“Auto insurance reforms take effect Wednesday” |
| Auto insurance reforms take effect Wednesday Posted: 31 Aug 2010 02:52 PM PDT Madhavi Acharya-Tom Yew Business Reporter The provincial government and the auto insurance industry say reforms slated to take effect Wednesday will eventually lower the cost of premiums and help cure what ails the system. Consumers and long-time industry experts aren't so sure. The standard premiums won't change, but medical and rehabilitation benefits for injuries that are not catastrophic will be cut in half on as of Sept. 1. So drivers who want to maintain their current level of coverage will have to pay more when their policy comes up for renewal. How much depends on your insurance company. These and other changes are meant to curb fraud and waste by professionals who provide rehab and medical services. That's been driving up the cost of insurance, particularly in the Greater Toronto Area. "These reforms will help keep the rate of growth in premiums down," Ontario Finance Minister Dwight Duncan told the Star. "At the same time, they will provide a variety of insurance and coverage levels that are equal to or better than every other province in the country." Consumers need to understand their coverage, Duncan added. "A lot of people spend a lot of money on insurance but don't spend a lot of time understanding its components and what it covers and doesn't cover." A recent survey commissioned by Canadian insurance companies found that nearly seven out of 10 respondents in Ontario said that they do understand the upcoming reforms or how they will impact their auto insurance coverage. Your policy will remain unchanged until your next renewal. At that time, your insurance company or broker will provide you with more information on the changes and your options. Recent premium increases have left many consumers, such a Tim Shia, perplexed and frustrated. The 36-year-old Toronto musician has been trying for months to understand why the premiums he pays to insure two vehicles have gone up by 45 per cent since 2008, despite his good driving record. That includes a jump of 26 per cent on his premiums in the past year alone. "It was just a huge increase with no warning," he said. When he wrote to his MPP and the insurance industry regulator for answers, they replied with form letters saying that premium increases are carefully regulated and within the law. "The government agency that's supposed to regulate this is obviously not doing a proper job," Shia said. "A 26-per-cent increase in rates in one year means something is horribly wrong." The insurance industry says the changes are needed to root fraud and waste out of the system, and that, if successful, premiums will eventually come down. Starting Sept. 1, standard auto insurance policies in Ontario will pay up to $50,000 in medical and rehabilitation benefits, including assessment costs, for injuries that are not catastrophic. The limit will be $36,000 for attendant care benefits. That's half the current level of benefits. The maximum coverage on catastrophic injuries will stay at $1 million. If you have a minor injury, your medical and rehabilitation benefits will be limited to $3,500, no matter what level of coverage you have chosen. As well, housing and home maintenance expenses of up to $100 per week will be paid only on catastrophic injuries, and income replacement benefits are limited to 70 per cent of gross income, down from 80 per cent. The maximum payment is unchanged at $400 per week. There's no question that Toronto drivers are already paying the highest premiums in the province — and across the country. Statistics from RBC insurance show that a married couple with a clean record and two average vehicles will pay $4,682 per year for insurance in the GTA. The same policy would cost $3,495 in London, Ont. In Ontario, the average cost per claim was about $53,000, up from about $30,000 in 2005. The average cost per claim in other provinces is just a fraction of that — $3,689 in Alberta, for example. The real problem, the insurance industry says, is the spiraling cost of unnecessary assessments. For every $1 spent on medical treatment, the insurers are paying another 60 cents in assessments. Insurance executives say sketchy medical clinics and rehabilitation centres milk the system by sending victims of minor accidents for dozens of questionable medical assessments. "It's a very rich system and a very litigious system," said Barbara Sulzenko-Laurie, vice-president policy development from the Insurance Bureau of Canada. "It tends to grow into the amount of resources that are available." RBC Insurance recently described a case in which it received claims for 76 different treatments involving 50 service providers — all from one car accident involving three people who suffered minor injuries. The insurance company receives claims for everything from neuropsychological and orthopedic assessments to driving, sleep, nutritional and financial assessments to determine whether the accident victim has been unable to manage his or her finances. The assessment fees are paid to the clinic or medical professional. The insurance company has three days to refute the claim and, in order to do so, must order its own medical report. That means it can cost the company more to refute a claim than approve it, said Catherine Honor, president of RBC General Insurance Co. "There's been abuse for sure," said Natalie Dupuis, product manager for auto insurance at RBC Insurance. "Not to a great extent by actual consumers, but by the different parties that are involved in providing services to clients. There's been fraud connected to this." That's added a large hidden cost on what the policy needs to cover, and that affects premiums. Insurance companies say a lack of fraud legislation and complacency on white-collar crime mean that shady operators stay in practice. "I certainly believe the government could have gone much further," said Norm Miller, finance critic and Conservative MPP for Parry Sound-Muskoka. "They need to deal with over-assessments and fraud in Ontario. They've tinkered to stabilize prices, but we still have the most expensive auto insurance in North America." NDP justice critic Peter Kormos, MPP for Welland, doesn't buy the argument that fraud is driving up costs. "The insurance industry over the course of the past 25 years has used any excuse it can gather to argue for lower benefits and higher premiums. But it has failed to deliver fair premiums," he said. "The reforms are all about insurance industry profits." Kormos is an ardent advocate for a public insurance system, which he says would offer lower and fairer premiums. "Good drivers pay less and bad drivers pay more and that's what an auto insurance system should be all about. But in Ontario, it's all about maximizing profit." Prior to 1990, Ontario had an at-fault insurance system. That meant if you got into a car accident, you hired a lawyer and you needed to sue in order to receive benefits. Some argue litigation was plentiful and courts were clogged with auto accident cases. The government decided it could do a better job. Under today's no-fault system, the province mandates the same auto insurance policy for all drivers. While in other provinces, such as British Columbia, Manitoba, Saskatchewan and Quebec, the government also administers the system, Ontario is more of a hybrid: the government mandates the policy and the private, for-profit insurance companies collect premiums and pay out benefits. "You've got this incestuous relationship between the insurance industry and the government trying to administer a system that is supposed to be in the public interest. As a result, the government is heavily affected by what the insurance industry says it needs and can and can't afford," said Erik Knutsen, a law professor at Queen's University. "The insurance industry asked for this system of assessments during the last reforms," he said. "No one thought about how the government was going to administer this. The checks and balances aren't there." In his previous practice, Knutsen acted on behalf of insurance companies and accident victims alike. "I can tell you from both sides of the fence that the system is broken. This is a tragically broken, sad system and that's the problem. These reforms will just add more complexity and delay into the system." In 2009, the insurance industry suffered its worst year since 2003. For instance, Ontario's largest auto insurer, State Farm Mutual Automobile Insurance Co., lost $136.9 million, and Dominion of Canada General Insurance Co. lost $154.6 million. The industry is allowed to raise premiums in response to rising costs. Increases are regulated by the Financial Services Commission of Ontario. The average of all approved changes for this year, across all companies, was 4.49 per cent. But that's just an average. Individual drivers, such as Tim Shia, can see rate hikes that are many times that, depending on what vehicles they drive, how often they drive, and where they live. Still, the reforms are complicated and the insurance industry's own surveys show that most consumers are not aware of the changes that are coming. "I don't understand how the average person standing in line for a double-double is supposed to make sense of any of this," Knutsen said, referring to the reforms. "There's more disinformation than information out there. Everybody has an axe to grind," he added. "I don't know who's to blame, but I know it's not the guy or gal who gets hurt in an accident. The system is not working for those people." This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php |
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