Auto Insurance Anti-Fraud Task Force
Fred Gorbet - Chair of the Steering Committee,
In his presentation Mr. Gorbet laid out the structure of the task force, described the highlights of the interim report that was released last December and provided a brief update on our timetable for completion of the mandate that they have been given.
There is a working group on prevention, detection, intervention and enforcement, there is a working group on regulatory practices and there is a working group on consumer engagement and education. Each of these working groups is chaired by a senior public servant and has representatives from stakeholder groups as well as from government departments. In choosing the membership of the working groups, they adopted a working principle that says if you’re going to be at the table in a working group, you or your organization should have some accountability for being able to implement whatever recommendations the task force might make. There are no representatives of other groups that have interests but don’t have accountability. These other groups, have been invited to make presentations to the working groups or to the task force.
The Task Force tried to see what we could say about fraud. There is an estimate that has been around for some time about the cost of fraud in Ontario, auto insurance. The number that has been around for almost 20 years, $1.3 billion. They tried to figure out where that number came from; they could not.
They examined accident benefit costs from 2006 to 2010 using 2006 as the base and considered that rates that one might expect to be logically related to these kinds of drivers of costs. The answer they got was that there was an unexplained gap between what they estimated accident benefit costs probably should have been and what they actually were; a gap that amounted in the province of Ontario to about $300 per registered motor vehicle. In the greater Toronto area, the GTA, we did the same analysis and that gap amounted to about $700 per registered motor vehicle in the greater Toronto area.
Through an RFP process, the Task Force has engaged Ernst and Young to work with us and to work with the Insurance Bureau of Canada which had also engaged KPMG to try to do a quantitative estimate of the three different elements of fraud. That work is ongoing. It is nearing completion.
They also engaged Deloitte to do a jurisdictional scan, to do a report on what other jurisdictions that have similar types of auto systems and are experiencing fraud problems are doing in the areas of our three working groups to deal with those problems.
The Task Force is looking at other possible gaps in the regulatory system:
- they are looking at the towing industry and whether there should be greater regulation or oversight of the towing industry;
- they are looking at whether FSCO’s authorities with regard to the auto insurance business as a business are clear enough and broad enough;
- they are considering recommending that FSCO be designated as the regulator of clinics with respect to the integrity of the business processes;
- they are also looking at recommending that companies be required to disclose some of their practices in regards contracting independent medical examination providers and preferred providers.
It has been suggested to the Task Force that they recommend the establishment of a dedicated task force with prosecutors and law enforcement, to pursue criminal investigations. It exists in other jurisdictions but in the Task Force's judgment it would be really tough to try to transpose that kind of model into the Ontario justice system.
Then finally, their interim report sets out the need for a broad education and engagement strategy for consumers.
The Task Force has also formed a working group looking at HCAI. They are pursuing two different initiatives. HCAI is to actually send out regular statements to insurance companies of everything that has been billed to that insurance company by every biller. So it’s like a credit card statement. Secondly, they are working with the colleges to build a feature into the system that will allow health care practitioners through their college to actually access information about which billing facility is using that particular health care practitioner’s identity.
Financial Services Commission of Ontario
Philip Howell. Superintendent of Financial Services and CEO
Tom Golfetto, Executive Director, Auto Insurance Division
Auto insurance is mandatory in Ontario and has been since 1980. It is privately delivered in a competitive market. There are over 100 licensed companies in the province. These companies compete for the business of nine million Ontario drivers who drive 6.6 million vehicles.
In Ontario, the auto insurance system is a closed-loop system. In simplest terms, this means that the costs of the insurance system are recovered through premiums charged to drivers. These premiums fund the cost of claims, including the cost of treatment provided to those injured in accidents.
Historically, the reforms of the Ontario system have largely been motivated by the need to stabilize rising costs and premiums. The auto insurance system is complex, and there have been several reforms over the past 30-odd years. With each set of changes to the system, there was some initial success in stabilizing costs and premiums, followed by another cycle of rising costs.
The reforms announced by the Ontario government in 2009 and implemented in 2010 have addressed rising costs, many of which stem from abuse.
FSCO has assigned the responsibility for providing regulatory services that protect the public interest and promote public confidence in auto insurance. The FSCO act and the Insurance Act provide the legislative framework for this responsibility.
Insurers and actuaries examine patterns in past claims to estimate future costs. Their goal is to determine what rates to charge a consumer for the policy period to cover claims costs and operating expenses and to make a profit after taking into account investment income. Based on their actual experience, companies may need to revise their assumptions on prospective costs and future premiums. Insurers must submit proposed changes to their rates to FSCO for approval. FSCO reviews rate filings, analyzing the data supporting the insurer’s actuarial assumptions, to ensure that the proposed rate changes are adequate to maintain the financial solvency of insurers without being excessive.
Companies must file their underwriting rules with FSCO. These are the rules that insurance companies use to determine the risks that they may not accept. Regulations under the Insurance Act define the criteria that cannot be used to deny auto insurance coverage; for example, not-at-fault claims. Specifically, underwriting rules may not be subjective, be arbitrary, be contrary to public policy or bear little relationship to the risk.
Premiums vary based on the individual consumer’s risk characteristics. The mechanism for determining rates is an insurance risk classification system. Risk classification systems set out the factors that an insurer will use when setting the price they charge for auto insurance. They group risks with similar characteristics and expected claims costs.
As noted in the Auditor General’s 2011 report, in 2010 the average injury claim in Ontario was about $56,000. This was almost five times more than the injury claim in most other provinces and contributed to much higher premiums for Ontario drivers compared to those paid by drivers in other provinces. Accident benefits costs, the primary driver behind these increases, skyrocketed by 118%.
The most dramatic increase in costs occurred in the GTA, where less than half of all accidents involving injuries occurred. The cost increases and, consequently, premium increases in the years prior to the 2010 reform stem from the over utilization of accident benefits. Key factors contributing to the over utilization included some private health care practitioners providing services in the auto insurance system without due regard to outcome-based treatment results for injured parties, participants who use the system to their financial advantage, inadequate claims management processes by companies and outright fraud.
Currently, there are over 8,000 health care clinics treating those injured in motor vehicle accidents in Ontario. There are close to 29,000 health care providers authorized to treat those injured in accidents in Ontario; over 15,000 of these are members of regulated health care professions. However, the latest Ministry of Transportation data shows only about 62,500 people injured, the vast majority of whom suffer only minor issues such as soft tissue injuries and recover quickly.
Insurers bear some responsibility for over utilization in the system, particularly when it comes to claims management. To deal with the volume of claims they were receiving before the reforms, some insurers would simply approve requests for assessments without verifying whether they were necessary. . Legal and paralegal representatives also stepped up their activity; evidence is provided by the dramatic increase in claims being disputed in the dispute resolution process at FSCO. In 2006, FSCO received just over 13,000 requests for mediation. In 2010, we received over double that number.
Since the September 2010 reforms, the government had introduced several new measures. The 2011-12 Ontario budgets contained announcements about auto insurance. This focus appears to be motivated by a desire to avoid a repeat of past cycles, where rapidly rising costs and premiums followed a period of rate stability. Several of these measures reflect an outcome-based approach to treatment for those injured in accidents—an approach that is based on current medical science. Current medical science recognizes the risks of over treatment to successful patient outcomes for soft tissue injuries.
An expert medical panel was formed in 2010 to review the definition of catastrophic impairment. The expert panel delivered its reports in 2011 and these were posted on our website and followed by extensive consultations. Following those consultations, I submitted a report to the Minister of Finance with recommendations. The 2012 Ontario budget indicated that this report would be made public and also announced that the government would move forward to propose regulatory amendments to the definition of catastrophic impairment.
In response to a question about Bill 45, it was pointed out that the total amount of money raised would stay the same. The amount paid by individuals would vary dramatically, depending on where you live. The rates for drivers in Toronto would drop significantly. The rates for people in other parts of the province would rise dramatically.
Coalition of Regulated Health Professional in Auto Insurance Reforms
Moez Rajwani, Ontario Chiropractic Association
Karen Rucas, Society of Occupational Therapists
Jennifer Holstein, Physiotherapy Association
Faith Kaplan, Ontario Psychological Association
For over 10 years, the Coalition has worked with government and other stakeholders on numerous changes to the auto insurance system. Auto insurance in Ontario has been subject to numerous regulatory overhauls in the past 10 year, all with the intent of stabilizing or lowering premiums paid by Ontarians. The most recent round of reforms, which was implemented in September 2010, addressed many issues that were seen to be affecting costs in the sector.
The changes in 2010 made a significant impact on available medical rehabilitation benefits in particular. Funds available to those who are catastrophically impaired have not changed, however, those related to non-catastrophic were cut significantly. Basically med rehab benefits were cut in half to $50,000, with the cost of any assessments now included in that cap. However, the majority of patients will now only be able to access approximately $3,500 in benefits, if their injury is considered to be minor under the definition in the statutory acts and benefits schedule.
While the majority of people will likely get better under this framework, there’s no exemption for those people that require additional treatment once the minor injury guideline treatment and the total cap of $3,500 has been reached. It should be noted here that the $3,500 is a relatively arbitrary fee. It’s not something that was come up based on sort of that the treatment framework itself is based on scientific evidence but not the amount. So we may have gone from a program that is a little too narrow in its scope with the pre-approved framework to one that might be a little too broad.
Discretion for insurers was also introduced to limit the insurer need to seek an insurance examination for every dispute, even those where it would be reasonable to deny out of hand, so for instance, something really ridiculous or somebody resubmitting a treatment plan over and over and over again. However, providers are finding that insurers are using this discretion to deny what could be reasonable treatment without the opportunity for a patient to get a second opinion.
There is a gap between the $50,000 that’s available to a serious injury and that of a catastrophic injury, which is $1 million. Some patients run out of the $50,000 before they’re able to go through the application process of $1 million, which can happen at the two-year mark.
There was an introduction of a $2,000 cap on assessments. Again, FSCO mentioned that there was a rising cost in assessments and we acknowledge that and we realize that that is a concern. For certain remote areas outside of the GTA that require services, the $2,000 can be cumbersome because of travel costs. Some of the more complex assessments required for complex patients can also be a concern.
When you’re looking at the area of licensing, the Coalition want to remind everybody that there are regulatory colleges that exist that already licence us. We understand that sometimes they are not using their full authority in the business practice area, but before you start looking at full licensing in the auto sector we recommend that you look at the regulatory bodies and ensure that the systems that you already have in place are maximized before you go to the licensing area. In issues of non-regulated health professionals, the Coalition is supportive of a licensing system and we would support any measures that the government put forward.
Allstate Insurance
Tony Irwin, Manager, External Affairs and Consumer Relations
Saskia Matheson, Director, Risk Management for Auto and Property
Allstate Canada Group includes Allstate Insurance Co. of Canada, Pembridge Insurance Co. and Pafco Insurance Co. and employs over 600 people at our Canadian head office in Markham. Allstate Insurance Co. has 415 exclusive agents in 53 offices across Ontario with $498 million gross earned premium in 2011. Pembridge and Pafco are broker channel companies. Pembridge operates in the standard market, while Pafco is an alternative market for high-risk drivers. We work with 169 broker partners in 467 locations across Ontario with $189 gross earned premium in 2011.
There are four themes that have evolved, and they seem to remain true through all of those years of no-fault.
The first is the basic truth — that the more generous the system of benefits, the more tempting the fraud becomes. There’s bee a lot of discussion about fraud, and there are certainly differing estimates of the amount of that fraud. Those estimates range—from some studies that were done in Quebec in the late 1990s that put those amounts at around 10% of claim amounts and between 10% and 20% of claims dollars all the way to some US studies that put that number as high, at 40%.
In the same way that generosity of benefits leads to a temptation to fraud perpetrators, it also leads to the danger of administrative cost. The more dollars that are at stake, the more important each side sees the controls and the administrative completion of the forms and the checkpoints, and while these are absolutely crucial to ensure the fairness of the system, they also add cost. So it is truly important that we collaborate in streamlining that process and taking out as much administrative cost from the system as we can.
Allstate believes it is critical that all interested parties—the government, the industry—come together to make the product better.
In response to a question on territorial rating, it was noted that the rules that are in place for territory from FSCO, they have fairly complete and extensive rules about the number of territories that we can have—a word contiguity that none of us who work in insurance used to know until FSCO came on to the scene. But perhaps most importantly, there are rules to stop companies from creating territories out of a piece of street here and a bit of information over there. They must actually be a territory that you can look at on the map and draw a line around. They must have sufficient people in them to be statistically valid.
Insurance Bureau of Canada
Ralph Palumbo, VP Ontario
Barbara Suzenko-Laurie, VP of Policy
Pete Karageorgos, Manager of Consumer and Industry Relations
Auto insurance rates in Ontario are too high. The average private passenger auto annual premium in Ontario, as of April 2012, was $1,534. That compares with $1,051 in Alberta, $989 in Newfoundland, and in the 800s in other maritime provinces. While four years ago Ontario premiums were on average 25% higher than the next highest province—that’s Alberta—today, the average Ontario premium is now more than 45% higher than Alberta and almost twice as high as premiums in the maritime provinces.
How did Ontario’s insurance rates get so high? This is what we know: Ontarians are not the worst drivers in Canada. In fact, Ontario has the safest roads in North America. Cars are now better equipped for protecting passengers. There are 12% fewer serious accidents requiring hospital admission. So if the roads are better, cars are safer and accidents are less severe, what is driving up insurance costs?
Between 2008 and 2010, the industry lost a total of $2.96 billion on auto. In 2010 alone, the figure was $1.76 billion. I can say without any equivocation that during this period, when premiums were rising significantly, insurance profits were not a factor.
So what’s driving up the costs? You’ve heard it over and over again today. It’s claims, claims costs. If the problem was factors that insurers use to classify risk, like the sue of territory or, for that matter, any other factor, then we would see premium increases in other private sector insurance markets, like Alberta. But we don’t. Something very unique is happening in this province.
While the September 2010 reforms were a needed first step in reducing pressure on the no-fault injury costs, claims costs were still out of control. Why is that? Well, you’ve heard that there’s in excess of 30,000 unresolved claims cases awaiting dispute resolution at FISCO, and these have undetermined costs. Depending on how those cases are decided, it could very well re-ignite the accident benefits cost spiral.
Secondly, the number of catastrophic injury claims is rising faster than other claims. From 2004 to 2010, the number of all no-fault injury claims rose 28%, whereas the number of large claims has more than doubled.
Third, bodily injury claims costs are increasing rapidly. The latest figures show that the frequency of these claims has been rising, as has the average claims cost, and when you consider that the BI claims represent more than $2 billion in costs each year, it’s very concerning that the volume and average costs of these types of claims appear to be rising so rapidly.
Fourth, there is a persistence of fraud in the auto insurance system.
In response to a question about the impact on Bill 45 the IBC noted that all that Bill 45 would do is shift costs. Based on industry data the greater Toronto area as of 2010 has a $706-million deficit. So basically, drivers in this region have paid $600 million less into the system than what they’ve taken out. They’ve taken out more and that cost is what’s being spread out and proposed to be spread out beyond the GTA area. To address those cost issues and to recover that cost to ensure that you have the dollars to pay for claims, it’s going to require a spreading. Currently, we have territories that are used to determine those rates. When you eliminate that and create larger areas—for example, in the greater Toronto area right now if you take that alone as a CMA, you’re going to see rates increase on average about $300 to $400. That’s what this bill is going to force insurers to do, is look beyond that. In an area such as northern Ontario as we’ve said, those drivers there are going to be forced to pay for claims costs in southern Ontario.
Ontario Spinal Cord Injury Solutions Alliance
Dr. Cathy Craven
Mr. Rick Waters
Mr. Peter Athanasopoulos
Ontario Spinal Cord Injury Solutions Alliance is a network of key stakeholders related to patients with spinal cord injury. It’s comprised of 70 member organizations that includes clinicians, researchers, service providers, patients and their families, as well as research and health care funders. Our real reason for being here today was to respond to the proposed definition of catastrophic impairment.
One of the things proposed by the expert panel is the adoption of international standards for neurologic classification of spinal cord injury. So we do want to strongly endorse the panel’s recommendation related to that.
However, there are two recommendations that we had some concerns about. The first was that the patient or person must have attended an in-patient rehab facility. As you know, in our complex health care environment there are lots of other reasons why patients don’t end up in tertiary academic spinal cord injury rehab centres that relate to their level or complexity of care.
The other issue relates to point 4 in the definition which is—I believe that the panel was trying to make sure that patients who had very mild impairment, so those people who basically—if we call them “ASIA impairment scale D,” those are people who have had good motor recovery and have started to return to walking. We often have patients who return to walking, but, for instance, if they have a central cord syndrome, they can return to walking, they’re able to void spontaneously, but they have no hand function, so when they get to the toilet, they can’t undo their own pants. It’s sort of an interesting challenge for people. There’s also people who have problems with temperature and blood pressure regulation, with erectile dysfunction, respiratory function that isn’t really addressed in the definition, and the autonomic standards which are in your package, pick up on those and it is something that is also an impairment skill.
The other two issues we wanted to comment on are, is it important that the definition of “catastrophic impairment” also looks at the health complications and the difficulties of aging with health complications over a person’s lifetime. So it’s not only their impairment at day zero when they have their assessment of, do they meet the insurance threshold or not, but also what other health complications they’re likely to experience over their lifetime.
The other issue is, we thought it was important that the legislation specify who has the appropriate credentials to do the international standards for neurologic classification of spinal cord injury.
The two thresholds that are available are $100,000 and $1 million. There’s a lot of spinal cord care that is above $100,000. So the catastrophic issue for me, as a clinician who is trying to serve patients, is about the thresholds. But designating people in a timely way and allowing the system to move forward is much more helpful rather than these—many people are sitting in limbo and it’s becoming a financial hardship for them and their families to manage these people in the hope that there will be a settlement.
ProCare Health Group
Saeid Sarrafian, Owner
I’m in support of preventing the fraud, my submission is that regulating the rehabilitation facilities in Ontario will be a very big help, because as a health care practitioner, we are accountable to our regulatory bodies or colleges, but businessmen don’t have any regulation, and they can open any facility at any time, anywhere, under a corporation and hire physiotherapists or chiropractors or other practitioners to see patients. And since these people are not regulated, they can commit fraud put regulated health practitioners such as me into very unfair competition.
I would like to see rehabilitation facilities and assessment centres in Ontario be regulated, and by regulation, I mean only a regulated health care provider in Ontario can own and operate this facility.
If I want to complain about a chiropractor to the College of Chiropractors of Ontario my letter of complaint has to have my name and my name will be disclosed as they do not take any complaint anonymously.
On the other side, by reducing the cost to $3,500, I can see that big damage has gone to the patients, because I see a lot of clients in the clinic, and the amount of $3,500, the way it has been designed as blocks of treatment over a period of 12 weeks, won’t help the majority of clients, and the dispute is always between the patient and the insurance companies, and that’s why there are 30,000 cases now in FSCO waiting for decisions.
Another issue is, a lot of assessments are done by the insurance companies and a lot of them are not justified. A lot of them are a waste of money and they are just designed in order to deny claims.
Ontario Psychological Association
Dr. Ronald Kaplan
Dr. Faith Kaplan
Dr. Amber Smith
Dr. Brian Levitt
Auto insurance policy must balance maintaining a viable system, affordable premiums and providing benefits to injured accident victims for timely treatment. Multiple measures brought in in September 2010 appear to be controlling costs, reflected in statements regarding increased profits of insurance companies. Achieving cost control is important, but we must consider some of the consequences and determine if some adjustments may be necessary.
Auto accidents are the biggest cause of civilian brain injuries and post-traumatic stress, and the only way to measure impairments in thinking, feeling and behaviour after a traumatic brain injury is through proper neuropsychological assessment.
Depression is the number one reason for disability, and psychological treatment for depression, especially the kind experienced after an accident, is at least as effective as anti-depressants, in some cases more effective, and costs less than medication in the long run. But our patients, when they can’t access this care, are not the ones who will be vocal about the barriers they’re facing.
The application and approval process has become more adversarial. In our data, denials of treatment plans have nearly doubled but the second-opinion reviewers are approving nearly two thirds of those after the insurer denial. All that does is generate extra costs and delays and barriers for the people who need the care that was proposed in the first place.
In addition, insurers don’t always obtain an appropriate IE; sometimes they get other health professionals who don’t understand psychology assessment and treatment or the requirements of the SABS.
We also have the misapplication of the minor injury definition and minor injury guideline. We have a preponderance of cases, unfortunately, that are referred to us with clear concussions and clear post-traumatic stress that have been restricted to the MIG, the minor injury guideline.
The reduced $50,000 benefit is insufficient funding for seriously injured accident victims who may not be CAT and who haven’t yet been determined to be CAT. Accident victims with multiple physical injuries, brain injuries and psychological disorders may require intensive treatment, home modifications etc., and $50,000 doesn’t cut it.
A further restriction occurs by only allowing physicians to complete catastrophic impairment applications, the OCF-19s, except when there is only a brain injury, and patients with mental behavioural impairments are restricted because they’re unable to have their application completed by psychologists with appropriate expertise in diagnose and rating.
You may hear a number of things about combining physical and mental behavioural impairments with respect to catastrophic. One thing that I want to mention with respect to that is that valid and reliable mental and behavioural ratings can be determined. I have several published articles addressing this that we’ll include in our written submission.
Brown and Korte
Harry Brown, Senior Partner
I was here in January 1988 for Bill 2. I don’t think any of you know what that was, but Bill 2 was the start of the Ontario Insurance Commission; it was the start of FSCO, the Financial Services Commission of Ontario. From there, it took a year, with the hearings on no-fault legislation and other related matters and so forth. I’ve done about 100 cases at FSCO, and I do a lot of the insurance work.
The problem is, though—it’s my submission to you—that there is insufficient proactive regulation of the auto insurance product.
The current regulation hasn't solved the problems in the system. There are issues with the MIG and catastrophic impairment. You’ve got the problems of regulation of not just the fraud issue; you’ve got the regulation of the health care providers.
But the signs of the system breaking were there for four or five years before. You can see in 2004, rates were going up dramatically for assessment costs. But the signs of the system breaking were there for four or five years before. You can see in 2004, rates were going up dramatically for assessment costs.
In 2004, we did a study for RBC that showed that on average you were getting six or seven treatment plans for, say, a $1,500 whiplash. In 2009, you’re getting 60 applications for treatment. You’re getting 60 applications for assessments, and by August 31, 2010, the cost of assessment was more than the cost of treatment.
The 42.1, the rebuttals, that’s one of the major reasons why at 30,000 FSCO mediation stalled. I went to Willie Handler, really the policy guru for FSCO, in 2009 before he issued his white paper on March 30, 2009, and said the rebuttals had to come out.
What I’m saying is there has to be a proactive approach to the auto issue, because these problems are still here. They’re going to fester. I’m not saying which policy should be enacted. That’s for you people to figure out. What I’m saying is there has to be an annual review of the product to put it in balance on a yearly basis.
