Wednesday, 6 June 2012

Standing Committee on General Government Auto Insurance Hearings - Day 2

The following are presentations made on May 30, 2012

City of Brampton
Elaine Moore, Regional Councillor
John Sanderson, Regional Councillor

Why should where you live be the primary determinant of your insurance rates? Brampton has many residents who travel outside of Brampton for employment or school, hence their vehicles spend more time outside of Brampton but their insurance rates are based on their home address.

Conversely; Brampton’s business community, including the corporation of the city of Brampton, has employees with addresses in Guelph, Georgetown, Erin, Orangeville. Their vehicles probably spend more time in Brampton than in their home community, yet these good folks enjoy a cheaper insurance rate. This just simply is not fair or right.

In the areas that Councillor Sanderson and myself represent in Brampton, there are five insurance brokers—all have been located within half a kilometre of each other in the downtown, and they’ve been there for decades. So we have a particular concern for the sustainability of the generational relationships that they have built over these many years. We’ve had many conversations with our local brokers, and they are losing clients for as little as $100 a year in savings. They have had clients return because at the expiry date of their policies their rates have returned or surpassed what they would have paid, had they remained with their broker. Call this what you want, but I call it “bait and switch,” and it’s happening every day. It’s unfair, and it’s wrong. Controls need to be put in place to prevent this practice.

If Brampton residents are hiring paralegals to extract from insurance companies what they believe the policyholder is entitled to, then the industry needs to address this within their operating budgets and stop sending the invoices extract from insurance companies what they believe the policy holder is entitled to, then the industry needs to address this within their operating budgets and stop sending the invoices to recover the costs from the Brampton residents. If some rehabilitation centres are a problem, then deal with the centres.

Insurance Brokers Association of Ontario
Randy Carroll, Executive Director
Bryan Yutman, Past President

The lnsurance Brokers Association of Ontario represents over 12,000 insurance brokers who assist over 5 million consumers across Ontario with their insurance needs. Our priority is to protect the interests of consumers, from the purchase of a policy right through to when they need an independent advocate at the time of claim.

On the issue of broker independence, we take a look at the motion establishing this committee’s study, and it makes reference to the role of brokers and their independence. This is a matter that is fundamental to the IBAO and to the value of the broker channel. One of the key advantages of the broker channel versus the direct writers or agents who represent only one company or market is that brokers are independent and shop the market on behalf of their customers to get the best combination of coverages and price for that consumer. This means that a broker compares coverages from more than one insurance company provider. Typically it’s four or five, but it can be as many as a dozen different markets.

Over the last decade, however, financial linkages between insurance companies and brokerages have begun to increase. These linkages tend to take the form of ownership stakes in some brokerages and/or loans. Of course, this raised flags about conflicts of interest and steerage of business to insurers who had a financial interest in a brokerage.

IBAO took this development very seriously and notably, in 2005, our regulator, the Registered Insurance Brokers of Ontario, or RIBO, took two important actions. First, it required that all brokers disclose any financial relationships to their customers, including their commission rates. Second, it conducted a detailed study on the matter to determine the extent of financial or business relationships with an insurance company and the existence of concentration or steering issues among those brokers.

With respect to the issue of auto insurance fraud and abuse, we want to turn to the specific issues again related to fraud and abuse in the auto insurance product. IBAO believes that this is the single most important thing that can be done to lower claims costs and thus, to lower insurance premiums and that is to tackle fraud and abuse in Ontario’s auto insurance system, particularly in the accident benefits area. IBAO will support constructive recommendations to combat fraud and abuse from all parties in this Legislature. We can’t tolerate the abuse of the auto insurance product any further, as it’s costing the customers we serve too much money, as Ontarians pay the highest auto premiums in Canada. However, we would like to caution against further tampering with the system in the wake of the 2010 auto reforms. Those reforms are only beginning to make themselves felt, and we believe they are working.

We are not here to defend the insurers, but we do believe that any aggressive tampering with the system will threaten market stability which is just starting to get a foothold post reform. Nevertheless, we do believe there are measures that can be taken to deal with unfair pricing practices in the property and casualty insurance market. The measure we are referring to is banning the use of credit scoring in personal property insurance. Almost immediately after the credit ban was introduced in auto insurance in 2010, insurers began to use credit far more aggressively to price people’s property insurance, once again subverting the ban on auto.

Ontario Trial Lawyers Association
John Karapita, Director of Public Affairs
Andrew Murray, President-Elect

The association represents more than 1,300 personal injury lawyers, law clerks and students from across Ontario.

The association, for many years, has suggested when looking at the auto insurance system to focus on the three P's: profits, which is a reasonable return on equity for the insurers; premiums, which of course is fair prices for consumers; and protection, which is fair and appropriate coverage.

If you think of the three Ps as a stool, you cut off one of those legs—any one of those legs—it’s unbalanced and it doesn’t work. In anything that you recommend or anything that gets done as a result of the good work of this committee, please be mindful of the three P's. I would, indeed, add a fourth P, changing it from a stool perhaps into a table, which is predictability.

When a change is made, the law of unintended consequences always occurs and you have uncertainty injected. You’ve tried to help something here and now nobody knows exactly what the rules are and it gets sent back to the courts for years and years and years trying to sort it out.

We’ve just gone through 15 years or more of uncertainty with respect to certain issues pertaining to catastrophic impairment. Not long ago, the court of appeal in Ontario, our highest court in this province, provided great clarity to a lot of those issues. If we were to now make some changes that have been suggested, it would essentially throw out 15 years of hard work in the trenches, coming to terms with what are the rules of engagement. I would really try to dissuade anyone from doing that because it would not help.

We should suspend the introduction of restrictions on the definition of catastrophic impairment. There had been a lot of talk of that back in the fall, following the release of an expert panel report. We said, instead, we must focus on eliminating the backlog for mandatory mediations at the Financial Services Commission of Ontario because it is one of the most significant impediments, on both sides, to having a resolution of disputes in the system.

The expert report led to the superintendent, apparently, making some recommendations directly to Minister Duncan. That’s referenced in the budget announcement from back in March. It’s been at least that long that the minister has had that report from Phil Howell, and it has never been released publicly, and we don’t know why. We’ve called for its release, and I would hope that this committee calls for its release.

There needs to be an analysis of the impact of the changes that were made in September 2010 to the accident benefit schedule. Because until we know how those changes have filtered their way down in the system, we don’t really know whether there is a need to make further changes. There needs to be better anti-fraud measures taken in the system.

Ontario Safety League
Brian Patterson, President

The Ontario Safety League has been the chief public safety advocate in the province of Ontario for almost 100 years.

The public perception with respect to automobile insurance and its impact on homes and individual participants in the system leads me to one very significant conclusion, and that is that the general education level of the public with respect to what they’re buying when they’re receiving their insurance and what they’re going to receive when, in fact, they have an issue is significantly—there’s a significant education deficit among the public on what they’re purchasing with respect to insurance.

I know from those who are involved in the investigation of insurance fraud that between 40 and 60 major files are opened every month in this province, involving people who have actively targeted the insurance industry. In my mind, those are the thieves who go through the back door of your house when you’re not at home and steal directly from you, and all of us are paying.

Our concern is that right now—I know it’s limited time, but the issue we have is that the most vulnerable citizens in this province are often those with post-traumatic crash. The two areas that I think you should spend some focus on are the GCS, the Glasgow coma scale.

The other area is, of course, traumatic brain injury. A lot has been done with regard to engineering in vehicles, but we still have traumatic brain injury that results directly from an automobile crash involving two automobiles. If you look to the changes that are currently proposed, the resources in some areas of the province are non-existent. It will limit the likelihood of a victim to be brought into the catastrophic category, and in some areas of the province, they’re non-existent. To get someone into a recognized neuro-trauma rehabilitation centre, there are only a limited number. They tend to be in southern Ontario and they are not available for access.

Without a dedicated fraud unit you’re not going to be able to proceed effectively. These are complicated cases. You want to have dedicated resources because, in fact, there are a number of areas, both administrative and criminal, involved in this.

Alliance of Community Medical and Rehabilitation Providers
Nick Gurevich
Patricia Howell

The Alliance is a collection of 90 member practices, health care providers in the province of Ontario. Many of them conduct work within the auto insurance sector. The vast majority treat injuries that are not minor in nature; they are serious injuries.

After the last set of changes, implemented in 2010, benefits have been slashed by over 70%, to a point where Ontario now has the second worst auto insurance health care coverage in Canada.

We’re in complete agreement with fighting fraud. What we are not in agreement with is the steps taken to address the symptoms rather than the root cause, resulting in an imposition of a collective punishment of all victims.

A word of caution: New measures intended to fight fraud must be precise and focused. There cannot be measures introduced that will have the effect of imposing new barriers to victims to access services or prevent health care providers from delivering them.

Let’s admit that we made a mistake a couple of years ago when we cut the non-cat benefits so drastically. Let’s put those $100,000 plus assessment costs back in the system. The pediatric brain injured population have legitimate long-term needs and $50,000 is not nearly sufficient. It will run out in less than a year.

Let’s also admit that we made a mistake around when we revamped the IE system a couple of years ago. This is one of the root causes for the escalation in applications for mediation. Of course denial rates for treatment have skyrocketed. For your information, they’ve gone from 11% of treatment plans denied before the changes were introduced in 2010 to, now, 42% of treatment plans are denied.

The FSCO Catastrophic Impairment Expert Panel had some good suggestions. For example, they introduced the notion of interim catastrophic designation. So a way that someone could be qualified as catastrophic early on and then later reassessed if that’s appropriate. That was a great idea. However, there were many, many basic premises in the expert report that need to be revisited.

Baron Insurance Services
Barb Addie

I am an actuary and have been a fellow of both the Canadian Institute of Actuaries and the Casualty Actuarial Society since 1983. I began work in 1979 and have been actively involved in Ontario auto insurance since.

Return on equity went up slightly between 2010-2011 from 7.6% from 8.0%. What this does not tell you is that personal lines insurers have, over the last five years, had returns on equities sub 4%.

Ontario auto results: I’m sorry, from an actuarial point of view, it is just much too early. For the bodily injury claims, right now we know about 5% have been paid and 50% to 60% of the claims that will ultimately be paid are unreported. If the MIG holds, the reforms may well be more effective than the actuaries had originally estimated. The original estimate was 32% of claims. It may well be closer to 40%.

The next area I wanted to direct you to is return on investment. Iif you look at the yield for 3-to-5-year bonds it’s gone from a high of 11% in 1991 down to slightly less than 2% in 2011. For P&C insurers, this is a massive issue. Approximately 83% of their investments are in bonds, and a high percentage of those are in government bonds. Insurers take huge risks with underwriting insurance, and they tend to have conservative portfolios to offset the insurance risks they’re taking on.

From an economic perspective, the rate of return on equity that achieves the goals that FSCO has set apart is the cost of capital. If insurers are receiving their cost of capital, consumers will pay the lowest possible rates in the long run and investors will make their expected returns. If the ROE is too high, investors earn more and consumers pay more, however, in the medium term, the rates would decrease as the P and C insurers with their 80-plus competitors are very competitive. They will bring down the rates or else they will lose business. If the ROE is too low, consumers benefit in the short term, but in the longer term firms either leave the market in search of better returns or rates will have to increase. There’s no magic to it.

If the territories were removed, because there’s such a significant difference in what happens between territories, people who live in territories where it is underrated would find that they might have a supply problem. As an insurer, why should I knowingly put a risk on my book that is underrated? If I do that, I’m being unfair to my policyholders because I’m impairing my solvency, and I am being unfair to my shareholders because I’m impairing profitability. I cannot, in good conscience, put that risk on my book. What do I do? If I’m a broker company, I cancel all my brokers in those areas. I can’t take that. If I am a direct writer, I’m going to have to go to FSCO and say, “I will write in this area because I cannot put that badly an underpriced risk on my books.”

The whole concept of a rating structure is to match risk and rate. If I arbitrarily choose to take out a variable that I know to be very predictive, then I am not matching risk and rate. I am putting underpriced risk and overpriced risk in my book.

Dr. Milan Unarket, Physiatrist
Dr. J. Douglas Salmon, Neuropsychologist

One of the comments I wanted to make regarding the Catastrophic Impairment Expert Panel is on the GCS. The GCS, the level of how unconscious you are after a brain injury, although it has flaws, is very widely used and it’s done by paramedics, done by nursing; it’s done by and during the trauma centres, done even in in-patient rehabilitation. GCS is still not a bad predictor of injury severity. Basically, even though there are some better predictors of injury severity, it’s something that widely used and should probably still continue to be used to deem whether someone is catastrophic or not in brain impairment because it’s something that can be done quickly and easily, it’s accessible and it’s done very widely.

One of the recommendations was that those who are admitted to an in-patient rehabilitation get an automatic catastrophic designation. That’s a good idea, but there are a lot of people who have brain injuries who just don’t get access to in-patient rehabilitation.

The change that was made in 2010 is that all the assessments that are done are also of that $50,000 medical and rehabilitation limit. It actually significantly impacts on someone’s treatment. So if you have $6,000 or $8,000 in assessments or $10,000 in assessments, that’s 20% of someone’s treatment. That’s 205% of $50,000. That significantly impacts. That further reduces the amount of money available.

I do have concerns about the expert panel recommendations, particularly with respect to the combination of physical and psychological impairments as well as changing the mental behavioural definition. Both of these will clearly, dramatically decrease the number eligible victims who will be eligible for catastrophic designation.

I also have concern with respect to the lack of clarity in the MIG relative to the inclusion of mood, anxiety and other mental health disorders with respect to what levels of severity are considered to be in or outside the MIG. Lack of interpretive definition, which will eventually come through case law—it’s still potentially many months to years away. And without this clarification, obviously both insurers as well as IE providers have a certain sense of confusion, lack of clarity and, as such, there will be many denials and lack of mental health services provision on that basis.

I also have concerns with respect to the insurer buy-up option. It’s understood that the buy-up has been very poorly undertaken by most consumers so far. That leaves folks greatly exposed. As well, within the buy-up, there’s no option to actually buy up relative to the MIG.

The removal of the DAC structure in 2006 basically removed the impartiality, the neutrality and the evidence-based assessment system. Other colleagues have already commented on the importance of and the stress and pressure on IE examiners relative to the relationship between an IE assessment centre and the IE. With a $2,000 cap, as well, there are significant, added cost-related pressures that have resulted in increased use of inexperienced new graduates and the like within the system.

Catastrophic Impairment Expert Panel
Dr. Pierre Côté, Chair

I am an associate professor of epidemiology at the Dalla Lana School of Public Health here at the University of Toronto and a scientist within the Division of Healthcare and Outcomes Research at the University Health Network.

The overarching goal of the panel’s work was to ensure that the individuals who are the most seriously injured in traffic collisions are assessed according to the best scientific and medical evidence. The expert panel included an independent multidisciplinary team of internationally renowned clinicians and scientists who are highly skilled in the evaluation of impairment and in scientific methodology.

With regards to the definition of catastrophic impairment, the expert panel was given two functions. First, to identify ambiguities and gaps in the current SABS definition of catastrophic impairment and to use emerging scientific knowledge and judgment to make recommendations for changes in the definition. In other words, the expert panel was asked to review the scientific evidence to modernize the definition which was initially developed in 1996 and to improve the accuracy of the determination of catastrophic impairments following traffic injuries.

All our recommendations were developed following an established methodology called the Delphi methodology which is a well-accepted scientific method to develop consensus statements in medicine. According to our methodology, consensus was reached when 75% of the panel, that is six out of eight members, agreed with the recommendation.

The expert panel proposed 10 main revisions to the current definition of catastrophic impairment. The panel reached consensus on all recommendations. The panel spent a great deal of time and energy to ensure that children with traumatic brain injury are assessed and managed according to state-of-the-art criteria and in a timely manner.

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