The Fraser Institute's landmark 2011 study on public-versus-private delivery of auto insurance in Canada concluded that Ontario's private-sector insurance regimen enjoyed the questionable distinction of being the most expensive in the country – a conclusion even more damning because the report's major takeaway was the overall superiority of the private system in other parts of Canada.
The Ontario government's 2010 reforms to private insurance were supposed to address the system's problems – high premiums, fraud, over-regulation, a punitive cost structure – but have they? As it stands "post-reform," the insurance industry and many of its major stakeholders are in a state of undeclared war. And the government is caught in the middle, dodging volleys of angry rhetoric from opposing sides.
Ontario's private auto insurance industry is a train wreck. "When we concluded our study, Ontario had the most expensive system in the country due to regulatory severity and massive fraud," says Emrul Hasan, an economics instructor at Vancouver's Simon Fraser University and one of the author's of the Fraser study.
Another out-of-province expert is even more frank. "Insurance company margins have increased incredibly over the last decade," says British Columbia-based Bruce Cran, president of the Consumers' Association of Canada. "The companies are making a lot of money and people are getting less benefits … to be perfectly honest, I don't know how you're going to fix Ontario."
The battle lines are clearly drawn between The Industry and The Stakeholders, but who is manning the barricades? Leading the charge for the insurance industry is the Insurance Bureau of Canada (IBC), one of the savviest and best-financed lobby groups in the country. On the other side are the Ontario Trial Lawyers Association (OTLA), representing lawyers who negotiate and litigate for accident victims, and the Fair Associations for Victims of Accident Insurance Reform (FAIR), the victims' lobby group.
This standoff was borne out of the 2010 reforms that generated billions of savings for the industry – and the targeted 15-per-cent reduction in premiums that the NDP secured from a minority Liberal government in the 2013 budget as part of the price for its ongoing legislative support. The industry loved the former and is less enthusiastic about the latter; vice versa for accident victims and trial lawyers. The 2013 reductions were meant to address issues pinpointed by reports such as Fraser's, notably excessively expensive premiums. To date, rates have gone down just 4.66 per cent.
But the story doesn't end there. Insurers demanded, and received, a pound of flesh for their lost revenue. Benefits for minor injuries were slashed from $30,000 to $3,500, deductibles were ratcheted up to $30,000 to deter litigating contested claims. And here's the nut of the problem: 80 per cent of accident claims are deemed to fall within the minor injury guidelines, with its small cap. Unsurprisingly, accident victims pushed back.
There was a backlog of more than 30,000 accident claims in mediation until eight months ago, when the government hired an outside consultant to abet the process, but 16,000 cases remain in non-compulsory arbitration with 1,000 new cases entering dispute resolution monthly. Even the IBC admits the status quo is a mess.
"What is clear is that the system we have today, and what the government is trying to fix, is a system that is broken," says Ralph Palumbo, the insurance lobby's Ontario vice-president. How to fix it is tricky because the industry and some of its key stakeholders are at loggerheads.
Victims believe the insurance industry is making out like proverbial bandits. "They made over $2-billion after the 2010 cuts," says OTLA president Charles Gluckstein. But Palumbo says it's impossible to ask for a massive reduction in rates (insurance company revenue) without looking at the cost side of the equation. "Otherwise it's not sustainable," he says.
To critics who argue the industry made billions in the wake of the 2010 reforms, Palumbo says poppycock. "If you say it long enough, people start to believe it," he says. He cites two commissioned actuarial studies that claim auto insurers' return on equity hovers between 3.9 and 4.9 per cent. "Compared to the banks in the high-teens – say, around 17 per cent – that's pretty modest, though some observers claim it's as high as 25 per cent, which is ridiculous. All our critics ever talk about is the benefit side, never the cost side. And it's a little tiring, and tiresome, coming from guys who are enriching themselves from the system."
Palumbo is referring to the trial lawyers, and it should come as no surprise that they don't buy the argument about the industry's relative penury.
"The government is at the mercy of the industry and their view of their profits," says Gluckstein. "That's why the transparency aspect of the 2010 reforms is so vital because independent auditors will investigate the profits of the insurance industry."
As part of its reform package, Ontario agreed to commission an annual Automobile Insurance Transparency and Accountability Expert Report. The first, from KPMG, is pending.
From the OTLA's perspective, the industry camouflages its robust financial health with accounting chicanery. "All sorts of tax manoeuvring, underwriting adjustments, carried forward losses et cetera," says Gluckstein. "The industry's view is that if you want reduced premiums, you have to cut costs. So what happened to all the saving they earned on the backs of victims who had to give up all their coverage?"
Gluckstein says that comedian Rick Mercer brilliantly captured the present stalemate in one of his epic CBC rants: "We are your insurance company, we will take your premiums but if you have a claim, we will give you nothing – that's how it works."
Caught in the middle are accident victims. Part of the problem, says FAIR's Rhona DesRoches, is the public's relative disengagement and passivity on the issue. Maybe that's not surprising: Ontario has nine million drivers but only 60,000 accident victims.
"No one ever thinks they'll be in an accident, that it will happen to them," DesRoches said. "Until they are and it does."
An earlier online version of this story and the original newspaper version incorrectly stated that there is a backlog of more than 30,000 accident claims in mediation in Ontario. This online version has been corrected.
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