Ontario Ministry of
The Government is working to address rising auto insurance premiums. In July 2003, a balanced reform package was released that is designed to ensure that injured people receive the care they need while reducing red tape, fraud and abuse:
The Government is undertaking additional actions which include:
The Government is inviting comment on:
The action plan enhances benefits for accident victims while also reducing the cost of insurance. If these reduced costs are not passed on to consumers, the Government will take action, including measures directly targeting auto insurance premiums, to ensure that auto insurance remains affordable and available for Ontarians. These measures could include rate caps, rate freezes or rate roll-backs.
Since 1979, auto insurance has been mandatory for Ontario drivers and is purchased from private insurance companies. Auto insurance was made mandatory so that those who were injured by accidents would be assured that the person causing the accident has some resources to pay for recovery and court costs. The Government believes that auto insurance should be readily available, priced fairly, and contain the compensation that is necessary to provide claimants with coverage they might need in the event of an accident. It should provide basic wage loss and care for all injured accident victims, replace damaged property, and ensure that consumers have the right to sue the person who caused the accident for additional damages but only in cases where the effects of an accident are severe.
Like most Canadian provinces, Ontario is experiencing rising auto insurance premiums. On July 2, 2003, the Government announced reforms to address immediate auto insurance cost pressures. But the Government believes that there is more that needs to be done to make sure auto insurance is affordable and fair for all Ontarians. This paper discusses further Government plans to curb premium increases. We are putting these measures forward to seek comment and feedback from Ontarians on these plans.
New challenges in managing insurance marketplaces, including auto insurance, are emerging in Canada and around the world. Ontario is in a good position to deal with those challenges. Just over 100 insurers in the Province are licensed to sell auto insurance, providing consumers with a good choice of basic and tailored optional coverages. Ontario has a well-established set of standards that protect consumers while providing insurers with a stable business climate in which to operate. Ontario also has a comprehensive set of accident benefits that protects everyone, in addition to the right to sue for those with extraordinary losses. This paper shows what Ontario has already done, describes additional initiatives we are undertaking, and seeks input on further potential actions Ontario is considering to maintain the Province's healthy auto insurance marketplace.
Many factors have affected Ontario's auto insurance premiums. Claims costs across the country have risen recently at a double digit pace. Global developments beyond the control of the Government have increased the pressure on insurance rates.
Interjurisdictional comparisons are difficult due to the differences in what auto insurance covers. Driving conditions also vary across the various provinces. However, Statistics Canada puts the pace of average rate increases in Nova Scotia and New Brunswick at over three times that in Ontario. Alberta and Quebec rates are also increasing faster than Ontario and the Alberta Government has announced that the auto insurance system there will be reformed as soon as possible.
Canadian and Ontario auto insurance claims costs have increased due to:
To protect consumers, governments require prudent investment practices by insurers. As a result, insurance companies in Canada are not permitted to gamble with their policyholders' money in the stockmarket. In recent years, decreased investment yields due to low interest rates have reduced the ability of insurers to offset underwriting loss experience across the entire property and casualty insurance sector worldwide.
When automobile insurance became mandatory in Ontario in 1979, a modest benefits schedule was introduced for auto accident victims regardless of who was at fault. This was and still is called the "no-fault" component of the auto insurance system. But in 1979, an accident victim's access to any meaningful compensation still required going to court - a long and expensive process that often did not benefit Ontario motorists.
Achieving a balance between no-fault benefits and access to the courts has occupied much of Ontario's reform efforts since 1990. This Government has worked to balance no-fault benefits and access to the courts, to protect injured individuals so they recover and return to being productive members of society as quickly as possible, while at the same time allowing some more serious injured Ontarians to sue the person who injured them for damages resulting from the accident. The current auto insurance system has largely met this goal, although recent claim increases show more needs to be done to make this balanced system affordable.
Previous governments reformed the system in both 1990 and 1994, by essentially broadening the no-fault scheme. By 1995, an overly generous no-fault accident benefits schedule with few cost controls and inadequate accountability let medical and rehabilitation claims costs rise by over 270 per cent. Premiums were rising very rapidly.
In 1996, the government moved successfully to control costs. Bill 59, the Automobile Insurance Rate Stability Act, (AIRSA) was introduced to restore the delicate balance between no-fault benefits and access to the courts. Ontario continued to maintain one of the best auto insurance compensation packages in Canada - comprehensive, fair, no-fault benefits coupled with access to the courts for recovery of economic losses (over and above no-fault benefits) and compensation for pain and suffering.
AIRSA included measures to discourage fraud and driving without insurance, and was one of the first insurance systems in Canada to establish an Ombudsman to deal with insurance complaints. Competition returned to the marketplace; insurers lowered premiums by an average 12.5 per cent from November 1996 to December 1999.
By 2000, small premium rate increases had occurred as costs began to rise again in some of the liability and physical damage sections of the insurance policy. In response, to help contain increases, the Ontario Government announced the complete phase-out of the five per cent retail sales tax on auto insurance premiums by one per cent per year. No tax will be paid after April 1, 2004.
In another initiative to improve the marketplace for consumers, a private Member's Bill entitled the Collision Repair Standards Act was passed in December 2002. Designed to certify and set standards for collision repair shops, the Government requires further time to consider options for implementation before it can be proclaimed. The Government is exploring these options.
On July 2, 2003, the Government announced reforms to immediately address auto insurance cost pressures. These reforms maintain income replacement and medical and rehabilitation benefits while addressing cost pressures affecting car insurers; cost savings can be passed on to consumers. Measures include:
Interested readers can obtain more information on the Ministry of Finance website, www.fin.gov.on.ca.
In addition, a number of issues which need further action, in light of emerging pressures in the marketplace, were identified. Major areas of reform are outlined in greater detail on the following pages.
The recently introduced legislative and regulatory reforms to the Ontario insurance system, through Bill 198 Keeping the Promise for a Strong Economy Act (Budget Measures), 2002, and its regulations, will help address cost pressures, fraud and abuse while maintaining the comprehensive benefit package available to accident victims. However, it is very clear that further changes to the system will be needed to ensure that auto insurance remains available and affordable to Ontarians. This Government is committed to continuing its efforts to improve the current system.
One key element which requires further review is the current system of Designated Assessment Centres (DACs). DACs, introduced in 1994, were created for claimants and insurers to use when they need a neutral third-party assessment of a claimant's injuries and his or her entitlement to certain accident benefits. The objective of the DAC system is to provide the parties in a dispute over payment of benefits with prompt, impartial assessments. Currently there are over 100 DAC facilities across the province in hospitals, medical offices and rehabilitation centres. In the absence of DACs, claimants are more likely to be reliant on insurance companies when it comes to determining claimants' eligibility for benefits.
By providing this information to the parties in a dispute, DACs can be instrumental in facilitating an early resolution of disputes (between insurers and claimants) without the need for further expensive legal action. Recently, concerns have been raised about the timeliness, neutrality, effectiveness and rising cost of DAC assessments.
The Province has an extensive network of health care providers who work with people injured in car accidents. In the mid 1990's, recognizing the rise in health care costs and the lack of consistency in treatment care plans for similarly injured claimants, the Government asked automobile insurers and health care providers to negotiate fee schedules. Some efforts were successful; others were not. Health care and rehabilitation costs, particularly for minor injuries such as whiplash suffered in car accidents, are still rising at a rate of 15 per cent per year, despite a reduction in the number of accidents.
The costs of treating minor injuries in the auto insurance system contrast sharply with those under the Workplace Safety and Insurance Board (WSIB). For instance, in the auto insurance system, insurers can be required to pay physiotherapy fees of up to $60.00 per treatment while the WSIB pays as little as $18.00. WSIB fees for chiropractic care begin at about $20.00; there is yet to be an agreed upon fee in the auto insurance system. As well the WSIB has made progress in developing standard treatment protocols in the form of programs of care on which the new Pre-Approved Frameworks are modeled.
Similar comparisons can be made with other auto insurance systems. In British Columbia, chiropractic care is about $17.00 and in Saskatchewan it is about $24 per visit.
Treatment care plans and fees paid to health care providers by automobile insurers can be brought closer to those of other payers. An option could be to model the process for treatment of injured individuals similar to the new programs of care developed by the WSIB.
The Government, in its recently announced regulation package, has established a new process for access to treatment for those with minor injuries such as whiplash, referred to as the Pre-Approved Framework. It allows a health care provider to proceed immediately with treatment for less complex injuries, an important aspect in recovering from an injury. Any treatment over and above a pre-determined level, however, must be approved by the insurer as is currently the case. The DAC system is there to resolve any medical dispute between the insurance company and the claimant. This will begin lowering claims costs. The new process comes into effect in October, 2003.
The Government will continue to ensure that there is a strong and affordable network of health care providers who can provide for the needs of those injured in a car accident. Insurers must be able to rely on a viable system in order to deliver the medical and rehabilitation benefits that their customers require when injured in an accident.
As noted above, a deductible of $15,000 applies to Insurance Act pain and suffering court awards (and $7,500 for Family Law Act awards). The intent of the deductibles is to reduce costs and pressure on the auto insurance system by discouraging lawsuits for minor injuries.
It has been suggested that, over time, court awards for minor injuries have increased and the deductible levels have become less effective.
Therefore, as part of the overall effort to address costs, the Government will be increasing the deductibles for pain and suffering court awards from $15,000 to $30,000 for Insurance Act awards and from $7,500 to $15,000 for Family Law Act awards.
Another aspect of the current system which requires further review is the way in which insurance companies rate the risk of each and every driver in the Province. In Ontario, insurers are required to file with the Financial Services Commission of Ontario underwriting rules that the companies will use to describe the circumstances when the insurer intends not to sell or renew an auto insurance policy. The Insurance Act prohibits the use of underwriting rules that are subjective, arbitrary, have little relationship to the actual risk borne by the insurer, or are contrary to public policy. Examples of prohibited underwriting rules include rules that deny insurance to people on the basis of religion, race, nationality, ethnic group, and credit history or income. Underwriting rules are key to the availability of affordable insurance.
Once insurance companies have decided to sell a policy to someone, they will use internal risk rating rules to determine what the policy will cost. This process is called risk classification.
The Insurance Act sets the standards for risk classification systems. Insurers calculate rates by taking into account various factors (the "risk classification system") that have proven to be directly related to the possibility of a policyholder having an accident, or, for example, having their popular model of car stolen. Insurers must collect enough premiums to cover their claims costs and to ensure that an individual who has been permanently injured will be able to rely, in some cases, on a lifetime of benefits. Factors insurers consider when pricing insurance include the number of speeding tickets an individual accumulates, where they live, and the use and type of car they drive. A combination of factors, such as several speeding tickets coupled with owning a sports car, may mean higher premiums. An at-fault accident may mean even higher premiums. However, this Government believes that inadvertent NSF cheques, or not-at-fault accidents and arbitrary insurer changes in territorial boundaries are not valid reasons to re-assess someone's driving risk.
In recent years the cost and availability of snowmobile insurance has become a serious concern. A snowmobile is considered a motor vehicle and therefore requires an automobile insurance policy. Snowmobile insurance coverage will be included in the underwriting rules review; the intent will be to ensure that the record of a driver, as a snowmobile operator, is appropriately and fully taken into account in setting premiums.
The Government is also very concerned that fraud and abuse have become a significant factor in rising automobile insurance premiums. The Insurance Bureau of Canada has estimated that at least 15 per cent of Ontario vehicle premiums are directly attributable to costs incurred due to fraud and auto theft. The Ontario Crime Control Commission supports this figure.
The Ontario Insurance Act provides a comprehensive range of benefits for those injured in an accident. These benefits are available whether or not a person has been at fault - in whole or in part - for causing the accident. In addition to "no-fault" benefits, those in the accident who were not-at-fault ("innocent victims") are able to sue for damages in excess of no-fault benefits. Innocent victims can sue the party they hold responsible for certain damages they have sustained; in Ontario, these claims fall within the categories of pain and suffering and economic losses (earning capacity, health care).
In general, jurisdictions with an unlimited right to sue provide a more modest level of accident benefits compared to jurisdictions that have restricted or eliminated the right to sue. This reflects the trade-off between tort and no-fault schemes: tort can provide a high level of compensation but only for those who were not responsible for causing the accident. A basic level of accident benefits is available as a safety net for those who were negligent. In a pure no-fault system, where the right to sue for compensation doesn't exist, all accident victims are compensated regardless of negligence but they may still suffer financial consequences, should their losses exceed the benefits available to claimants.
By providing accident victims with a full range of no-fault benefits plus access to tort, the Ontario auto insurance system gives consumers a balanced approach--quick access to benefits and, for those not at-fault with injuries claimed that exceed the threshold, the right to sue to recover damages in excess of available benefits. The goal of this balance is to help the injured claimant recover as quickly as possible.
To sue for pain and suffering damages, a victim's injuries must exceed a certain level. The "verbal threshold" that one must meet to sue for pain and suffering is that a person has sustained a "permanent serious disfigurement" or a "permanent serious impairment of an important physical, mental or psychological function".
The portion of auto insurance premiums that can be attributed to court awards has been rising rapidly in recent years. The insurance industry maintains that, without reform, these costs will continue to put pressure on rates.
During recent consultations, a number of respondents commented that the current threshold has been interpreted by the courts in such a manner that has lowered the threshold to a level at which claims for injuries that were originally not intended to proceed to court and lawsuits that were expected to be prevented by the threshold, are in fact proceeding.
One proposal for streamlining such costs is to reduce the number of individuals who could sue by changing the threshold in the Insurance Act to reflect the original intent. It has also been suggested that the right to sue for pain and suffering be limited to those persons who have sustained physical injuries. This would mean that individuals with psychological or mental injuries would no longer be able to sue for pain and suffering.
An alternative way to address rising costs associated with the current serious and permanent threshold is to have it more clearly defined in a new regulation. Currently no definition of serious and permanent impairment exists. The Insurance Act allows for such a definition to be set out in regulations. Such a precedent already exists in the Insurance Act - the ability to sue for excess health care expenses is dependent on exceeding another threshold, catastrophic impairment, which is defined in regulation. A definition of serious and permanent impairment could assist the courts as well as insurers and injured persons in settling claims. Enactment of a definition to which courts could look when determining whether a person has sustained a serious and permanent injury would be another means of addressing rising costs by reducing the number of individuals able to sue.
Bill 198, Keeping the Promise for a Strong Economy Act (Budget Measures), 2002, provided for several reforms to the tort system. These sections are awaiting proclamation and were intended to improve a policy holders' access to the courts for certain types of compensation.
Section 120 of Bill 198 contains the following significant tort reform measures:
Currently in Ontario, as well as across Canada, consumers have access to different insurance coverages and programs in the event of an accident or injury. This includes auto insurance, workers' compensation, CPP disability benefits, Ontario Disability Support Plan, provincial health insurance, private disability insurance, employer sick leave plans, and supplementary health insurance. Each plan has different eligibility requirements, benefit levels, and premium costs. Further complicating the environment is that auto insurance plans will only pay after benefits are used up under other plans.
Consumers have told the Government that they are paying for coverage that they often do not receive. For example, a significant amount (about $100) of the average Ontario auto insurance premium covers disability income benefits. A person with disability coverage from their employer who is injured in an auto accident must claim from their workplace plans before claiming under their auto insurer. If those workplace disability benefits are generous, there is often very little that can be claimed under the auto insurance policy. This has raised questions as to why they have to pay for that auto insurance coverage. In addition, the eligibility requirements and disability tests used by various insurers will be different, requiring multiple visits to physicians for medical exams to complete insurance forms.
All provinces are committed to look for ways to improve their auto insurance systems to ensure that auto insurance remains available and affordable. The Atlantic Premiers have created a task force to examine harmonizing legislation; Nova Scotia plans to limit benefits for minor injuries; New Brunswick has capped court awards for pain and suffering for minor injuries at $2,500; Alberta has announced plans for major reforms in that Province. While each jurisdiction has to look at measures that are tailored to their own unique markets, there are opportunities for collaboration that will benefit consumers across Canada.
For instance, harmonization of efforts to share data on identifying costs underlying the rising price of health care treatments and discussion of government strategies to help the marketplace address those costs would assist each jurisdiction to avoid overlap and duplication of efforts.
Similarly, the issue of restricting the right to sue (tort reforms) is another topic for interprovincial discussion and exchange of information. Rising tort claims is a cost driver for provincial systems providing access to tort. Topics which could be covered include the issue of a verbal threshold for pain and suffering claims, and application of a monetary deductible for court awards.
Although much of the co-operation is now informal (for example, insurance regulators contacting one another to exchange information on issues and developments), the Ontario Government is proposing more formal linkages, given the pressures facing the Canadian auto insurance marketplace. The Canadian Council of Insurance Regulators (CCIR), comprised of all provincial and territorial insurance regulators, has undertaken several insurance harmonization initiatives and could be asked to consider ways to better share information.
Ontario is undertaking a review of its current underwriting rules and insurers' risk classification systems. Other provinces are also looking at the filing of underwriting rules. Ontario will share the results of its review with other provinces to initiate further discussions and to begin to explore the possibility of establishing standard practices.
Ontario is calling for a coordinated effort to address vehicle theft and fraud, as well as accident benefit fraud and abuse which would benefit all auto insurance systems, whether privately or publicly delivered.
Ontario's auto insurance system is based on private insurers operating in a healthy, competitive marketplace. The Government's reforms are designed to strengthen that marketplace which will in turn benefit consumers by ensuring that insurance remains available and rates are stable.
With the changes that the Government has already put in place in addition to those contemplated (reduced health care fees, tort reforms, improved DAC system, more effective underwriting and rate classification systems, and better control over fraud), insurance companies should be able to reduce premiums to individuals. If insurers do not respond immediately and appropriately by passing on savings to consumers, the Government will take action, including measures directly targeting insurance premiums. These could include rate caps, rate freezes or rate roll-backs.
The Government understands that consumers must be protected from unaffordable premiums. Ontario's economy relies on people getting to their workplaces, and people rely on their cars in their daily lives.
Your views are important as we move forward to strengthen the auto insurance system in Ontario. Please submit written comments by September 15, 2003 to:
Auto Insurance Review Committee