Fuelling Discontent

For many years, the automotive industry has improved the design and construction of passenger cars to protect occupants and reduce collision-related deaths and injuries. Despite the advances, however, statistics show that there is a greater percentage of injuries per mile driven now than in the past.

There has never been a serious study to determine if the increase in the number of injury claims is the result of the frequency of accidents or vehicle design. It does appear that minor injury claims have risen at a greater proportion to serious claims. It also appears that serious claims are investigated in greater detail than minor claims, with the latter being dealt with on a casual basis under accident benefit coverage.

MORE MINOR INJURIES, YET SAFER VEHICLES?

If the effort to improve vehicle design has not reduced injuries, what other factors are contributing to the increase in minor injuries? In general, minor injuries are settled quickly under accident benefits and under current rules. In the past, under the tort system, injuries had to be proven and were not paid quickly.

Also, lawyers tended not to give much attention to minor injuries since evidence was required to prove liability and the loss sustained had to be proven in great detail. Because losses were not settled quickly, this demanded an investment of both expense and time. Only injuries that were obvious could be justified.

A review of the last 60 years will explain how the insurance industry has arrived at the present. In the early 1950s, auto accidents were few and far between – or so it seemed. Perhaps more likely is that automobile accidents were just as frequent as today, but people did not claim unless injuries were serious. Compensation was not generous, injuries had to be proven and insurers did not settle claims without sufficient proof.

Since lawyers in Canada and the United States did not advertise, there was no market for so-called “ambulance chasers.” No-fault coverage did not exist and serious injuries were dealt with in the courts.

So what caused the changes being experienced today? Not only are cars built safer to prevent injuries, people on average are healthier, hospitals are better equipped to deal with injuries that do occur and more drugs are available for treatment. All that said, the change in attitude is the result of several reasons, not any one.

NON-VEHICLE-RELATED DRIVERS FOR HIKE IN CLAIMS

Years ago, the law society in the U.S. decided to allow lawyers to advertise. With most hospitals south of the border being private, it appears that automobile claimants were seen as an excellent source of income. In light of the potential return, lawyers could order every available test, supporting the view that their clients were receiving necessarily comprehensive and excellent care.

When general expenses become larger, special awards are also apt to increase.

Although hospitals in Canada are not private, some clinics certainly are. In Ontario, many clinics are not licensed or approved as health providers, allowing for conditions in which fraud can flourish.

Before no-fault insurance was introduced in Ontario, a study carried out in 1986 considered, among other issues, the availability and cost of automobile insurance. The one item that stood out was the high fees paid to lawyers, which represented a high percentage of injury payments.

The conclusion arrived at was that simple injury claims could be dealt with by insurance adjusters without regard to fault. In this way, the high legal fees could be avoided in such claims.

Accident benefits were introduced with minimal benefits which, over the years, have increased.

This was the beginning of no-fault, prompting clinics to spring up and take advantage of this newfound income. With lawyers also given the authority to advertise in Ontario, yet another new form of income was created.

Among other things, paralegals – initially, not licensed – began negotiating with insurers on behalf of people who were in auto accidents. (The law society later became involved and paralegals are now required to operate under the direction of lawyers.)

Being able to represent injured people at mediation hearings and arbitrations fuelled growth of additional law firms. Following the U.S. lead, some laws firms in Ontario became busy enough that they began sharing clients with smaller firms that did not advertise.

By using unlicensed clinics, it is easier to build claims under no-fault than it was under the tort system. More than 40% is now allocated under no-fault for legal fees, a concern that certainly existed under the tort system, but that has since worsened.

NEED FOR CHANGE IN DIRECTION

Over the past 30 years, the Ontario government has repeatedly made changes to no-fault in an effort to improve benefits and control costs. However, the government has failed to accept that the system is not working and changes will not eliminate fraud and growing legal fees.

Ontario should follow the lead of many U.S. states that returned to the tort system to control costs and reduce fraud.

No effort has been made to license all service providers under no-fault. And with advertising being used more and more by law firms, encouraging claimants to extend their pursuit for higher damages, costs could continue to rise.

With new ways to obtain money from corporations continuing to grow and develop, lawsuits related to all products, not just automobile insurance, could increase in step. In the mid-1980s, product and general liability insurance became costly for corporations and the market was limited.

Ontario has much greater problems than the cost of automobile insurance, and mandating insurers to reduce rates without the government controlling other costs, is not the answer to fixing a broken system.

The two main contributors to rising insurance costs are fraud and legal costs; these must be controlled. These two contributors will continue to cost Ontario consumers more each year until the provincial government takes definitive steps to deal with them.