Waiting for Godot

The most frustrating thing about Ontario’s recently announced auto insurance reform package is why it took the Ontario government so long to produce it.

After all, with one particularly notable exception (to be discussed below), the province’s package of 41 reforms to Ontario’s auto insurance system essentially mirrors the 39 recommendations made by the province’s insurance regulator, the Financial Services Commission of Ontario (FSCO).

After spending at least a year in consultation with industry stakeholders, FSCO made its recommendations to politicians way back on Mar. 31, 2009.

At that point, the provincial government said it would do its due diligence and get back to everyone with a reform package by the end of June. This became July, which became the rest of the summer, which became the fall.

By early October, with no reforms in sight, Canada’s federal solvency regulator publicly advised Ontario auto insurers not to pin all of their hopes on reforms and to seek rate relief while they waited.

Lo and behold, Ontario auto insurers asked the province’s regulator for — and received — an average rate increase of 6.2% in 2009 Q3 (when weighted by market share).

Suddenly the public started making noise in the daily papers about rate increases. The public blamed the insurers, of course. But in the meantime, the Ontario government was dithering on its reforms, which FSCO had presented six months ago as a way to mitigate insurers’ mounting losses associated with accident benefits claims.

Now here we are in November 2009, nearly two years after the deadline passed on the government’s mandated five-year review of the auto insurance product, and we have a reform package nearly identical to the recommendations FSCO made to the government half a year ago.

What’s up with that?

One reason for the delay seems rooted in a key change the government made to FSCO’s original blueprint.

Initially FSCO recommended, and insurers supported the idea, that the province’s cap on medical and rehabilitation benefits for non-catastrophic injuries be reduced from Cdn$100,000 to Cdn$25,000. (The consumer would then have the option to purchase a higher level of benefits.)

The medical-rehab community responded — rather publicly, in fact — that if people opted to pay for the minimum Cdn$25,000 of coverage, then consumers might potentially run out of insurance money to pay for treatment of non-catastrophic injuries.

These concerns, which FSCO had no doubt already taken into account after its public consultation, seems to have caused the government to backtrack in July. Three months later, the government came back with a Cdn $50,000 cap on medical/rehab benefits for non-catastrophic injuries.

Akin to FSCO’s recommendation for the Cdn$25,000 cap, consumers with Cdn$50,000 worth of med/rehab benefits will have an option to buy more coverage, including Cdn$100,000 or Cdn$1 million.

Three months is an awfully long time to resolve a basic issue of quantum. Essentially it took that long for the government to wimp out on going ahead with FSCO’s original proposal, which, frankly, was better for insurers.

At a recent CEO panel during the annual conference of Ontario’s insurance brokers, one insurer commented that the mandated five-year auto insurance review process should be scrapped in favour of something more timely and responsive. We couldn’t agree more.

To this end, perhaps the most encouraging aspect of Ontario’s reform package is the government’s stated intention to establish an advisory committee made up of consumers, insurance industry experts, health care providers and legal representatives to “help advise the government on longer-term reforms.”

According to the government, these longer-term reforms are to include “improved outcome-based treatment protocols for minor injuries” and the “best approach to control medical and rehabilitation costs.”

Hopefully, this advisory committee will be a permanent standing committee. And hopefully it won’t be mandated to meet every five years. Otherwise, if the province’s tardy handling of this past review is any indication, nothing will get done.

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Nearly two years after the deadline passed on the government’s mandated five-year review of the auto insurance product, we now have a reform package nearly identical to the one FSCO presented to the government half a year ago.