Fair Benefits Fairly Delivered - Marshall Report

Auto insurance in Ontario is mandatory. It comes in two parts. A no-fault part, (also called the accident benefits part) where benefits are provided whether or not a driver is at fault; and recourse to sue an at-fault driver for damages through a court action (also called the tort or bodily injury part). The insurance premium reflects the total cost of both parts.

Ontario delivers its program through private sector insurance companies. Alberta and Nova Scotia do the same. Other provinces (like Manitoba, Saskatchewan and British Columbia) run their insurance either exclusively or mostly through government agencies, while Quebec provides all the medical and rehab benefits through the province and allows private sector companies to sell insurance for damage to the car or other property.

Since it is mandatory for drivers to purchase automobile insurance, there is a corresponding responsibility on government to create a marketplace where fair benefits are fairly delivered, at a reasonable cost. This report examines Ontario’s auto insurance marketplace and provides recommendations for improvement.

Overall, Ontario has one of the lowest levels of auto accidents and fatalities in Canada and the most expensive auto insurance premiums. Historically, periods of cost reduction have inevitably been followed by cost increases. What is more disappointing is that while the number of automobile accidents in Ontario – especially very serious ones – have consistently come down, the cost of claims has consistently gone up. Ontario also has one of the least effective insurance systems in Canada. It is filled with disputes and inefficiencies, and a very high percentage of premiums are being used to pay experts and lawyers and not going directly to injured persons.

The opportunity gap: Ontario’s average auto insurance premium for 2015 at $1,458 per vehicle, represents a significant expenditure for the average Ontarian. That premium is 24 per cent higher than Alberta’s, double the premium in Quebec and almost 55 per cent higher than the Canadian average, excluding Ontario. Ontario drivers pay about $10 billion in insurance premiums a year. If Ontario could achieve a premium level approaching the Canadian average of about $930 it would save Ontario drivers almost 40 per cent off its current level – about $4 billion a year or some $20 billion over a five-year period – that’s the opportunity gap.

The value gap: No one in the system is actively managing medical care for accident accident victims. There are clear indications that accident victims are not receiving appropriate care, they are taking longer to recover and many report that they have developed permanent impairments from simple soft tissue injuries – that’s the value gap.

The structure is flawed: Current trends do not indicate that the system will self-correct. Claim costs continue to rise while automobile accidents continue to fall. The main cause is not inefficiency or excess profits by insurance companies or the behaviour of claimants, providers or lawyers. It is the way the system is structured.

The goal of the government is to provide a guaranteed safety net for those injured in auto accidents. Guranteed safety nets work best when they are administered by a government agency, which is an administrative tribunal, with authority to interpret the governing legislation and set policy and practices. Private sector insurance companies work best when they can write policies with defined conditions and benefits. Ontario has devised a guaranteed safety net for victims of auto accidents and outsourced it to insurance companies without giving them the authority to decide how to deliver it.

The legislation is at once very broad and open to a wide latitude of interpretation and at the same time regulations are very prescriptive as to how insurance companies can deliver the product. This creates an opening for disputes as to interpretation on the one hand and restrictions on efficiency on the other. It is a structural flaw in the system.

The results are not good: There is little agreement as to what constitutes fair diagnosis and care for injuries. Consequently, many applications for benefits are rejected based on medical opinions obtained by insurance companies while claimants hire lawyers and generate countervailing medical opinions. Simple minor injury sprains and strains (80 per cent of claims) often take over a year to settle and incur high medical costs. Instead of a system that helps accident victims recover from their injuries, a significant portion of the system has been diverted into a cash settlement system in lieu of care. Each year about one third of benefit costs, some $1.4 billion – about $7 billion over five years – is being paid for competing expert opinions, lawyers’ fees and insurer costs to defend claims – instead of going to treatment of injured parties.

The solution does not lie in reducing benefits. Fair benefits must be taken as the starting point in any recovery, and they must be delivered fairly. If these two conditions do not exist, the system will always fail to meet expectations. Nor does the solution, purely from a cost point of view, lie in changing from a private sector delivery to a public sector delivery system. Run properly, the premium cost for drivers under either system can be roughly the same.

While Ontario’s benefits, taking into account both the no-fault and tort portions are, on the whole, fair, they are not being fairly delivered. The main cause is that the system does not promote a timely, conflict-free means of deciding what care is needed and providing it to accident victims. The system allows participants to work at cross purposes to its original goals:

• Insurers do not aim to provide care to their customers rather they focus on controlling costs.
• Accident victims may seek to maximize their entitlement rather than address their need.
• Lawyers working on contingency fees work to boost the value of claims.
• Providers are paid on volume of treatments, not results.

The system has strayed far from its goals. Justice Cunningham in his review of the Ontario dispute resolution system put it this way: “the whole notion of getting benefits to deserving claimants quickly and inexpensively has been lost.” ¹

Broadly speaking, this report outlines a five-part action plan.

First, the government should fix the structural flaw in the system by setting up an arms- length regulator with a skills-based board. Thankfully this is already underway through the creation of the new Financial Services Regulatory Authority in Ontario. The legislation should set broad policy goals for auto insurance in the province and give the regulator powers to enact policies and procedures. The regulator must substantially overhaul existing Regulations to make them simpler to understand and easier to apply. The regulator will need to be very much more involved and proactive in the functioning of the auto insurance marketplace than it is today.

Second, the system of compensation for catastrophically injured persons needs to be substantially changed. Cash settlements are being drained by having to pay legal fees and, in any case, cash settlements often do not adequately meet the needs of catastrophically injured persons. They need lifetime care as their needs and available treatments will change over time. This must be actively explored with the Ministry of Health and Long-Term Care.

Third, the system needs to adopt a care not cash approach. The solution lies in focusing on timely, appropriate medical care, not cash settlements. All the other expenses such as wage replacement, attendant care, pain, and suffering build from the basis of the extent of recovery from an accident. The regulator must create programs of care – evidence-based treatment protocols, used extensively in several Canadian judrisdictions– that cover most common injuries. The programs of care need to be kept up to date and new ones introduced where necessary. Investment needs to be made on research into the diagnosis and treatment of mental stress and other neurological injuries.

This serves to avoid disputes as to what care is appropriate and delivers care to the majority of injured parties immediately. Where the programs of care don’t apply, or don’t work, a roster of hospital-based independent examination centres should be established by the regulator to provide diagnoses and future treatment plans. Insurers must provide the treatments prescribed in the programs of care or those that are stipulated by the independent examination centre without dispute. The advice given by the independent examination centres should be taken as mandatory in accident benefits and tort disputes and courts should afford these opinions a zone of deference in tort cases.

Where the legislation provides for care, care should be provided and not cash. This shifts the focus to the needs of the patient rather than the amount of the settlement.

Fourth, contingency fees for lawyers should be made much more transparent. The need for accident victims to hire lawyers to access benefits needs to be greatly reduced by simplifying the benefits and making them more readily available. And lawyers need to be held accountable for much more transparency in how they advertise and how they charge their fees.

Fifth, the auto insurance industry is likely to undergo major changes over the next ten years as innovation and competition from non-traditional sources come into the picture. The current regime of heavy regulation and price controls is poorly suited to adapt to the future. More open systems should be explored including changes to allow insurers to introduce new consumer products and to compete more freely on price and service in the marketplace.

There are several other supporting and useful recommendations that, for example, address more efficiency in the dispute resolution system; suggestions to improve the fairness of the tort system; ways to provide better education to consumers and improve innovation in the marketplace.

Ontario must strive to close the opportunity gap and achieve a premium rate for insurance that is close to if not at the Canadian average of about $900 a year. Ontario must also close the value gap in its service and obligations to accident victims. There is absolutely no reason this cannot be achieved.

No one government bears the responsibility for the current state of automobile insurance in Ontario. Successive governments from all political parties over the past 30 years have tried to improve the cost and value that auto insurance delivers to the citizens of Ontario. No-fault benefits have been increased and decreased, access to tort has been increased and decreased, private vs. public delivery has been analyzed, cost control measures have been tried, anti-fraud measures have been introduced and freezing of insurance premiums has been tried. None of these measures has succeeded in improving service or reducing costs for a sustained period.

There is no magic bullet. To achieve lasting value for its citizens, the government must push beyond the old methods of tinkering with aspects of the system and make some of the structural changes to the delivery system as recommended in this report.

There is no need to make any reductions in benefits; indeed, catastrophically injured accident victims can be better served. There should be new investments in health care particularly for brain and mental injuries, such as chronic pain. Access to early, appropriate, health care should be made readily available. Accident victims will recover faster and fewer will develop permanent impairments from their injuries.

Disputes will be significantly reduced. Billions of dollars currently being spent on disputes can be diverted and made available to provide benefits for accident victims and those who pay premiums. The focus of the system will change from managing costs to helping injured paries recover and return to their former functioning lives. Insurers can compete on service and price. There will be robust and independent regulatory oversight.

None of the measures proposed in this report is revolutionary. There is no need to make a disruptive change from a private to a public system of delivery. The government has already put in place legislation to create an independent regulator and evidence-based programs of care are already being used to benefit thousands of injured persons in other jurisdictions across Canada. In Ontario, hospital-based teams are already engaged in providing independent opinions of future care where needed, and catastrophically injured persons are already receiving lifetime care rather than cash settlements in some auto insurance jurisdictions in Canada and in all of the provincial worker compensation systems.

The biggest challenges will be in implementation. The independent regulator will be a new function and will have to evolve into its mature role in regulating the auto insurance industry in ways that help it deliver good value. Insurance companies will have to change from managing cash to managing care. There are plenty of examples of how this is being done today from which they can learn. Structural change does take time to deliver results. In the case of automobile insurance, the results are likely to be felt in eighteen months to two years from when action is taken. This is likely sooner than one would expect from such a transformational change in such a large system, but not as soon as some might like, namely an immediate reduction in costs.

The rewards are great for all parties concerned; and best of all they are sustainable. Ontario has an opportunity to lead the way in auto insurance.