 2014:

  • BMW plans to be the first car manufacturer to install usage-based insurance telematics into cars.
  • A Globe article on how driverless cars will not only transform our cities but potentially displace a lot of workers driving trucks and taxis.
  • One thing that insurers will need to be worked out is how to insurer a driverless car since there will not longer be any actual drivers connected to that car.  So long age, sex and marital status since young males will be the same risk as older drivers.
  • An article about customer retention in the auto insurance sector.
  • CANATICS continues to grow.

Personal Injury Lawyer Launches a Constitutional Challenge Against Bill 15

Joseph Campisi, a Toronto area personal injury has launched a constitutional challenge to Bill 15, Fighting Fraud and Reducing Auto Insurance Rates Act, 2014.  The bill received Royal Assent in November 2014 and introduces a number of changes to the auto insurance system including:

  • moving SABS disputes to the Licence Appeal Tribunal
  • introduce  regulation to the towing and vehicle storage industries
  • authorize the province to reduce vehicle storage costs.

However the likely the trigger for the action is the provision in the bill that takes away the right of accident victims to take disputes regarding accident benefits to the courts instead of arbitration.  This provision was opposed by both plaintiff and defense lawyers, accident victims and health professional groups. Below is post on Joseph Campisi’s blog regarding his action.

Joseph Campisi, lawyer and advocate, is launching a constitutional challenge in the Ontario Superior Courts.  Mr. Campisi is seeking a declaration from the courts that parts of the legislation that were recently passed by the Liberal Government are discriminatory and unconstitutional and should be inoperative.
“The right to access the Superior Courts is a fundamental right for Canadians.  I am concerned that the recently proclaimed legislation will deny this right to individuals who have been severely disabled.” said applicant and noted Personal Injury Lawyer Joseph Campisi.  “Historically, the deck has been stacked against collision victims.  The recent amendments to the legislation have turned a bad situation into a worse one for these vulnerable individuals.  No longer will these individuals be allowed to have the assurance of impartiality and independence that is a cornerstone of our justice system when litigating a claim against their own insurance company.  I could not stand idly by and let this happen.”
In the fall, of 2014, the Ontario Government passed Bill 15 which is titled Fighting Fraud and Reducing Automobile Insurance Rates.  One of the legislative amendments changes how disputes between insurers and insured are settled.  Historically, disputes could be brought before the Superior Courts or before sophisticated arbitrators with expertise in interpreting insurance law.  Bill 15 has changed how disputes are resolved by giving the sole adjudicative power to individuals who will be appointed at the whim of the Liberal Government.  These are the same decision makers who have jurisdiction on matters ranging from film classification to upholstered and stuffed articles. Unlike historical appointments, individuals without any specialization or guaranteed independence or impartiality will be ruling on disputes that can run into the millions of dollars and will determine the quality of life that an automobile victim will face going forward.
“This application will challenge Bill 15 on the basis that it violates disabled persons’ Chapter s.15(1) right to be free from discrimination.  Bill 15 is also being challenged based on s.96 of the Constitution which relates to the public’s right to have access to the courts.  The way in which Bill 15 is drafted opens the door to political interference.  The government of the day can choose who will hear any dispute and if the government does not agree with the arbitrator’s decisions, the government can get rid of the adjudicator the next day.  When it comes to lobbying the government there is little doubt as to who has the deeper pockets- automobile insurers or accident victims.  Introducing such laws is undemocratic and detracts from the rule of law.  This legal challenge will fight for disabled individuals’ right to fair treatment and the public’s right to access the impartial court system.”

Insurance News – Monday, August 18, 2014

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Monday, August 18, 2014:

  • It takes four times longer to recognize new things when multitasking.  So it’s not surprising the reaction time for a distracted driver is impaired.
  • With all the talk about the Google car, Mercedes Benz has a better driverless car solution…for now.
  • User-based insurance is set to continue to have strong growth and is on its way to become an essential part of insurance industry’s offerings.
  • If a driverless car gets in an accident, Who is liable?

Insurance News – Tuesday, March 3, 2015

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Tuesday, March 3, 2015:

  • IBC CEO Don Forgeron is suggesting that Ontario look at Nova Scotia on how to do auto insurance reforms.
  • If 90% of auto accidents are due to human error, then who becomes liable when there are driverless cars on the road?
  • In fact a University of Michigan study suggests that driverless cars will not be a panacea for road deaths, and could even worsen road safety for other drivers during the long transition period.
  • Apple is being sued for poaching engineers to work on driverless car technology.
  • A U.S. senator is urging the Justice Department to investigate insurance companies and auto repairs done at their ‘preferred’ repair shops across the country, because of safety concerns.

Insurance News – Saturday, January 10, 2015

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Saturday, January 10, 2015:

  • A British insurer may be the first in the industry to offer driving lessons for drivers’ weaknesses based on telematics data.
  • Florida auto insurance anti-fraud reforms that become effective on January 1, 2013 has created a drop in the number of personal-injury protection claims filed and dollars sought.
  • GM and OnStar will be partnering with a U.S. insurer allowing new car owners to opt into a service that will track driving habits during a 90 day span.
  • Google may be moving into the U.S. auto insurance market with a shopping site for people to compare and buy policies, as it continues to shift its attention to the automotive industry.
  • A Towers Watson study suggests that claim supervisors spend too little time reviewing files of direct reports which is impacting on profitability.