Moving Target

Once again, Ontario’s auto insurers are in the uncomfortable position of trying to forecast the effect of mandated, and untested, product changes. On Sept. 1, 2010, Ontario’s legislated auto insurance reforms will alter the Statutory Accident Benefits Schedule (SABS) and tort response for motor vehicle injuries. The changes may prove to be profound — or perhaps not.

The urgent need for cost relief drives some rushed decisions for insurers. Perhaps that’s not a bad thing: I suspect more careful, studious, and thoughtful evaluation of the known changes would not change the comfort level much. Whether the conclusion reached is optimistic or pessimistic, it has to be tempered by a sizeable measure of uncertainty.

A major problem for those who must forecast the impact of such product changes is the real- ity that subtle procedure changes cause significant loss cost changes. When the regulation is changed so — or interpreted to mean — that assessment costs or benefits are increased or decreased, this has a ripple effect that alters expenses, benefits, disability durations, SABS frequency, tort bodily injury claim frequency and the friction cost of claims resolution. It is not easy to quantify this in the best of circumstances. It’s even harder when confronted with an untested design change in the product.

A good example of this challenge is the new rule that limits insurers to spending $2,000 for an assessment. No doubt this reform is intended to respond to the grotesque assessment business fostered by the SABS. Ever since a Financial Services Commission of Ontario (FSCO) arbitrator decided insurers had to pay for assessments instigated by the claimant, this caught most insurers off-guard and created a new industry.

But many are questioning the impact of this reform. Will it be helpful or harmful? After all, insurers need assessments to inform claims-handling decisions and, ultimately, to support entitlement decisions challenged in dispute resolution at FSCO or in court. If they can’t get the assessments they need, especially from countervailing experts that could be marshalled in an adversarial process, this procedural change might well cause a marked uptick in indemnity costs.

Similar challenges are associated with many of the SABS changes. What is the impact of changes to “incurred” costs? What about the changes introduced to limit who can do certain kinds of assessments? Or, importantly, how will adjusters react to changes that contemplate denial of SABS claims without the precondition of an insurer assessment?

There aren’t any right answers to these questions. But business carries on, forecasts are made, rates are set and fingers are firmly crossed.

As the industry has moved through this process over the past few months, some comments have been made that highlight a concerning reality. Many industry leaders — those charged with making the very tricky forecasts — don’t really have a good grasp of what is involved in a SABS claim. It’s not for lack of interest, I hope. But it does seem peculiar that SABS claims should be such an unknown quantity for key decision makers. After all, for most property and casualty companies, these claims are the most significant cost drain for their most significant product, and in their most significant market. It’s hard to believe decisions are made with only an opaque view of the product.

Truly the key benefit concepts are well understood. The limits are understood. The concept of optional coverage has been mulled over with some muted enthusiasm. And everyone immediately recognized the critical issues of “minor injury” and “catastrophic impairment” as potential deal-breakers. But the next level of understanding is lacking. The very important, yet nebulous, procedural/ definitional reforms are not easily evaluated, and are impossible to evaluate without a very good sense of how SABS claims have become a field of game-playing and rule manipulation.

In a changing environment, the insurer that best understands the strengths and weaknesses of the reforms will fare best. With every set of reforms, some insurers are markedly quicker than others to recognize the new reality. This might be a good moment to enhance understanding, to allow a nimble response as the new version of this key product unfolds. One might ask if decision makers can do something to improve their chances of keeping on top of the issues.

Here’s a simple recipe for getting a good grounding. You could benefit from much more, but if you can’t bring yourself to do any more, this will give you a much better idea of what you are dealing with.

• Ask the claims people to give you one simple SABS file, and one complex SABS file. Read it from cover to cover — this may require stamina — and put yourself in the position of your team having to meet deadlines, deal with resource limitations, etc.

• Spend half a day with a front-line SABS adjuster. Help them handle their work. Find out what they do and why. Be sure to note the numerous transactions in which they are engaged that must meet various service level standards mandated by regulations, legislation, FSCO guidelines and courts.

• Accompany your ADR person to a FSCO mediation. This will probably take half a day. Think about how this kind of process, as an end point, drives behaviours in the earlier stages of a claim.

Just to enhance the value of this experience, you might debrief afterwards, asking how the SABS claims process meets your customers’ expectations of what they pay premiums for, and gain an appreciation of how much process/money is involved in getting (any) benefit to the customer.

This two-day experience will change your view of this core product. At a minimum, you will have a new respect for the challenges faced. Come September, you will speak with new authority about the reforms, and you will have a great answer when asked about how you spent your summer.

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The urgent need for cost relief drives some rushed decisions for insurers. Perhaps that’s not a bad thing: I suspect more careful, studious and thoughtful evaluation of the known changes would not change the comfort level much.

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Moving through the reform process, some comments have been made that highlight a concerning reality. Many industry leaders — those charged with making the very tricky forecasts — don’t really have a good grasp of what is involved in a SABS claim.