Saturday, 14 December 2013

Ontario Auditor General's Update Report on Auto Insurance Regulatory Oversight

The Auditor General of Ontario's 2011 Annual Report reported on FSCO's oversight of the auto insurance system.  The report made 7 recommendations covering SABS costs, fraud, the rate approval process, the dispute resolution system, performance measures, MVAC's unfunded liabilities and health care assessments.  It is the practice of the Auditor General to do a follow up two years after an audit.  The follow up report has now been released.

The Auditor General reports that FSCO has made progress in addressing most of her recommendations, with significant progress made on several.  Although average injury claim costs had declined significantly since 2010, at the time of the follow up average automobile insurance premiums had not. In addition, discussions held to date had not resulted in any increase to the amount recovered from auto insurers for health system costs incurred to care for people injured in motor vehicle accidents. The status of the actions taken is summarized following each recommendation.

Recommendation 1:

FSCO should:
  • implement regular interim reviews of the SABS to monitor trends such as unexpected escalating claims costs and premiums between the legislated five-year reviews, in order to take appropriate action earlier, if warranted;
  • monitor ongoing compliance with the MIG, expedite the work develop evidence-based treatment protocols for minor injuries, and identify and address any lack of clarity in its definitions of injuries;
  • implement its plans as soon as possible to obtain assurance that insurance companies are judiciously administering accident claims in a fair and timely manner; and 
  • examine cost-containment strategies and benefit levels in other provinces to determine which could be applied in Ontario to control this province’s relatively high claims costs and premium.

On August 16, 2013, the government proclaimed legislative changes to consolidate multiple auto insurance reviews, including the former five-year review of auto insurance, the three-year review of risk-classification regulations and the two-year review of the SABS. The new consolidated review of the auto insurance system will be initiated at least once every three years, beginning in 2013. 

In July 2012, FSCO retained the consulting services of medical and scientific experts who have been working to develop an evidence-based treatment protocol for the most common injuries from motor vehicle accidents. This is a two-year project. The consultants provide regular updates to the Superintendent and, as directed in the 2013 Budget, FSCO will provide an interim report this year on the progress of the project. The interim MIG will be assessed upon completion of the consultants’ report and will be addressed as part of a future comprehensive statutory reviews.

In summer 2011, FSCO introduced a new annual requirement that each insurance company provide it with a statement from its chief executive officer attesting that it had controls, procedures and processes in place to ensure compliance with legislative requirements for the payment and handling of claims.

In addition, new regulations came into force on January 1, 2013, that provided FSCO with the power to impose administrative fines on insurers for not complying with legislative and approval requirements.

As a result of changes to the SABS in September 2010, the auto insurance industry reports that Ontario’s average injury claim cost has decreased more than 50%, from about $56,000 in 2010 to $27,000 in 2012. The difference between Ontario’s average injury claim costs and those paid by other provinces has narrowed, although Ontario’s costs now stand at approximately three times higher than those of other provinces. However, lower accident benefit claim costs have not yet resulted in corresponding lower average premiums paid in Ontario, where the average premium was $1,551 in 2012, or 8% higher than in 2010, and still the highest in the country.

In August 2013, the government introduced a number of initiatives as part of a strategy to reduce average auto insurance rates by a target of 15%.

Recommendation 2:

To reduce fraud in Ontario’s auto insurance industry FSCO should:
  •  help identify potential measures to combat fraud, including those recommended by the IBC and those in effect in other jurisdictions, assess their applicability and relevance to Ontario, and, when appropriate, provide advice and assistance to the government for their timely implementation; and
  • ensure development as soon as possible of an overall anti-fraud strategy that spells out the roles and responsibilities of all stakeholder.

In 2011, the government appointed the Ontario Auto Insurance Anti-Fraud Task Force to determine the scope and nature of automobile insurance fraud and make recommendations about ways to reduce it. As part of the Task Force, the Ministry of Finance retained consultants to provide research about how other jurisdictions combat fraud, analysis of the potential range of fraud in Ontario’s auto insurance system and advice on the regulation of health care facilities (provided by Willie Handler).

The Task Force made 38 recommendations that form an integrated anti-fraud strategy focused on prevention, detection, investigation and enforcement, along with enhanced and clearer regulatory roles and responsibilities.

New regulations came into force on June 1, 2013, which, among other things:
  • require insurers to provide claimants with all the reasons for which a medical or rehabilitation claim was denied; 
  • require insurers to itemize expenses in a bi-monthly statement to claimants of medical- rehabilitation benefits paid out on a claimant’s behalf;
  • increase the role of claimants in preventing fraud by requiring them to confirm their receipt of treatment, goods or other services; and 
  • make third-party service providers subject to sanctions for overcharging insurers for goods and services, and prohibiting them from asking consumers to sign blank claim forms.
In February 2011, to help streamline the claims-handling process, FSCO made usage of the HCAI system mandatory.

Recommendation 3:

To ensure premiums are fair and consistent, FSCO should:
  • update and document its policies and procedures for making rate decisions and for properly assessing rate changes in light of actual financial solvency concerns of insurance companies; 
  • review what constitutes a reasonable profit margin for insurance companies when approving rate changes, and periodically revise its current assessment to reflect significant changes; and 
  • establish processes for verifying or obtaining assurance that insurers actually charge only the authorized rate.

FSCO updated its policies and procedures for processing and approving rate applications effective May 2012. Rate decisions were based on a defined range that was acceptable when a proposed rate differed from the FSCO actuarial service’s assessments. Staff were required to get written approval from the Superintendent when a proposed rate decision is greater than the acceptable range.

In October 2012, FSCO retained a consultant to review the reasonable profit margin rate that had been established for auto insurance rate filings, including a financial assessment and consultation with the auto insurance industry.  In the final report, the consultant recommended that FSCO should consider moving to either a five-year or 10-year rolling average for a return-on-equity benchmark rate.  In August 2013, FSCO decided that an eight-year rolling average for a return-on-equity benchmark rate would be used going forward.  According to FSCO, the new methodology generated an 11%return-on-equity benchmark for 2013.  In addition, FSCO adopted another benchmark that assesses the insurer’s premium-to-equity ratio that is consistent with federal solvency and capital requirements. FSCO also has begun a review of the feasibility of moving to a return-on-premium approach, which it expects may be relatively more simple and transparent than the return-on-equity benchmark.

Since 2012, FSCO has required that the chief executive officer of an auto insurance company annually attest in writing that it provided auto insurance in Ontario in accordance with approved rates, risk classification systems and underwriting rules.

FSCO implemented a new annual requirement for insurance companies to attest that they had independent audit processes in place to confirm that approved rates were charged by the insurer.

Recommendation 4:

To ensure that FSCO meets its mandate to provide fair, timely, accessible, and cost-effective processes for resolving disputes over statutory accident benefits, it should:
  • improve its information-gathering to help explain why almost half of all injury claimants seek mediation, as well as how disputes are resolved, and to identify possible systemic problems with its SABS benefits policies that can be changed or clarified to help prevent disputes; and 
  • establish an action plan and timetable for reducing its current and growing backlog to a point where it can provide mediation services in a timely manner in accordance with legislation and established service standards.

The government announced in its 2012 and 2013 Budgets that a review of the auto insurance dispute resolution system would take place.  FSCO also completed an internal examination on closed mediation cases and the corresponding insurers’ claims files to gather information on the reasons for the high number of claimants who were seeking mediation and how these disputes were resolved.

In August 2013, the government announced the appointment of an expert to undertake the review and make recommendations on transforming the current system. An interim report was due in fall 2013 and a final report by the end of February 2014 (Willie Handler is providing support to the review).

To address FSCO’s growing backlog of mediation cases, Treasury Board approved in December 2011 FSCO’s request for an additional $38.2 million over three years to hire a private dispute resolution service provider to supplement FSCO’s own staff.  With this contract help, and with new software that has made mediation scheduling more efficient, all mediation files had been assigned as of August 19, 2013, and the backlog had been eliminated.

Recommendation 5:

In order to provide the public, consumers, stakeholders, and insurers with meaningful information on its auto insurance oversight and regulatory activities, FSCO should report timely information on its performance, including outcome-based measures and targets that more appropriately represent its key regulatory activities and results.


During the 2012/13 fiscal year, FSCO finalized its corporate Performance Management Framework that details for each of its divisions, including auto insurance, a set of performance measures and targets that link to its long-term goals and strategic priorities.  The Performance Management Framework was posted on FSCO’s website.

In addition, in June 2012, FSCO posted on its website new standards for its turnaround time for approving insurers’ filings for private passenger auto insurance rates and risk classification changes. The performance results for 2012/13 were posted on the FSCO website in June 2013.

Recommendation 6:

To ensure that the MVACF is sustainable over the long term and able to meet its future financial obligations, FSCO should establish a strategy and timetable for eliminating the Fund’s growing unfunded liability over a reasonable time period and seek government approval to implement this plan.


No changes had been made to address the unfunded liability of the Fund, but FSCO continues to formally monitor the status of the Fund, and ongoing Ontario automobile insurance reforms have had a positive impact on the Fund’s unfunded liability. Any changes to funding would require amendments to regulations and to the existing MVACF fee on issue or renewal of an Ontario driver’s licence, which are the responsibilities of the Ministry of Finance and the Ministry of Transportation

Recommendation 7:

In view of the fact that it has been five years since the last review of the assessment of health system costs owed by the auto insurance sector despite the significant increase in health care costs related to automobile accidents over the same period, FSCO should work with the Ministry of Finance, the Ministry of Health and Long-Term Care, and the insurance industry to review the adequacy of the current assessment amount.


The Ministry of Finance is undertaking to review the current assessment amount, as noted in the Minister’s August 24, 2013, policy statement.

The Auditor General's 2013 audit update on FSCO can be found here.

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