The Ontario government is reviewing auto insurance! The Minister of Finance, the Hon. Vic Fedeli has said “the previous government’s failed system of stretch goals on auto insurance is clearly broken.”
Just how broken is Ontario’s auto insurance system? In a series of articles, OTLA will explore the key issues in Ontario’s dysfunctional auto insurance system as the province consider options for reform.
Part three– Just how broken is Ontario’s Auto Insurance System?
Issue: Ontario Auto Insurance: soaring premiums and profits with ever-declining coverage
We have known for some time that Ontario drivers pay far too much for insurance and get far too little. Last year, York University professor Fred Lazar reported on this situation.
According to his research, in the last five years, consumers overpaid by $5 billion in excess premiums or about 9.5% of the total premiums.
That works out to an additional $143 for every policy in Ontario per year, for each of the previous five years!
And as a result, profitability in 2016 soared to $1.5 billion. His report was a wake-up call!
Using publicly available data from the insurance industry itself, Lazar determined that auto insurance companies in Ontario made $1.5 billion in pre-tax profits in 2016 an increase of 57% or $534 million since 2012.
The increase was directly attributed to the widening gap between reductions in claims coverage costs and premiums. Lazar reported that in 2011, for example, average claims per vehicle declined by 27%. Premiums, on the other hand, barely declined.
Over the years and despite the protestations of poverty on the part of the insurance industry, the average profitability was 15.9%, or, more than three times the more reasonable 5.1% level that profits should have been. Make no mistake, that’s an excessive return. Ask yourself, are you making a 15.9% return on your money these days? Is it any wonder that insurance companies continue to attract capital and not one, single insurance company has left the market?
Sadly, Lazar noted that without fundamental changes, this gap in profitability is likely to remain for many years to come. It’s no wonder that, as he noted, insurance companies have had a relatively free ride for more than 20 years!
Lazar also pointed to the need for greater transparency and disclosure from the insurance industry:
“There is a lack of transparency in the data reported to and by the government for automobile insurance companies operating in Ontario. These companies do not report publicly the equity allocated to their auto insurance operations in Ontario, the net investment income attributable to such operations, or their actual operating expenses,” he wrote.
OTLA continues to call for greater transparency and reporting of the profits enjoyed by the automobile insurance industry as a first step in restoring balance in our auto insurance system.
Part two – Just how broken is Ontario’s Auto Insurance System?
Issue: Restrictions to Accident Benefits Coverage: Catastrophic Impairment
In 2016, the previous government brought in several harsh restrictions that hurt the most seriously injured auto accident victims.
Who are the most seriously impaired? The most seriously or catastrophically impaired auto accident victims have suffered the most debilitating injuries, including amputations, blindness, traumatic brain injuries, or paralysis.
The major changes to coverage introduced not quite three years ago, resulted in benefits being cut dramatically, making recovery for accident victims more difficult.
The first move was to make it a lot more difficult for people to be considered catastrophically impaired in the first place. A new, revised technical definition was introduced. The effect of the definition change meant only approximately 200 people a year would be designated catastrophically injured where previously upwards of 600 seriously injured accident victims would qualify. As a result, these individuals who were denied coverage would be forced to depend on scarce public resources to support their care and treatment thereby increasing the costs to the government.
Also, under the new definition, the test used to assess injuries would be applied much later than was done previously. This would mean that people would not receive early access to treatment when they needed it most!
The second, drastic reduction the previous government made was to slash the available coverage from $2 million to just $1 million!
Prior to the changes, a person who sustained a catastrophic impairment potentially had up to $1 million in attendant care benefits and $1 million in medical and rehabilitation benefits available. Attendant care is personal care that patients cannot do for themselves because of their injuries. It includes bowel care and other issues related to incontinence, bathing and basic hygiene. Medical and rehabilitation benefits included reasonable and necessary medication and rehabilitation expenses such as physiotherapy that are not covered under OHIP.
These benefits have now been reduced to a combined potential entitlement of $1 million. This means that $1 million of treatment funding has been unilaterally revoked from those who are most seriously injured, and, it must be stressed, with no reduction in insurance premiums. A million dollars may sound like a lot of money but, in the context of the round-the-clock care required for someone who has sustained serious injuries, a million dollars does not go very far.
With the reduction to $1 million, most such victims will run out of funding for their recovery and treatment long before achieving meaningful rehabilitation.
In such a case, an injured person would run out of benefits - all benefits - in under 15 years without even taking into consideration any of the victim’s treatment needs. In addition to attendant care, this victim would also require extensive rehabilitation, which would cost thousands of dollars per year. It is not uncommon to see all funding for such a person exhausted within 10 years of the accident, or less, for benefits that were supposed to last for the injured person’s lifetime.
When a victim runs out of funding but continues to have medical needs, they are forced to incur theses costs on their own or rely on social assistance. This in turn causes serious financial hardships for injured persons and their families and puts more pressure on our over-burdened health care system.
An accident victim who has sustained a traumatic brain injury may require 24/7 attendant care, feeding, mobility support, and transfers. Patients who require this type of service are often self-conscious, and prefer to receive personal care from family members.
The insurance limit on these benefits is only $6,000 per month. It may, and often does cost more in lost wages or to hire someone to provide the care, however those extra costs cannot be recovered through accident benefits.
One of the harsh restrictions introduced over the years made it a lot more difficult for family members to seek compensation through the insurance system for the personal care they provide to their loved ones. The current requirement that family members must suffer an economic loss to receive compensation is overly restrictive and unfair. They are performing a service and that service has value. It is unfair not to pay a family member for the work an outside support worker would be paid. In fact, family members can often provide better care, which can lead to a better outcome for their loved one. The patient’s familiarity with the family member also allows the patient to maintain greater dignity. And, most people do not want strangers in their house preforming very private matters like helping someone go to the bathroom.
The cuts to accident benefits for those who are catastrophically impaired impact everyone. It impacts the injured party and their families by causing financial strain and restricting the care they can receive; and it causes many of these expenses to fall to taxpayers through the victims’ reliance on social assistance and publicly funded healthcare providers.
First in a series – Just how broken is Ontario’s Auto Insurance System?
Issue: Restrictions to the right to sue - The Secret Deductible and the Threshold
You’ve heard of a $300 collision deductible… how about a secret $39,000 deductible?
Ontario’s dysfunctional insurance system restricts access to the courts for most injured accident victims. To bring forward a successful court action against an at-fault driver, it’s not enough to show that you were injured. To bring forward a successful claim for pain and suffering against the driver who caused your injury, you also have to prove that your injury is serious AND permanent.
Once you have met that high hurdle, your claim is still subject to a deductible of nearly $39,000!
Yes, you read that correctly.
When a judge or jury finds that you have sustained significant enough injuries to merit an award for pain and suffering damages, any amount payable is reduced by a deductible of $38,818.97, which is returned to the insurance company of the driver responsible for causing your injuries. Although the deductible does not apply to damages in excess of $129,395.49, the percentage of car crash victims who are awarded damages that exceeds this amount, is very low. The majority of people injured in car crashes in Ontario have almost $38,000 in compensation taken away from them – just to allow automobile insurance companies to make more money! The law does not let juries know about this $39,000 deductible. Effectively, it’s a secret! Most jurors will not be aware that an injured accident victim’s $50,000 damages award would be reduced to approximately $11,000 because of the deductible.
There is more bad news for people injured in car crashes in Ontario: the $39,000 deductible is indexed to inflation, and rises every year, which further erodes the already reduced compensation received by innocent accident victims.
But wait, in addition to a “Secret Deductible,” there is also a threshold!
The deductible and the threshold are a package deal to limit access to the courts to the benefit of insurers.
The threshold is a test used by the court to determine whether an accident victim should be allowed to recover for pain and suffering.
The threshold test looks at the injuries or impairment suffered by the injured accident victims in three ways.
First, a judge must be satisfied that the impairment is permanent.
This will involve a review of medical records, treatment, and what the witnesses say about the prognosis.
Second, a judge must be satisfied that the impairment is serious.
This is a bit more difficult to define, but it involves a judge considering what the level of impairment or injury is. The judge will consider the effect the injury has had on the life of the injured person including their hobbies, work, and family.
Lastly, the impairment must be to an important physical, mental, or psychological function.
This is a broad part of the test – what injury or impairment wouldn’t affect someone in one of these ways?
The deductible has been indexed to inflation, but the underlying no-fault accident benefits have not – in fact they have been cut dramatically over the years.
The logic behind having restrictions to the right to sue was that there was to have been an historic “trade-off”: giving up the ability to sue in exchange for ready access no-fault benefits. However, the no-fault benefits have been slashed drastically and, in particular by the previous government over the last 15 years, with the only benefit to insurers’ profit margins. The end result is further marginalization of accident victims, with even greater reliance on our public health care and social welfare system.
The threshold and deductible both have the same objective of keeping cases out of the system by denying the right to sue – the right to justice! By having both, cases that exceed the value of the deductible, and thus are not "smaller" cases, can still be unfairly eliminated by the threshold. Ontario is the only North American Jurisdiction to have both a deductible and threshold.