Ontario Auditor General’s Report on Auto Insurance Regulation

Ontario’s Auditor General tabled 2011 Annual Report in the Legislative Assembly today. Features of the report included:

  • Auto Insurance Regulatory Oversight
  • Electricity Sector—Regulatory Oversight
  • Electricity Sector—Renewable Energy Initiatives
  • Electricity Sector—Stranded Debt
  • Forest Management Program
  • Funding Alternatives for Family and Specialist Physicians
  • LCBO New Product Procurement
  • Legal Aid Ontario & Office of the Children’s Lawyer
  • Ontario Trillium Foundation
  • Private Career Colleges
  • Student Success Initiatives
  • Supportive Services for People with Disabilities

Of particular interest to the litigation bar in Ontario was the Auto Insurance Regulatory Oversight, reviewing the operation of the Financial Services Commission of Ontario (FSCO) and the auto regime here.

The report emphasized the need of government to balance financially stable auto insurance with affordable and reasonable premiums that provide fair and timely benefits, as administered by the Superintendent of Financial Services. However, the report noted that the average injury claim in Ontario was about five times more than the average claim in other provinces, resulting in much higher premiums here, despite having one of the lowest per capita rates of automobile-accident deaths and injuries in the country.

Claims under the Statutory Accident Benefits Schedule (SABS) rose 150% between 2005 to 2010, even though the number of claims only increased by 30% for this period. Claims in the GTA specifically rose higher than the rest of the province, largely due to a concentration of plaintiff representation, resulting in higher premiums in the city.

The report indicated that it was too early to determine whether the 2010 changes to SABS, which I detailed previously here, had been effective. But they also noted that FSCO does not have any meaningful measure of its success. FSCO indicated that they expect 50-60% of SABS claims to fall under minor injuries, which are now capped at $3,500.

The report provided the following recommendations:

1) In order to ensure that the Financial Services Commission of Ontario (FSCO) can effectively monitor Ontario’s auto insurance industry, particularly claims costs and premiums, and recommend timely corrective action to the Minister of Finance when warranted, FSCO should:

  • implement regular interim reviews of the Statutory Accident Benefits Schedule to monitor trends such as unexpected escalating claims costs and premiums between the legislated five-year reviews, in order to take appropriate action earlier, if warranted;
  • monitor ongoing compliance with the interim Minor Injury Guideline, expedite the work to develop evidence-based treatment protocols for minor injuries, and identify and address any lack of clarity in its definitions of injuries;
  • implement its plans as soon as possible to obtain assurance that insurance companies are judiciously administering accident claims in a fair and timely manner; and
  • examine cost-containment strategies and benefit levels in other provinces to determine which could be applied in Ontario to control this province’s relatively high claims costs and premiums.

2) To reduce the number of fraudulent claims in Ontario’s auto insurance industry and thereby protect the public from unduly high insurance premiums, the Financial Services Commission of Ontario (FSCO) should use its regulatory and oversight powers to:

  • help identify potential measures to combat fraud, including those recommended by the Insurance Bureau of Canada and those in effect in other jurisdictions, assess their applicability and relevance to Ontario, and, when appropriate, provide advice and assistance to the government for their timely implementation; and
  • ensure development as soon as possible of an overall anti-fraud strategy that spells out the roles and responsibilities of all stakeholders— the government, FSCO, and insurance companies—in combatting auto insurance fraud.

3) To ensure that the Financial Services Commission of Ontario (FSCO) fairly and consistently authorizes auto insurance company premium rate changes while protecting consumers, FSCO should:

  • update and document its policies and procedures for making rate decisions—particularly for applications that differ from its own assessments—and for properly assessing rate changes in light of actual financial solvency concerns of insurance companies;
  • review what constitutes a reasonable profit margin for insurance companies when approving rate changes, and periodically revise its current assessment to reflect significant changes; and
  • establish processes for verifying or obtaining assurance that insurers actually charge only the authorized rates.

4) To ensure that the Financial Services Commission of Ontario meets its mandate to provide fair, timely, accessible, and cost-effective processes for resolving disputes over statutory accident benefits, it should:

  • improve its information-gathering to help explain why almost half of all injury claimants seek mediation, as well as how disputes are resolved, and to identify possible systemic problems with its SABS benefits policies that can be changed or clarified to help prevent disputes; and
  • establish an action plan and timetable for reducing its current and growing backlog to a point where it can provide mediation services in a timely manner in accordance with legislation and established service standards.

5) In order to provide the public, consumers, stakeholders, and insurers with meaningful information on its auto insurance oversight and regulatory activities, the Financial Services Commission of Ontario should report timely information on its performance, including outcome-based measures and targets that more appropriately represent its key regulatory activities and results.

6) To ensure that the Motor Vehicle Accident Claims Fund (Fund) is sustainable over the long term and able to meet its future financial obligations, the Financial Services Commission of Ontario should establish a strategy and timetable for eliminating the Fund’s growing unfunded liability over a reasonable time period and seek government approval to implement this plan.

7) In view of the fact that it has been five years since the last review of the assessment of healthsystem costs owed by the auto insurance sector despite the significant increase in health-care costs related to automobile accidents over the same period, the Financial Services Commission of Ontario should work with the Ministry of Finance, the Ministry of Health and Long-Term Care, and the insurance industry to review the adequacy of the current assessment amount.

FSCO has provided written responses to each of these recommendations, which is also included in the report.



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