Where have all the auto claims gone?

Bodily injury and auto collision claims are down across the country and deductibles lurk in the shadows as the chief culprits, as reported in an October KPMG conference in Toronto.

In addition, those who attended the KPMG seminar, entitled ‘Where have all the claims gone,’ received some practical advice about the direction of future claims litigation.

In response, panelist George Cooke, the president and CEO of The Dominion of Canada General Insurance Company, noted Ontario’s legislative reform shave had the positive effect of clearing money out of the court system. They have curtailed any financial incentive for charging exorbitant legal fees or inappropriately pursuing damage claims within the province’s court system, he observed.

Igal Mayer, the president and CEO of Aviva Canada, kicked off the KPMG seminar discussion with a presentation of recent auto insurance statistics, which show a nation-wide decline in the number of bodily injury claims.

In New Brunswick,

the number of bodily injury claims between 2000 and 2004 dropped 38%, Mayer noted. In Alberta, bodily injury claims are down by 24%, and in Nova Scotia claims are down 21%. Newfoundland’s bodily injury claims decreased by 14%, while Ontario – which introduced auto insurance reforms in 2004, and thus would not have seen the impact of the reforms in the 2004 stats – saw a decrease of only 6%.

“Most folks in the industry will tell you the most effective piece of reform for eliminating minor injury claims is in New Brunswick, and that’s where we’ve seen the largest drop in frequency,” said Mayer. “The minor injury cap in New Brunswick is the tightest and the most effective and, lo and behold, you’ve got a 38% drop in frequencies.

“In Alberta, same thing – a pretty effective design of the cap there and you can see it’s paying dividends; the same with Nova Scotia.

“In Newfoundland, for those who aren’t aware, there was not a minor injury cap. It was a deductible. Many of us [in the insurance industry] are concerned about the sustainability of that, but in the short term it is having an impact.

“And lastly, Ontario, as expected, we did not fundamentally change the bodily injury contract. It works the way it did prior to Bill 198. And as I expected, and as the industry data tells the story, we’ve seen a relatively minor drop in frequency over the past four years.”

Collision frequency claims are also down across the country. “The range here in the drop in frequency over four years is between 9% and 33%, depending on the province,” said Mayer. “Quebec is smack dab in the middle, [a] 17% drop in frequency.”

Mayer cited a list of possible reasons for the statistical trends. “It is the higher deductibles,” he began. “Collision deductibles today are much higher than they were before. We don’t see very many claims under $1,000 anymore. In fact, the proportion of the claims under $1,000 is negligible. Now, that is partially fear, but it’s actually more driven by the deductibles…”

Mayer also referred to the so-called “fear factor,” in which people are afraid to make policy claims for fear their premiums will increase. In addition, he noted, better safety technology in cars – including the introduction of air bags and stability control – has cut down on the number and severity of accidents. Plus, high gas prices and, ironically, high precipitation rates may have cut down on the number of accidents in Atlantic Canada, he said. Mayer observed that in some parts of Atlantic Canada, cars could not even get out of their driveways because of major snowstorms, thus cutting down the number of possible collisions.

Meanwhile, in Ontario, debate is raging over whether newly introduced damage thresholds are responsible for reduced bodily injury claims. In Bill 198, Ontario introduced maximum caps of $30,000 for a victim’s pain and suffering and $15,000 each for the pain and suffering of the victim’s individual family members.

“I know that the reforms, with the thresholds – with the $30,000 and $15,000 deductibles – were intended to take out of the system the smaller claims,” acknowledged McLeish, a past president of the Ontario Trial Lawyers Association. “But in my view, they’ve taken out much more than smaller claims.”

“[Plaintiff] lawyers tell me that without question, business is awful. Insurance adjusters tell me that business is awful; that claims are way down. Most of the adjusters I know are trying to get out of the auto business to give their business a little balance.”

As a result, plaintiff lawyers are starting to look for ways to erode and/or bypass the large deductibles, McLeish told his audience, which was made up primarily of people in the insurance industry. Said McLeish: “lawyers are getting far more creative with advancing economic loss claims.”

In particular, he said, lawyers “are getting far more sophisticated at developing something called the the loss of household and pain and damage capacity claim. You do not need to meet the verbal threshold even to advance that kind of claim.”

Such claims attempt to recover money for victims that can no longer perform routine household chores, or who feel pain when using their skills to improve the household property – such as building new decks, renovating the basement, etc.

“What we look for now is to see if a person lives in a house with substantial property, and if that’s the case then watch out,” McLeish said. “That’s different than a person living in a rental apartment or condo, because the requirement for household labor is much greater on the house with some property.”

McLeish said it’s not necessary, in order to advance the claim, that a victim can’t perform the tasks any more. The point is obtaining compensation for the pain and discomfort that such tasks now cause during or after the activity. McLeish said he tells the court: “If it causes that injured person pain and discomfort to do that activity during the actual activity, or during a period of time afterward, it’s unfair and unreasonable to ask him to do so.”

He added: “Judges hate laws that take away rights. It’s a fact of life that historically thresholds have just eroded…I’m hopeful that the same will happen under Bill 198.”

Cooke agreed higher deductibles in Ontario have taken money out of the system. But he added the positive impact has been to curb abuse.

“One thing that is very clear to us is that, prior to the reforms [in Ontario], prior to two years ago, there was too much money in the system,” Cooke said. “People were charging for activities at rates that were too high and the total cost was too great. Whether there was total fairness or not, inherent in all the reforms, when you took the money out of the system, you also took the abuse out….

“It may well be that some of the abuse came out of the system because there wasn’t enough money in the system to pay for the abuse. It’s hard to know.”

Even so, said Cooke, the higher deductibles in Ontario still don’t explain where the claims went. He added it’s still “far too early to tell,” because bodily injury claims take a long time to work their way through the system.

McLeish noted bodily injury claims could take an average of three to four years to work their way through the courts. Consequently, Cooke said, given the Ontario reforms have only been in place for two years, it is still too early to tell whether claims decreases represent a temporary phenomenon.