Committee Transcripts: Automobile insurance review

STANDING COMMITTEE ON GENERAL GOVERNMENT

Monday 30 September 2013 Lundi 30 septembre 2013

AUTOMOBILE INSURANCE REVIEW

ONTARIO TRIAL LAWYERS ASSOCIATION

INSURANCE BUREAU OF CANADA

INSURANCE BROKERS
ASSOCIATION OF ONTARIO

ONTARIO REHAB ALLIANCE

MR. BILL ANDRUS

The committee met at 1404 in committee room 2.
AUTOMOBILE INSURANCE REVIEW

The Chair (Mr. Grant Crack): I’d like to call the meeting to order. I’d like to welcome members of the committee, members in the audience and presenters this afternoon. We’re here to consider Ontario regulation 273/13, which is an industry-wide rate reduction target. We have scheduled five delegations that are presenters this afternoon, two of which were scheduled last week, but due to some unique circumstances unfolding in the House, we were unable to hear them. We welcome them back today.
ONTARIO TRIAL LAWYERS ASSOCIATION

The Chair (Mr. Grant Crack): What I would do at this particular point is that I would like to welcome the first presenter, the Ontario Trial Lawyers Association. I believe we have Mr. Gluckstein with us this afternoon. Welcome, sir. You have five minutes and then we’ll have 10 minutes from members of the government and the two opposition parties to either ask questions or make comments. Welcome.

Mr. Charles Gluckstein: Thank you. Good afternoon. My name is Charles Gluckstein and I’m the president of the Ontario Trial Lawyers Association. I want to thank you for allowing me to appear in front of you today.

I’m here with John Karapita, our director of public affairs. I may lean on him if there are some questions I can’t answer.

As you may be aware, our association is made up of over 1,400 members who represent accident victims. Our purpose is to promote access to justice for all Ontarians and to advocate for those who have suffered injury and losses as the result of wrongdoing by others.

I realize my time is short today so I want to address two concerns with you. The first comment deals with a concern that one of my colleagues and our past president, Andrew Murray, raised to this group a year ago, and that is the need to use caution when changing the auto insurance system and to be aware of the three Ps: protection, premiums and profits.

The second comment I will make is in relation to accountability and transparency, the mechanism that was discussed in the budget.

First, the three Ps: To borrow from Mr. Murray’s metaphor, the automobile insurance system as a whole can be compared to a three-legged stool, each leg representing protection, premiums and profits: protection for all policyholders at a fair and affordable price, which is premiums, while allowing insurers to earn a reasonable return on equity—profits. Changes to insurance that favour one of the three Ps at the expense of the other parts of the system are not consistent with a fair, mandatory auto insurance system. I have distributed to all of you the MPP newsletter which grades the three Ps.

Our research indicates that since September 2010, we have a system that guarantees high profits at the expense of auto accident victims as well as the premium-paying public. I appreciate that action is being taken to address premiums, but we state in the newsletter that any changes must maintain a balance among the three Ps; in particular, protection.

The 15% reduction is being processed and implemented over a two-year period, but I urge you not to lose sight of what is happening to injured accident victims. Most of us may never be injured in an accident, but we need to know that our insurance provides adequate protection in the form of medical care, rehabilitation and coverage for the repair of vehicles.

Our system currently short-changes the injured. Members of my association and I see this in our practices every day. Countless victims of auto crashes are only able to qualify for up to $3,500 for their care. And in addition to this low amount of coverage, they are subjected to unnecessary, intrusive and expensive insurance medical evaluations.

Although our members are aware of the current review of the minor injury guideline, I urge you as well to consider ways to provide for greater coverage for individuals through access to courts. Our association has long called for changes to both the deductible and the verbal threshold, which are significant barriers to access to justice.

Certainly, Ontario coverage, which was cut September 2010, must not be further eroded. Any proposed changes in the future, including revisions to the definition of catastrophic impairment, must begin with a thorough, open and transparent analysis of the data on current claims costs and the impact of possible changes on victims.

I’m now going to turn to accountability and transparency. In the spring budget, the government announced that it would be, for the first time, introducing a new accountability mechanism for insurance data. The budget said that the government will create a transparency and accountability mechanism in the form of an independent annual report by outside experts on the impact of automobile insurance reforms introduced to date on both costs and premiums. The report is to review industry costs and changes to premiums paid by Ontario drivers and make recommendations as to further actions that may be required to meet the government’s reduction targets.

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I want to say that the minister and the government deserve full credit for bringing this initiative forward in the budget this year. I believe, and it is no exaggeration to say, that this is an unprecedented initiative here in Ontario, and likely across the country, with respect to openness and transparency in insurance data. It is greatly overdue and most welcome. Auto insurance is a mandatory financial service. It only makes sense that the Legislature and the public at large have access to annual reports on the performance of our auto insurance system, the premiums we pay, the coverage we receive and the profit the industry makes.

It is fundamental and of paramount importance that this initiative be implemented as soon as possible. I urge this committee and the members of the Legislative Assembly to act on this priority item. In this time when there are contradictory reports on the financial performance of the industry, this accountability and transparency mechanism would put an end to the debate about a question to which there was really only one answer.

I note that the issue of accountability was included in the recent policy statement from the Minister of Finance. I also note that the commitment stated in the regulation differs materially from the budget papers filed earlier this year. For example, the budget indicates there will be annual reports on reforms to date. The policy statement only makes a vague and passing reference to retaining experts to report on the government’s cost and rate reduction strategy. The wording from the budget is obviously much stronger and should take precedence.

Thank you for your time, and I’ll welcome any questions.

The Chair (Mr. Grant Crack): Thank you very much. That was almost within the five minutes, just a little bit over. So thank you, sir.

If the committee is in agreement, we’ll start with the opposition, third party and then government, and maybe for the next presenter we can switch it around. Would that be reasonable?

Mr. Jagmeet Singh: Yes.

The Chair (Mr. Grant Crack): Okay, so we’ll lead with the opposition. You have 10 minutes.

Mr. Jeff Yurek: Thanks for coming out.

Mr. Charles Gluckstein: Thank you.

Mr. Jeff Yurek: It’s good to see you. What are your thoughts regarding the Liberals’ promise to cut rates by 15%?

Mr. Charles Gluckstein: Thank you for that question, Mr. Yurek. As you can see from the report card that we sent out, we believe that insurance profits get an A+ because they’re out of balance. We have done our own analysis on the data and we have found that the return on equity in both 2011 and 2012 exceeded 14% in both of those years, and that was after tax. Our analyst— and this should be further addressed by an actuary, but from a summary level, we understand that before taxes these profits were in excess of 20%. So we believe that the government-mandated 15% rate cut is easily obtainable.

Mr. Jeff Yurek: And what’s your opinion on the pace of change they’re taking these cuts?

Mr. Charles Gluckstein: It goes back to my comment about caution. When we cut down part of the leg to make the stool even, we have to make sure that the whole product is being considered. If you’re going to take away the profits in the system that equalize what premiums should be, then you must make sure that protection isn’t affected. I fear that further consideration of changes to the auto insurance product would be really not warranted, and if that’s being considered, then we would really urge caution in any of these changes. But if it’s simply just phasing in the rate reduction over the two years, there’s certainly profit in the system to make that happen without any other changes to the insurance product.

Mr. Jeff Yurek: Thanks. Now, in past committees, we’ve had lots of discussions on different sets of data that people have used to come up with their profitability of the insurance industry. The debate—we’ve had representatives here who clearly were totally apolitical and didn’t answer a single question. But between GISA and OSFI statistics, which one do you think is better in assessing profitability?

Mr. Charles Gluckstein: I don’t want to say I’m qualified to answer that question either. I know there’s an actuary presenting today who can probably better speak to that. I’m told, and this is what I can comment on, that GISA is sort of the gold standard in terms of insurance data. It is the most transparent information we have, and it seems to be—if you read from their website, it says, “The main purpose for the collection of this data is to provide premium and claim information to support fair rates.” It seems to be saying that the purpose for its existence is to give the numbers and the very analysis that we’re relying on. That’s why we put a lot of weight on the GISA data.

Mr. Jeff Yurek: And I never doubt GISA data or OSFI data. I also have something from GISA’s website. I’ll state what’s on the website and then ask for an opinion. GISA’s website has the following on it: “The current data elements do not accurately reflect the rating variables that the majority of the insurance companies are using.” If the data elements do not align with the rating variables, do you think GISA’s figures should be valid and used in assessing profitability?

Mr. Charles Gluckstein: Again, I don’t hold myself as an expert in looking at differentiating the data. I have been told that if you took 100 companies and their data and you look at it through GISA, you get one number, but if you look at it in the financial statements that get put through on all the individual companies, it’s very hard to filter out what all the companies are doing when they bring forward past years of losses and reserve numbers. It’s very difficult to differentiate. But GISA puts it all on one big playing field and everything appears clear.

This goes back to my comment about what the budget has said about openness and transparency with insurance data. We wouldn’t have this debate over what profits are if we move forward with the openness and transparency that the government has promised in their budget.

Mr. Jeff Yurek: I’ll just change what we’re talking a bit. Going back to the three Ps you mentioned earlier—which is one of the first three Ps I mentioned when I met with OTLA at the beginning of my tenure as an MPP; they had a great discussion on it. But recently, there was a decision, Scarlett v. Belair. Can you walk me through what your views of that decision are and give us your perspective?

Mr. Charles Gluckstein: Sure. The Scarlett decision is a decision that talks about the minor injury guideline. In that case, there was a consideration of the interpretation of the minor injury guideline, whether it’s a mandatory guideline or not, and the arbitrator found in that decision that the minor injury guideline is not mandatory but should just be considered, which takes it out of it being a forced definition. So that decision, I know, has gone to an appeal and we await that decision. It has been argued.

The impact it has, obviously, is: What is the implication of the superintendent’s minor injury guideline on other minor injury guideline cases? I think the government did pass regulations to make it clearer that the minor injury guideline should be mandatory, although it’s basically a recommendation from the arbitrator as to how to strengthen the wording in the statutory schedule.

Mr. Jeff Yurek: Now, if that goes through appeal and is carried on, what do you think the cost implications will be in the insurance system?

Mr. Charles Gluckstein: I think that decision is still a factual decision. I don’t think it will have, you know—it won’t have industry-wide implications, necessarily. That was also a case where they were considering a pre-existing injury and a psychological injury, which are not supposed to be in the minor injury guideline. It’s really a factual distinction that can be made on that case. So I don’t think it’s going to greatly change the outlook on what the minor injury guideline implications are.

Mr. Jeff Yurek: And further to that, this decision was from the 2010 reform changes, so it’s been over two years to go through the mediation/arbitration system. Can you outline some of the problems that you’re seeing in this dispute resolution process? Because I think two years is a heck of a long time to actually obtain an answer.

Mr. Charles Gluckstein: It certainly is, and thank you for that comment, Mr. Yurek. We’ve just finalized our submissions to Justice Cunningham on the DRS system and our views as to what should be changed. We were asked to do that and two weeks ago we finalized our submissions.

My comment on the DRS system: From 2006 until 2013, FSCO, the Financial Services Commission of Ontario, accumulated a backlog of over 30,000 cases and needed some solutions to resolve it. They brought in privatized mediators. It currently stands that there is no backlog. Our organization supports the Financial Services Commission program on dispute resolution. FSCO also has statistics that show that 60% to 70% of FSCO mediations resolve at the stage of mediation.

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We were asked by Justice Cunningham to decide whether to throw away the system or to offer suggestions on how to make it work better. Obviously, now that there is no backlog, and I know personally that my own cases can be heard within 60 days, I’m in favour of it, as is our association, in terms of keeping it, not throwing it out. But we have some suggestions to make it better, and that is that there are certain disputes that we know will never get revolved at FSCO mediation, and some of those are questions about what category of coverage would apply. So whether you’re trying to get out of the minor injury guideline or whether you’re trying to get out of the non-catastrophic category and be declared catastrophic, those are disputes that are never going to resolve at a FSCO mediation.

What we’ve suggested is that the insured person have the ability to opt out of FSCO mediation on their application, and they can be streamlined ahead to arbitration. For those disputes, we think that’s a fair way to get it ahead. Although 60 days is not a long time to wait, even if you’re not able to opt out, we think that that would be an improvement.

We do think FSCO has the specialized knowledge, both with mediation and arbitration, to handle these disputes rather than privatizing the system. We have some personal experience with the privatized mediators and we haven’t had the same success rate in terms of resolving the disputes.

Mr. Jeff Yurek: Thank you.

The Chair (Mr. Grant Crack): Twenty seconds.

Mr. Jeff Yurek: Very much.

Laughter.

Mrs. Donna H. Cansfield: Touché.

The Chair (Mr. Grant Crack): Thank you, Mr. Yurek. We’ll move to the third party and MPP Singh.

Mr. Jagmeet Singh: Thank you very much for being here again. Let’s move right into the questions.

You touched on this in terms of your giving the insurance profits an A+ in your report. If I could ask you to comment on the industry claim that their return on equity was between 1% and 4% in 2011 and 2012: Do you think that value is too low, and, in reality, where does it stand? I’m assuming that your position is it’s much higher than that.

Mr. Charles Gluckstein: Thank you, Mr. Singh. The report card that we’ve distributed is in response to what we’ve seen the industry or the IBC promote as what they say the data shows in terms of profits. Our own financial expert has talked to us and they’ve told us the numbers are quite different, and that’s what is revealed in this report card.

I obviously am not—I don’t have an actuary background and I can’t differentiate that, as other experts can. What I can tell you in terms of the difference and from what I understand is that individual companies who have financial statements will employ all sorts of different methods in calculating their individual profits, but when you look at the industry as a whole, we say the GISA data should be the gold standard.

Mr. Jagmeet Singh: Something that has been coming up time and time again in the Liberal government’s position on reducing auto insurance is that they need to remove costs out of the system. That’s something that has been said time and time again.

Our concern as the NDP is that costs have already been removed out of the system and we don’t think—if the suggestion is that costs need to be removed out of the system, meaning that the coverage needs to be reduced or something along those lines, we’re very much opposed to that.

What is your position on this comment that costs need to be removed out of the system and that needs to happen for the reductions to take place?

Mr. Charles Gluckstein: Thank you. That’s a very important issue to discuss.

Obviously, we applaud the government in moving forward with the anti-fraud task force, and we hope that there will be some savings in the system when some other measures are implemented. In fact, 85% of those measures are measures that our association also put forward and agreed with. So I think tackling fraud is one area where you probably could look at some savings in the future.

In terms of taking it out of the protection, we don’t believe that there are any further savings. In fact, we think it has gone way too far, and the lag for profits is much longer than the lag for protection. That’s the problem: If you start looking at further ways to erode the coverage, you’re really not getting covered for anything anymore.

To look at the catastrophic definition, the analysis that was done the previous round did not look at any data on who was catastrophic and what the payouts were in terms of the issue and the problem that the industry was facing. In fact, the medicine that was employed to look at the definition was done in a very quick fashion, and it wasn’t done to the same degree, for instance, that they’re taking this full-year study to look at the minor injury guideline. I would expect that for the most vulnerable and the most catastrophically injured, there would be a very large group of experts compiled and taking their time over a longer period of time to make sure they’ve got it right, if they’re going to do that.

Mr. Jagmeet Singh: Okay. You touched on this briefly, and I just want you to elaborate on it. In the budget, there was a commitment to addressing this concern. What are the insurance industry’s profits, actually? If there are significant profits, then we don’t need to look at reducing coverage for the catastrophically injured, and if the profits are significant, then we can start looking at premium reductions. As long as we have a lack of transparency on reporting what the actual profits are, we’re left with this potential, I think, catastrophe where further cuts may be suggested or implemented because there’s this fear that there are not enough profits.

What’s your opinion on the importance of having clear and transparent data with respect to profits? Could you frame that in terms of maintaining protection for consumers in terms of the product and providing a vehicle to really getting at what the proper premium, the third leg, should be?

Mr. Charles Gluckstein: The open and transparent process that we’ve asked for is the same process and mechanism that was announced in the budget. We believe that if you move forward on that recommendation and you have an independent expert involved to compile the data on a regular basis, we won’t have this debate every year on what the profits are.

It’s our view that the industry has made almost a billion and a half in each of 2011 and 2012, simply with premiums, and there’s enough in that profit to get that 15% reduction over the two years.

Mr. Jagmeet Singh: If it could be established that the profits that the industry was enjoying were significant, then would you agree that there wouldn’t be any need for the industry or the government to look at reducing the number of folks who fall within the catastrophic category? Do you agree with that comment, and would you like to elaborate on that connection?

Mr. Charles Gluckstein: I would like to elaborate. To target the most vulnerable category, we’re talking about 1% of accident victims. If there are 70,000 or 65,000 accident victims, we’re talking about less than 1,000 people. These are the people who have brain injuries; they’re amputees; they’re paraplegics; they have multiple physical injuries or psychiatric injuries. These are the most vulnerable of all accident victims. Why is the industry looking to target this group for further reductions and contraction of the policy? There’s no data to support it, and it’s curious as to what the desire is to pursue this category.

Mr. Jagmeet Singh: With respect to the current cap, there’s a $3,500 cap on minor injury guidelines. How has that minor injury guideline impacted industry profits specifically, and what is your experience with respect to how that cap is being used by the industry?

Mr. Charles Gluckstein: The $3,500 cap is the minor injury guideline. It was a new category that came in in September 2010. We’ve been told from the Financial Services Commission and from the industry that about 70%—and it could be higher—of all accident victims fall in this category. This category, pre-September 2010, was entitled to a policy that allowed for $72,000 in attendant care and $100,000 in medical rehab dollars if it was reasonable and necessary. Those individuals now get $3,500 and no attendant care coverage, so it’s a huge savings in the system.

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To create that category, unfortunately, there was no research done to figure out what and who should go into the minor injury guideline. In fact, I was on the committee, and the committee that was struck by FSCO with stakeholders simply took the pre-approved framework that was set up based on the Quebec whiplash study for WAD 1 and WAD 2, and they switched the title. They took the title and they switched it to “minor injury guideline,” so now you’ve got people with strains and sprains being treated for whiplash, essentially. The same amount of money that a whiplash victim gets is what these people get.

Obviously, there were record profits that could be generated out of that, and that is, I believe, directly in relation to the profits that you’ve seen, the $1.5 billion in both years. We think the pendulum has swung too far that way. We hope that with the minor injury guidelines study there will be some better expert evidence as to what these minor injuries need in terms of treatment, and hopefully there will be greater coverage for these individuals.

Mr. Jagmeet Singh: How much time do I have left?

The Chair (Mr. Grant Crack): Just under a minute.

Mr. Jagmeet Singh: Okay. You’ll have just under a minute to respond, then.

Just a final clarification: If we were able to have a clear and transparent accounting of the profits, what is your position with respect to the industry’s ability, then, to go after the catastrophic definition? If we knew for certain what the profits were, would the industry be in a better or worse position to then look at the catastrophic injury guideline?

Mr. Charles Gluckstein: If there are going to be any further changes to auto insurance, there has to be data to show what the trends are and what the concerns are. I think that previously the industry showed that the accident benefits system was out of proportion, and that’s why there were these September 2010 changes, but to go and look at the catastrophic injured people, there was no data for that. If there are going to be further changes to any part of the product that affects protection, there should be data to support it, and that data should be from a consensus view from that open and transparent report.

Mr. Jagmeet Singh: Thank you.

The Chair (Mr. Grant Crack): Thank you very much. Who is the lead from the government side? Madam Damerla.

Ms. Dipika Damerla: Thank you, Chair, and thank you, Mr. Gluckstein, for coming today. I learned a lot in the last 25 minutes.

I’m just going to begin with this: $3,500 is the ceiling in Ontario when it comes to minor injuries. I know you say that that’s among the lowest in Canada, and I was just wondering if you could give me a jurisdictional scan. I thought BC was about the same, so just give me some idea of what the other provinces would pay in the case of a minor injury.

Mr. Charles Gluckstein: I’m not prepared for that question, but I can certainly get back to you on that, unless Mr. Karapita has that answer at the top of his mind.

Certainly I’ll get back to you on that.

Ms. Dipika Damerla: Okay. Since you’ve said it’s the lowest, I presumed that you’d have some basis of evidence for that, but that’s all right.

My understanding, also, is that on the catastrophic side, Ontario has amongst the richest benefits. I just wanted your views on that.

Mr. Charles Gluckstein: Well, prior to Bill 59, which came out in 1996, we actually had an even better system, under Bill 164, that was more generous than it currently is, in that we had no restriction on attendant care. Now we have a $6,000 cap and a million-dollar limit. In fact, all injured victims were eligible for all categories of coverage. There wasn’t a catastrophic category. I don’t believe there exists another catastrophic auto category, unless we look at the US system. I think Michigan has a catastrophic category. I’m not clear on—I think the coverage is similar.

Ms. Dipika Damerla: So let me just reframe that, then. If somebody had a catastrophic injury, say, in Manitoba—I’m just trying to understand—would their benefits be fairly similar to what somebody—I understand that they may not have that definition, but if somebody did have a brain injury—

Mr. Charles Gluckstein: I have a chart back in my office, and that’s how I did come up with that comment earlier, that tells me each jurisdiction. Manitoba, I believe, is public, so it’s just a no-fault system. They don’t have the ability to claim in tort, and I believe it is a similar type of recovery system, but I don’t know if they classify the injuries based on cat. It may have been closer to the Bill 164 system.

Ms. Dipika Damerla: I’m just wondering, because I know this is important for your industry: Can you explain for us how the definition of catastrophic impairment would affect the benefits that someone gets?

Mr. Charles Gluckstein: There are currently six categories that can qualify for catastrophic injury: spinal cord injured; brain injured; amputee; blindness; multiple fractures, which make up a whole-person impairment; or psychiatric impairment. The coverage goes to a million dollars for medical and a million dollars for attendant care, plus you get the housekeeping coverage and the caregiver benefit for those categories—different than the other levels of coverage. There’s a lot of important coverage in there for people, for instance, who have a spinal cord injury. If they’re left with the $50,000 medical coverage, that’s going to be a huge burden on the OHIP system.

Ms. Dipika Damerla: Those benefits are well deserved, because these are people—as you said, they’re a very small percentage, 1%, who have had the most horrific accidents and, absolutely, they should get the benefits that you’ve just spoken to.

What about psychological issues? Where do you stand when you consider this one compared with physical injuries?

Mr. Charles Gluckstein: Psychiatric injuries have to be pretty serious to qualify as catastrophic. We’re talking about people who could be committed to a hospital based on their inability to manage life in society as a normal adult. It’s quite an extreme behaviour that would qualify. Once again, I don’t know what the statistics are because we’ve never seen them. It would be interesting to see how many actually get declared catastrophic under that category. Oftentimes, the case law now allows you to combine your psychiatric score with your physical impairment score. We’ve seen that in the Kusnierz decision, where the amputee was allowed to use the psychological classification to get him over the 55% coverage. It’s important that that was considered because the individual is an amputee and they needed all that coverage.

Ms. Dipika Damerla: Your point about the reduction to $3,500 from, I think it was, $72,000 and $100,000 is well taken. Clearly, there was some benefit to the insurance companies once we brought in that definition of a minor injury. That point is really well taken.

I did want to come back to the idea that as we try to reduce premiums for Ontarians, we really have to balance the profits, as you mentioned, of the insurance companies with the premiums that they charge. There is some relationship between those two, and I know that MPP Yurek referred to it as well. There is some concern that the courts now might be overturning the idea of what we define as a minor injury, and insurance companies are concerned that means that they would not be able to project very well what their claims payout could be—because you don’t know, once the courts start to overturn these definitions, how that might play out in terms of insurance premiums going up again. I just wanted your thoughts on that.

Mr. Charles Gluckstein: Thank you for that question. It’s a two-part question. First is the impact of the decision, but second is the importance of the category—the minor injury guideline.

I want to answer the category question first and just refer you to a client of mine who I helped. This individual plays hockey in the US and had a few concussions playing hockey. He lives in Ontario and plays hockey in Minnesota at the university. He came back to Ontario for the summer and training, and was in a pretty bad crash. His car was written off. His injury was a concussion. You can imagine, after having two prior concussions, that it’s not great to have a third concussion. It’s actually much worse than if it was his first concussion. The insurance company, in this case, put him in the minor injury guideline. The minor injury guideline is sprains, strains, whiplash-associated disorders. The definition is quite clear, and this didn’t fit in the definition. It took me about a year, with medical evidence from the Mayo Clinic in Minnesota, to convince the insurer to change the category. All that year, this individual sat out his hockey season—he was a junior in university—and wasn’t able to get access to treatment without his parents and the university funding it for him. The insurance system failed him. He would have had access to $50,000 worth of medical treatment, and he would have had some other coverage that would have helped him; rather, he got the $3,500, which was used quite quickly.

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So we have to use some caution with what we’ve come up with, because the minor injury guideline, as I mentioned, was invented just by taking the whiplash-associated disorder schedule for the two pre-approved treatment frameworks and slapping a new title on there. I hope that the expert committee has some good recommendations after they’ve done their study.

The second part of your question is the impact of the Scarlett decision. I go back to my earlier comments that this decision did not interpret the minor injury guideline definitions, so the definitions have not been challenged. They are still intact. If you open up the Statutory Accident Benefits Schedule, there’s a preamble to the minor injury guideline, where the superintendent writes a letter asking that this guideline be considered. That is what tripped up the arbitrator. In fact, the superintendent had the power to have this regulation be mandatory, and the arbitrator would have used it as a mandatory guideline but for the fact that there was this preamble in the letter where the superintendent said it shall be considered. That’s why the decision is a little bit off in terms of understanding what the impact of the minor injury guideline is. In fact, a new preamble would solve that issue. Your government also passed legislation to strengthen the fact that the minor injury guideline should still be treated as mandatory. I don’t think this case has the far-reaching application—and, once again, the case was very fact-specific. It was another example of a lady with a pre-existing injury, which is one of the reasons in the minor injury guideline that you can get out of the minor injury guideline. There were a lot of reasons why that decision can be distinguished and not concern that it will have wide application.

Ms. Dipika Damerla: I really appreciate that clarification. That was important.

The Chair (Mr. Grant Crack): Twenty-five seconds.

Ms. Dipika Damerla: In that case, thank you very much. I learned a lot. Again, thanks for coming.

The Chair (Mr. Grant Crack): Thank you to the three parties, and thank you, Mr. Gluckstein, for coming forward. It was very informative, and we appreciate you taking the time. Have a great day.

Mr. Charles Gluckstein: Thank you very much.
INSURANCE BUREAU OF CANADA

The Chair (Mr. Grant Crack): It’s my pleasure, as Chair, to welcome the Insurance Bureau of Canada. I believe we have Doug DeRabbie, Barb Sulzenko and Barb Taylor with us today. Is that correct?

Ms. Barb Taylor: Yes.

The Chair (Mr. Grant Crack): Good. Welcome. You have five minutes to make your deputation, and then we will hear questions and comments from the three parties.

Ms. Barb Taylor: Good afternoon. My name is Barb Taylor. I’m the director of policy for Ontario for the Insurance Bureau of Canada. I’m accompanied by Barb Sulzenko-Laurie, the vice-president of policy, and Doug DeRabbie, the director of government relations. We appreciate this opportunity to present to the Standing Committee on General Government.

As we have said in the past, consumers deserve a competitive auto insurance system that delivers affordable premiums for all drivers and fair benefits for injured collision victims. This can only be achieved with a commitment to real reforms that address costs.

Earlier this year, the government introduced legislative amendments as part of its cost and rate reduction strategy that committed to an average rate reduction of 15% over two years, with an interim target of 8% by August 2014.

Reducing auto insurance rates without a plan to tackle the root problems in the auto insurance system will have a negative impact on drivers, insurers and, ultimately, Ontario’s economy.

Auto insurance is a competitive industry. Some companies have been able to take premium reductions and others have not. This is because while the 2010 reforms were much needed, they have not produced the savings necessary to dramatically decrease rates, certainly not by 15%. Prior to the reforms, the industry was losing over a billion dollars a year. The reforms helped to stop that bleeding. In fact, some parts of the auto insurance product have experienced rising costs, such as bodily injury costs.

Since premiums are tied to claims costs, we are encouraged to see that the budget includes measures that help reduce costs. Anti-fraud measures such as the licensing of health care clinics and the expansion of the provincial regulator’s authority, along with conducting studies such as on dispute resolution and towing, are a move in the right direction. We also know that the government is in the process of hiring experts who will do an independent annual review of the auto insurance system, with a view to recommending ongoing reforms.

These are all important measures, but each will take time to implement. That makes it all the more important that these measures have a specific cost reduction goal so they can translate into lower costs for the industry and lower premiums for consumers.

Fraud has been an ongoing and entrenched concern for the industry for many years, with many parties having a vested interest in maintaining the status quo in the auto insurance system for their own personal gain. This will not change overnight.

No one can dispute that auto insurance in Ontario is a very high-cost insurance product, particularly when it comes to compensation for injury claims. We need only look at the fact that bodily injury tort claims in Ontario result in an average payment of $148,686. In Alberta, it’s $36,475; in New Brunswick, it’s $39,475. Similarly, for no-fault injury claims, the average payout in Ontario is $28,390. In Alberta it was $3,626, and in New Brunswick it was $11,415.

We believe that much more needs to be done if the government’s targeted reductions are to be achieved and if Ontario’s drivers are to finally reap the benefits of ongoing premium stability enjoyed by Canadians in every other province. To that end, IBC has recommended actions for further reform. These include measures that safeguard the goals of the 2010 reforms by removing excessive and unnecessary over-utilization of available benefits, acting on the recommendations of the expert review of the dispute resolution process, addressing the spiraling costs of bodily injury tort claims, and simplifying rate regulation. We must do these things, and do them quickly, for the benefit of all Ontario drivers.

Now we would like to take a moment to address the allegations that the industry is in a financial position to immediately reduce rates.

In March, IBC released two reports, one done by KPMG and the other by Joe Cheng. The KPMG report showed that during the period of 2008 to 2012, losses were at an all-time high of $3 billion. KPMG estimated the return on equity at 3.3% and a net income of $294 million. Joe Cheng’s report had similar results: a return on equity of 4.9%, and $492 million.

Both reports were based on financial data using the Office of the Superintendent of Financial Institutions. The rate is far lower than the 11% return on equity allowed by FSCO and far below returns of other industries, such as banking at 16.5%, retail at 12.2%, and securities at 12.6%.

To conclude, it’s quite simplistic to call for a drastic rate change without a plan. A straight 15% cut to premiums would turn a modest profit in 2012 into another significant loss for the over 90 insurance companies that operate in Ontario auto. We need perseverance to build a sustainable, stable and affordable auto insurance system. Although the budget introduced measures that will help reduce costs, they will not fix the problem soon enough. More and ongoing reforms are needed to help insurers move closer to achieving rate reduction targets.

If we invest the time and effort to make the right changes, Ontarians will get the effective and affordable auto insurance system they deserve.

Thank you for the opportunity to address you today.

The Chair (Mr. Grant Crack): Thank you very much, Ms. Taylor. We will ask the third party to begin the questioning. Mr. Singh.

Mr. Jagmeet Singh: Thank you very much.

In referring to the two reports that you spoke about, my question is in reference to those. What role does increasing or pumping up your reserves have in reducing your stated profits? So how does attributing reserves or increasing that value impact your profits—first part.

If you increase your reserves, you decrease your claims payouts: Is that correct?

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That is the difference between using OFSI data and GISA data. The GISA data has a far lower claims payout. Therefore, if you use GISA data your ROE would be much higher.

That was a three-part question, and I can break that down again for you at any time.

Ms. Barb Taylor: I’m not an actuary. I think those questions would probably be best handled by the persons involved in doing those reports. What I can say is that the reason we would use the financial data offered by OFSI is that that data is actual data, whereas GISA data is an estimate. If you look back at the presentation to this committee back in May, FSCO presented as well, and they also indicated that to analyze the return on equity, they would suggest that it would be more reliable to use the financial data. The financial data does include our reserves, whereas the GISA data does not.

Mr. Jagmeet Singh: Are you aware of the impact that increasing or decreasing reserves would have on your profits? I suggest to you that if you increase the reserves you would immediately decrease the profits reported. A simple accounting of increasing or decreasing reserves would have an immediate impact on increasing or decreasing profits, though there’s absolutely no difference in terms of the circumstances surrounding the data. Do you agree with that?

Ms. Barb Taylor: Again, as I said, that would be a better question for the people involved in doing the actual studies.

Ms. Barb Sulzenko-Laurie: If I could just add a comment: Insurance companies are required, when they get a claim, to reserve against the potential ultimate payout, and that is included in the OSFI data. But I think the other point, in terms of the whole issue of the transparency of the profitability of the insurance industry—I think you’ll recall that last May the executive director of GISA was here and said that they were undertaking a study of expenses and profits for Ontario auto and that they expected that that report would be available sometime at the end of the summer or fall. Certainly we’re looking forward to receiving that report, and I’m sure this committee is looking forward to receiving that report. It’s interesting because GISA actually does the collection of the data. If they’ve done an analysis of profitability as well as expenses—I’d really like to look forward to that report.

Mr. Jagmeet Singh: Thank you so much. The concern we have is that the perspective that’s being projected by the IBC that the insurance industry is not making a significant profit is something that we have a hard time believing and I think even the government has a hard time believing, given the fact that they’re moving forward on the NDP budget demand of reducing insurance premiums by 15%. Do you agree that there are certainly people who have a concern with the numbers that you’re raising and that there seems to be a much more significant profit than you are presenting as the IBC?

Ms. Barb Taylor: It has certainly been a topic of debate. One thing I can refer you to are the two economists that were tasked with looking at the return on equity for the industry. They determined that the overall return on equity for the last 10 years was approximately 4%. This was two independent actuaries. They are both professors from York University.

Mr. Jagmeet Singh: My other concern is that if we look at the past number of years when the 2010 amendments came into effect, from 2010 to 2011 and from 2011 to 2012, in that time period when there have been significant cost reductions—and I think we all agree that there have been the most historically significant cost reductions that this province has seen—that, given those cost reductions, the premiums haven’t come down. If we look from the 2010 period to present, there’s been an increase of 4% in terms of premiums. If your projections or estimates of profits turn out to be wrong, then there have been three years where the insurance industry has enjoyed significant profits, historic profits, and Ontario residents and Ontarians who drive here in this province have not received anything. There’s no way for them to receive a return on this significant profit that insurance companies have made but a significant premium reduction that didn’t occur that Ontarians were looking for. Do you agree with that comment?

Ms. Barb Sulzenko-Laurie: I understand the logic of your question. Having said that, in the years building up to those reforms, the industry was losing billions of dollars a year. The last year before the reforms came in, our estimate was a loss of $1.7 billion that the industry incurred. So, while the reforms of 2010, at least on paper—and I emphasize that: on paper—have produced some savings, even if those paper savings end up being real, it just brings us back to the point where we’re not losing money in the extraordinary sense that we were prior to the reforms.

I said that they’re paper savings as well, because there are so many of the minor injury claims that are currently in dispute in the FSCO mediation/arbitration system and ultimately in the courts that we won’t know for some time to come whether there are any savings at all, depending upon the outcome of those disputes.

Mr. Jagmeet Singh: Well, I beg to differ. In terms of the backlog, I think it’s very clear that we have a very strong sense that the backlogs have been addressed and that, moving forward, there isn’t going to be a significant spike in any way, given the statistics we have and the evidence we have in terms of where the results are, and it would be pure speculation to suggest otherwise.

But I have another question I’d like to ask you. On page 3 of your report, at the top of the page, it has a paragraph where you cited the difference in terms of average payments in Ontario versus Alberta and New Brunswick. In fairness, the system is quite different in Alberta versus Ontario, so you’re not comparing apples to apples. I’d ask you if you agree or disagree with this comment. In fact, in Alberta the claimants have access to the courts, so a substantial portion of the costs that are actually attributed to each claim is borne out by the tort system, so that wouldn’t be covered by this fact here. In Ontario, it’s a different case where, for minor injuries, there’s no access to the courts, so the injuries that are paid out on a minor injury basis don’t meet a threshold to actually go to court. So there’s a significant difference in the systems.

Ms. Barb Sulzenko-Laurie: You’ll note, again, from the numbers that we presented here, that the average cost of both a no-fault claim and a tort claim in Alberta is much, much lower than it is here in Ontario.

Mr. Jagmeet Singh: My question was that the systems are quite different. You’re not actually comparing—

Ms. Barb Sulzenko-Laurie: Actually, they’re not so different. In fact, you were talking earlier about the definition of “minor injury” that’s in the minor injury guideline. It’s very similar, if not almost identical, to the definition of “minor injury”—

Mr. Jagmeet Singh: I wasn’t referring to the definition, but the system in Alberta is significantly different from Ontario. I hope you’re not suggesting to this committee that they’re similar systems when they are—

Ms. Barb Sulzenko-Laurie: I don’t think so. I think there’s been an enormous harmonization of the systems over the course of the last 10 years. Alberta has increased its no-fault threshold to $50 million. Ontario now has a no-fault threshold of $50 million. Both of them have access to the courts, and so I think that the system here and in Alberta, as well as in the Atlantic provinces, has been substantially harmonized over the course of the last 10 years.

Mr. Jagmeet Singh: Well, we’ll certainly bring evidence forward to suggest that the systems aren’t actually as similar as you’re claiming they are, but we’ll move on.

One of the interesting points is that there are two different reports that were presented by two different—

The Chair (Mr. Grant Crack): One minute.

Mr. Jagmeet Singh: —actuarial consultants, and there is such a significant difference—$200 million—in terms of the spread between one report to the other. Do you agree that there is a significant issue here with getting to the facts of what the true profits are in the industry, and that we need a transparent and accountable mechanism to actually get at what the true profits are in this industry? Do you agree that there are certainly problems, when your own reports have a $200-million difference between the two of them? There’s something wrong in this way of accounting.

Ms. Barb Taylor: The reason for the difference is that each individual actuary will make assumptions with regard to allocations, because there are allocations by province and by line that have to be made on the product. That’s basically where the difference would be.

Mr. Jagmeet Singh: My question is, doesn’t that contribute to a significant problem if we’re trying to make decisions on whether there’s been profitability and what steps we need to take to ensure that our protection is maintained and that the premiums go down in a fair manner? If the consultants, the actuaries themselves, are finding $200 million different between them, there’s a problem here in being able to provide an accountable, transparent way of presenting the actual profits the industry is making. Do you agree that that difference speaks to the problem that we’re facing?

Ms. Barb Taylor: I actually don’t think that’s a—

The Chair (Mr. Grant Crack): Time is up. If you could maybe just wrap this one up quickly, I’ll allow it.

Ms. Barb Taylor: I just refer back to the GISA report that’s going to be available.

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The Chair (Mr. Grant Crack): Thank you very much. Government?

Ms. Dipika Damerla: Thank you, Chair, and once again, thank you to Barb and Doug for being here.

Actually, I’m just going to continue where MPP Singh left off, because I don’t think I really got a chance to hear the answer on why there is this difference in average payouts between Ontario and the other provinces; I think we got caught up in whether we were comparing apples to apples or not. But assuming we’re comparing apples to apples for a minute, could you explain why there is this difference?

Ms. Barb Sulzenko-Laurie: Ah, yes. I spent many, many, many hours and days thinking about the differences.

Ms. Dipika Damerla: I think it is the crux of the issue, as well.

Ms. Barb Sulzenko-Laurie: And the problem with Ontario auto is not new. It’s been building up over 20, 25 years as a result of the incredible richness of our product. Efforts have been made in recent years to rein that back, whereas in some of the other jurisdictions they have been moving it towards the Ontario—

Ms. Dipika Damerla: Sorry, I can’t hear you.

Ms. Barb Sulzenko-Laurie: In other jurisdictions, they have been moving, in some respects, but cautiously and with a great deal of oversight over the operation of the system and the stakeholders in the system. As a result, they have been able to control the growth in those costs.

Over 20 years we’ve had the build-up of cottage industries around towing, med rehab, psychology, physiotherapists, chiropractors and so on, that have taken advantage of the fact that there was this very, very rich Ontario auto insurance product. Currently—

Ms. Dipika Damerla: Can I just stop you? Are these numbers historical or they after the 2010 reforms?

Ms. Barb Sulzenko-Laurie: They are what the situation is right now. These numbers are 2012 numbers that we’ve cited here. But when you ask the question as to why it has happened that Ontario has become such a very expensive auto insurance system, it’s the product of 20 years of neglect and a very rich product that a lot of stakeholders have seen as an opportunity to make good livings off.

Ms. Barb Taylor: Just as an example, there are over 9,000 medical and health providers that are registered on HCAI providing services to auto insurance claimants.

Ms. Barb Sulzenko-Laurie: And there are only 62,000, 63,000 claimants, so there are 9,000 providers that are making a living off something like 62,000, 63,000 injury claimants.

Ms. Dipika Damerla: The part that puzzles me is that if 70%—that’s my understanding of the numbers that were discussed earlier—of the claims are covered off by the $3,500 cap, which is a substantial change from before 2010, the vast majority are clearly being capped at $3,500. Despite that, why is there such an anomalous situation? The portrait you’re painting is of runaway claims costs, but I’m trying to square that with the idea that 70% of people who have an accident in Ontario cannot claim more than $3,500.

Ms. Barb Sulzenko-Laurie: I think there’s no question that the 2010 reforms have had an impact. There’s no question about it. We would not deny that at all, but what we’re coming from is a period when the industry was losing $2 billion a year. As a result, some substantial reductions in the cost of minor injuries as well as more serious injuries were necessary in order to break even. At the same time, of course, what we’ve been seeing is a surging tort cost within Ontario in the post-2010 reform period.

Ms. Dipika Damerla: Fair enough. Would you be able to tell me what, in your opinion, is the biggest challenge to lowering the cost of insurance rates?

Ms. Barb Sulzenko-Laurie: I think the government has probably got it right. There’s not a single thing that needs to be done. It took 22 years to mess up the system and hopefully it’s not going to take 22 years to fix it up.

But there are problems with the dispute resolution system. There are problems with the enormous backlogs in the courts, as well. It takes two and a half years to get to court on a tort claim, which then shows up in terms of the interest that’s payable on the awards and so on. There is the expectation of the med rehab community that they’re going to continue to be able to make as good a living off auto insurance and it’s hard to push that back. It will take a while, but we’re saying start now.

Ms. Barb Taylor: Including fraud. I mean, fraud has been a concern for the industry as well. We really have to cut back on—eliminating that from the system. It takes time, because there have been behaviours going on in the industry for a long time, and to change those behaviours will take aggressive measures.

Ms. Dipika Damerla: Thank you for bringing up the issue of fraud, because that is a central part of the problem we’re trying to tackle. Would you be able to give me some idea of how fraud in Ontario compares with fraud in other jurisdictions?

Ms. Barb Taylor: I would say fraud in Ontario is particularly fraud in the GTA. It’s not throughout Ontario. It’s prevalent in the GTA. If you look at those 9,000 providers, I would think the majority probably are in the GTA. There’s fraud from right out staged accidents to where you get into perhaps overtreatment, prolonged stays away from work, things like that. There’s just opportunity there to find loopholes in the current system and that can be taken advantage of.

Ms. Dipika Damerla: My final question before I turn it over to MPP Hunter is the internal rate of return: Can you link for me what reducing FSCO’s internal rate of return that we guarantee for the insurance companies—what kind of impact would it have on the insurance industry and costs on premiums?

Ms. Barb Taylor: You mean going from—

Ms. Dipika Damerla: Yes, reducing the internal rate of return.

Ms. Barb Taylor: —from 12% to 11%?

Ms. Dipika Damerla: Yes.

Ms. Barb Taylor: Like I said, on average, the industry has not made the 11% or 12%, but that’s a target and that’s basically for rates going forward in the future. Insurers use that as part of their calculations, so it is very important to them. But as far as whether insurers are on average achieving that, they have not been. But that’s not to say—it’s a competitive industry. Some insurers strive to reduce their costs, become more efficient and effective in their operations. That’s what it’s encouraging: innovations, creativity.

Ms. Mitzie Hunter: How much time, Mr. Chair?

The Chair (Mr. Grant Crack): You have two minutes and 35 seconds.

Ms. Mitzie Hunter: Okay. I have two questions. Just continuing along the question of fraud—and you said this is a specific GTA issue as it relates to Ontario—I’m wondering what you see as some of the approaches that we can take to get at this issue, and do you see the industry itself playing a role in that?

Ms. Barb Sulzenko-Laurie: Well, some of the initiatives have already been initiated by the government insofar as some of the regulations that have recently been passed. There’s also the proposal of the anti-fraud task force to require licensing of med rehab clinics, and with the licensing, a requirement for their transparency, their communication with their patients or their claimants and their adherence to standards of practice that represent the best medical knowledge as to how to treat these types of injuries that arise from motor vehicle accidents. Some of these initiatives are under way, and also the use of HCAI data to more easily identify potentially fraudulent situations. They’re not going to happen overnight. We need a culture change. Yes, licensing of clinics and the adherence of 9,500 clinics to standards and being held to account will move the system forward a great deal, but it’s not going to happen tomorrow. We need a culture change.

Ms. Barb Taylor: And certainly there is more authority to be given to FSCO with respect to clamping down on fraud; as well, the ADR study that’s being done by Justice Cunningham. We’re very hopeful that that study will show a lot of progress on how there can be changes to the whole system.

Ms. Mitzie Hunter: And the industry, in terms of what you see the industry itself being able to do about this issue?

Ms. Barb Sulzenko-Laurie: The industry does have anti-fraud units in every single insurance company, and they have to, because there’s always a potential for fraudulent claims. The industry has a responsibility to be vigorous in the identification of fraud in terms of the benefit to its own bottom line, but also, most importantly, to the benefit of consumers.

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The Chair (Mr. Grant Crack): Okay. Thank you very much. That’s just over the 10 minutes. We’ll go to the official opposition. Mr. Yurek.

Mr. Jeff Yurek: Thank you, Chair. I just want some clarification before I dive into my questions, because it has come up from the last presenters and during questioning with the NDP. Mediation’s backlog has been cleared. Now, are all these cases in arbitration now, or is everything clear? Let’s get this—

Ms. Barb Sulzenko-Laurie: An awful lot of them have gone to arbitration. So we had a backlog in mediation, and now it’s replaced by a backlog in arbitration.

Ms. Barb Taylor: They don’t call it a “backlog” in arbitration, because there was never a 60-day timeline.

Mr. Jeff Yurek: Just the wait-list.

Ms. Barb Taylor: And also, basically, there were about 24,000 mediations being registered every year, but what’s happening now is that there isn’t the—it’s not called a backlog, because within 60 days they’re being assigned, but that means they are basically sitting on somebody’s desk. They haven’t gone away. They’re assigned and on someone’s desk, whether it’s a FSCO mediator or whether it’s ADR Chambers.

Mr. Jeff Yurek: So it wouldn’t be speculative at all for you to say that because these cases haven’t gone through arbitration, there’s a potential that your costs could drastically go through the roof through these arbitration cases?

Ms. Barb Sulzenko-Laurie: Absolutely, because the arbitration decisions will be, of course, retroactive to the passing of the regulations in 2010, so potentially, you know, there’s no constraint on what the ultimate costs could be, with some disadvantageous arbitration decisions.

Mr. Jeff Yurek: So, otherwise, if you go to the task of the NDP’s thought process, then, you’d have to assume that every single case is going to be ruled in your favour. Does that occur all the time in arbitration, in previous history?

Ms. Barb Sulzenko-Laurie: Very seldom. Very seldom.

Mr. Jeff Yurek: Okay. I’ll go on with my questions. I just wanted to clarify; I was getting so confused with what was being said today.

IBC runs ads that I’ve noticed around, saying that your ROE in 2011 was 1.3% and in 2012 it was 4%, and we have a report coming to committee later on today saying that it’s around 14%. Why is there such a huge difference?

Ms. Barb Sulzenko-Laurie: I can’t speak to the report that you’re going to receive today—you know, who did it and how it was done. I haven’t seen that report, but the reports that we’ve had done have been done by very respectable organizations, KPMG and Joe Cheng and Associates. But again, we refer you to the GISA report that’s going to be coming out. It is going to be transparent, and you can examine it. We’re certainly very anxious about looking at it as well. We expect that it will find results that are similar to the analysis that was done by our experts, because we chose them for their expertise, but we’ll look forward to it.

Ms. Barb Taylor: Basically, the ad was based on the KPMG data, so if you are looking for the specific analysis on the numbers, we have those available and can provide it. That’s where we got the numbers for the ad.

Mr. Jeff Yurek: Okay. It has also been said lately in the media that the insurance industry has been raising auto insurance premiums in response to the mandated 15% from last March. Is that true? And explain, yes or no, if it is true, why, and then let me know why rates are going up right now.

Ms. Barb Taylor: Absolutely untrue. If you look at FSCO’s rate approval system for 2013, rates have gone down just over 1%. In the prior year, I think it was 0.2%—a smaller one, 0.26%—so you have to basically look at those changes overall that have come through. They’re posted quarterly, and if you look at those, you’ll see the kind of average rate changes that come through.

Mr. Jeff Yurek: So is it possible for the insurance industry just to start hiking rates immediately?

Ms. Barb Taylor: No. For example, my renewal is in October. If my insurer were to come in with a rate increase, I probably wouldn’t see it till next October.

Ms. Barb Sulzenko-Laurie: There’s no rate that can be charged in Ontario that hasn’t been approved by FSCO. It’s all subject to regulation.

Mr. Jeff Yurek: And can they get that cha