Thursday 29 August 2013

Dispute Resolution System Review Is Seeking Submissions From Stakeholders

On August 23, 2013 Ontario Minister of Finance Charles Sousa announced that he had appointed the Honourable J. Douglas Cunningham, former Associate Chief Justice of the Ontario Superior Court of Justice, to conduct the review of Ontario’s dispute resolution system.  

Mr. Cunningham is seeking stakeholder perspectives on the Ontario auto insurance dispute resolution system and the Ministry of Finance has posted on their website an invitation to stakeholder so make submissions.

Written submissions can be sent to the Ministry of Finance on or before September 20, 2013.

Mr. Cunningham is expected to deliver an interim report to the Minister of Finance in October 2013, and a final report in February 2014.  

Insurance News - Thursday, August 29, 2013

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Thursday, August 29, 2013:

Tuesday 27 August 2013

FSCO Lowers ROE Benchmark to 11%

When approving filed auto insurance rates from individual insurance companies FSCO has allowed a reasonable rate of return. In his 2011 Annual Report, the Auditor General of Ontario discussed the changed economic environment since 1996 when the return on equity (ROE) benchmark was last updated and recommended that it be reviewed. The Ontario Government endorsed the recommendation in the 2012 Ontario Budget.

 FSCO selected two consultants (Dr. Fred Lazar and Dr. Eli Prisman of York University) to conduct the ROE review for automobile insurance. The ROE review included consultation with stakeholders and is now complete and is posted on the FSCO website.

FSCO uses an after-tax , return on equity ( “ ROE ”) benchmark in the rate review process for rate filings by auto insurance companies in the province. The benchmark was initially established at 12.5% in 1988. In 1996 the ROE benchmark was reduced to 12%. The ROE benchmark is one of many variables used in the rate review process .

Three other provinces (Nova Scotia , New Brunswick and Newfoundland and Labrador) use an ROE benchmark ranging from 10% to 12%.

In carrying out their review of FSCO’s ROE benchmark the consultants examined various approaches and settled on the Capital Asset Pricing Model (CAPM) , which is a widely accepted methodology for estimating a company’s cost of equity capital

The consultants concluded that the current cost of capital for insurers is below FSCO’s current 12% after-tax ROE benchmark. They noted , however, that the current risk-free rate is abnormally low as the Bank of Canada deals with the aftermath of the 2008-9 economic and financial crisis and likely underestimates what the risk-free rate might be under more normal economic conditions.

Consequently, the consultants concluded that it would be inappropriate to apply the CAPM simplistically, noting that if it had been applied continuously from 1995 with appropriate risk-free rates and market risk premiums, the resulting ROE would have moved sharply from year to year, in some cases changing by more than 150 basis points. To address the volatility in the application of the CAPM model, the consultants proposed moving to a 5 or 10-year rolling average for the ROE benchmark, utilizing the CAPM results calculated in the report 

If a 10-year rolling average were used to determine the ROE benchmark, for 2013 the benchmark would be between 11.20% and 11.28%. If a 5-year rolling average were used , the benchmark for 2013 would be between 10.40% and 10.56%.

 As a result, FSCO has determined that it will now be using an 11% ROE as a benchmark for Automobile Insurance rate filings, effective immediately.

Saturday 24 August 2013

Insurance News - Saturday, August 24, 2013

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Saturday, August 24, 2013:

Friday 23 August 2013

Ontario Government Moves Forward On Its Rate Reduction Strategy

This week the amendments to the Automobile Insurance Rate Stabilization Act, 2003 (AIRSA) were proclaimed in force effective August 16, 2013. 

In addition, the government filed an Industry-Wide Rate Reduction Target Regulation which calls for an average rate reduction of 15% by August 15, 2015.  The government is also aiming to make an average 8% rate reduction by August 15, 2014. It will also expect a report in January 2014 from FSCO to show an approved rate reduction of 3% to 5%.

This was followed by FSCO releasing a bulletin that begins the process for insurers in Ontario to refile their auto insurance rates. 

Also announced today was the appointment of  Douglas Cunningham also has been appointed to lead a review of Ontario’s auto insurance dispute resolution system and make recommendations on transforming the current system.  Mr.  Cunningham is a former Associate Chief Justice of the Ontario Superior Court of Justice.

Thursday 22 August 2013

Insurance News - Thursday, August 22, 2013

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Thursday, August 22, 2013:

Wednesday 14 August 2013

Will Ontario's Experience With Licensing Clinics Be Better Than Hillsborough's?

Florida's Second District Court of Appeals has effectively ended Hillsborough County's attempt to regulate clinics that enabled an epidemic of staged auto accidents.  The appellate court upheld an injunction issued in January that blocked enforcement of the ordinance.

Back in January a Circuit Court judge issued a temporary injunction against the county preventing it from enforcing licensing requirements for clinics that do most of their business treating people injured in auto accidents.

The County Commissioners passed the ordinance in September 2011 in an effort to stop staged accidents which were used to collect money under Florida’s personal injury protection (PIP) insurance law. Florida law requires auto drivers to carry $10,000 in PIP insurance. Law enforcement and the insurance industry said criminal rings defrauding the system were aided by fake clinics that billed insurance companies for bogus treatment.  The Hillsborough ordinance requires that operators of certain clinics obtain a county licence, offer proof that they are associated with a medical doctor, don't employ convicted felons in any positions and submit to random inspections.

About 70 clinics had been approved for licences under the ordinance, which exempted medical providers whose businesses don't rely on crashes or that carry some other forms of accreditation. Enforcement of the ordinance has been on hold since the lower court ruling late last year.

The county noted that there was a 62 percent decrease in the number of staged accidents following the introduction of the ordinance.  Many of the fraudulent clinics just closed which impacted on the number of staged accidents and questionable claims.

About 30 facilities argued that the county ordinance unlawfully sought to pre-empt state law under which they are licensed by treating the clinic owners in Hillsborough County differently than any other clinic owners in the state  They also said it had an arbitrary and subjective process for people challenging the denial of a licence, subjected them to unlawful searches from a broad array of law enforcement and included other requirements that made it all but impossible for otherwise legal clinics to operate.


It is still unknown how the county will respond to the decision. 

As Ontario moves towards the licensing of clinics operating in the auto insurance system, there may be some lessons to learn from the Hillsborough experience. 

Statutory authority to introduce a licensing system for all clinics in Ontario is a much better approach than Hillsborough going out on its own.  FSCO has been given jurisdiction to license the clinics by the Legislature.  However, in developing and enforcing business standards for clinic owners and operators, the regulator needs to be cautious and ensure that it does not act in an arbitrary or subjective manner.  Reputation alone cannot be the basis for denying a licence.

Insurance News - Wednesday, August 14, 2013:

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Wednesday, August 14, 2013:

Friday 9 August 2013

No Fee Increase For Health Care Providers In 2013

A recent bulletin issued by the Financial Services Commission of Ontario released an updated Professional Services GuidelineThe main purpose of the revised Guideline was to recognize that kinesiologists are now regulated health professionals as defined in the Statutory Accident Benefits Schedule now that they are governed by the College of Kinesiologists of Ontario.

In an effort to avoid increasing costs in the auto insurance system, FSCO has not changed the hourly rates in the Guideline from the 2012 levels. This is in line with the commitment by the government to reduce auto insurance rates by 15% as outlined in the 2013 Spring Budget. The hourly rates of kinesiologists have also not changed.

The revised Guideline is effective August 3, 2013 but technically there is no change.

The FSCO bulletin and revised Guideline can be found here.