Out of the Frying Pan…

On the heels of a Nova Scotia Superior Court decision that upheld the province’s Cdn$2,500 minor injury cap, the province of Nova Scotia went to the polls and elected a premier whose campaign promises included auto insurance reform.

Private auto insurers across the country have commented on the rate uncertainty as a result of constitutional challenges to auto insurance regulations in Alberta, Ontario, New Brunswick and Prince Edward Island.

In Nova Scotia, shortly after insurers exhaled a sigh of relief about the court’s cap decision, Darrell Dexter, head of the Nova Scotia New Democratic Party, became the premier of the province in a near-landslide victory. During his campaign, Dexter voiced his preference for a deductible in the $10,000-$15,000 range instead of the current cap on minor injuries. Local media quoted Dexter during the campaign as saying that he believed the benefit of lower premiums for the general public, which flowed from the cap, did not outweigh the harm the cap caused to the injured parties.

As Nova Scotia insurers ready themselves for the Court of Appeal in the fall, with the very real possibility that the issue will make its way to the Supreme Court of Canada, one has to wonder whether or not ongoing cap challenges might be derailed by Dexter making a legislative change to impose a deductible — which would essentially give the plaintiff’s bar its desired outcome (i. e. no caps) by other means.

“The new premier has a majority of Nova Scotians voting for him and he made it clear during the campaign that he thought these caps were bad public policy and they were limiting compensation to people that shouldn’t have it limited in that way,” George Cooke, president and CEO of The Dominion, says. “He quite properly has the mandate of the people to go ahead and do that.”

Two questions need to be asked, Cooke says. They are:

• what is the will of the legislature today, as elected by the people of Nova Scotia?

• what was the will of the legislature in 2003 [when the caps were put in place]?

“It appears that the courts have said that the will of the legislature in 2003 was that it was okay to have these caps, and the public got the corresponding premium decreases,” he continues. “Today, the public may say: ‘It’s okay, we’ll pay more for auto insurance because we want to provide an increased level of compensation to these people that aren’t seriously injured.'”

Bob Fitzgerald, executive vice president of marketing and underwriting at Aviva Canada, says deductibles, although seemingly positive in terms of controlling costs, have proven to be less stable than regulated caps or any combination of a cap and a deductible.

“Deductibles are less stable because they can raise the bar on awards,” Fitzgerald says. “Theoretically speaking, if it’s a $25,000 event with a $3,000 deductible, in time courts will inflate the awards to $28,000 in order to back the deductible out.”

Deductibles are intended to control prices, he continues. “But in time what we actually see in other jurisdictions is that it doesn’t actually do that; in fact, it accelerates price inflation.”

Information from Insurance Bureau of Canada notes that Newfoundland implemented ” a Cdn$2,500 deductible on pain and suffering awards for minor injuries in 2004. This “did not effectively reduce the cost of court awards, and will not provide the long-term cost control that has been seen in the other Atlantic provinces [using a] $2,500 cap instead of just a deductible,” IBC’s information says.

REVIEW PENDING

Shawn Fuller, director of communications for the premier’s office in Nova Scotia, says the newly elected party is in the process of assessing its priorities. He confirmed that a review of the auto insurance legislation is on the list, but it is not a top priority. In the next fiscal year, he said, the government will conduct an independent review of auto insurance, in which case stakeholders will be consulted.

Bill Adams, IBC’s vice president of the Atlantic Region, notes that during the province’s 2003 election, auto insurance ranked second (after health care), on the list of hot issues for voters. This time around, it didn’t even register: less than 0% of Nova Scotians cited it as an issue that needs to be addressed.

“Darrell Dexter has been clear both publicly and in conversations that we have had with him that because it’s not on the minds of Nova Scotians, [auto insurance is] not a key issue for him that he will be addressing early in his mandate,” Adams says.

“Having said that, he has indicated that he will be conducting a review and would have a preference for a deductible over a cap.”

At what level would the deductible have to be set to maintain current premium levels? The answer remains uncertain. Adams says IBC is willing to crunch the numbers and bring the results to the table, allowing Dexter’s government to make an informed decision that is in the best interests of Nova Scotia drivers.

John Pino, president of Insurance Brokers Association of Nova Scotia, also remains cautiously optimistic that the government “does not appear to be ready to make any knee-jerk reactions.” The being said, Pino continues: We suspect that the personal injury lawyer lobby will increase strongly over the next little while.”

Pino says the cap has brought a great deal of stability to the marketplace. If major reforms were to occur, he adds, “there could be the possibility of insurers pulling out of Nova Scotia or restricting business. And if they are permitted to increase their rates significantly according to their models, then the furore among the public will be outrageous.” That furore, he adds, always raises the spectre of government-run auto insurance.

“At this point, we’re cautiously optimistic that Dexter is going to consult and take a very good look at this,” Pino says. “We may not entirely agree on everything, but he’s certainly willing to listen to us and he’s certainly shown that to us. We’re hoping that common sense will prevail if he decides to undertake any reforms.”