No-Fault Faults

Ontario auto insurance has been in a state of flux for decades, a situation fuelled by each successive change to the product. Every time the product changes, it requires more people to administer the changes and educate the public, staff and insurance industry employees.

Ontario automobile insurance has been in a state of flux for about 30 years - and there is still no end in sight. For many years, insurance - especially automobile insurance - has been a political football.

Back in the 1980s, the superintendent of insurance's department of the Financial Services Commission of Ontario was a small, well-run department. Now, it is an overpopulated monster seemingly focused on controlling everyone.

CHANGE AND MORE CHANGE

Every time a change is made to the automobile insurance product, it requires more people to administer the changes and educate the public, staff and other employees in the insurance industry. Developing proper rates for a changing product is also difficult without the benefit of statistical evidence.

To make rate development even more difficult is the fact that in Ontario, it frequently takes six to nine months for rate approval and an actuary must assume the premiums charged will remain in effect for 12 to 18 months after the approval has been received.

When automobile insurance was first sold, it was based on the tort system. The person at fault in an accident was required to pay for the damage to the injured parties and the person at fault was only compensated for the damage to his or her car if he or she had purchased physical damage coverage. At-fault parties did not receive any benefits for injuries under their own automobile insurance policy.

In the early 1980s, the industry was encouraged to provide a token benefit for the loss of income as a result of an automobile accident. That was the beginning of no-fault.

Over time, the benefits have become much larger and vehicle damage was brought in to ensure an insured person would deal with just his or her own company. The concept was on a knock-for-knock basis, thereby eliminating the need for insurers to recover vehicle damage from the insurer of the driver who caused the damage. This was another extension of no-fault.

Now people cannot understand why they are required to pay some part of the damage to their cars even when they were not at fault. Many people are confused and unhappy with the way the system has evolved.

The main benefactors are those who stage accidents and collect for non-existent injuries. Unlicensed clinics thrive in this system; fraud is rampant and getting worse.

A committee or study will not solve the problem. A serious change must take place to lower insurance costs and to reduce fraud.

A MATTER OF CHOICE

When compulsory liability insurance was introduced in Ontario, it was intended to compensate the innocent person. In the event that a person was responsible for damage to property and injuries or death to others, the province wanted the person to be financially responsible.

Motorists did not have to buy protection for damage to their own vehicles, or for injuries to themselves. If they were negligent and caused injuries to passengers in their car, the occupants could receive benefits under the compulsory liability coverage.

Now, people must buy accident benefits and no-fault property damage with a deductible. They must pay the deductible even if they are not responsible for an accident. Injured people in all vehicles involved can receive substantial benefits.

It is no wonder that insurance is far more expensive in Ontario than in any other province in Canada.

As a result of the way accident benefits evolved over the years, the cost has become excessive. In many cases, people are paying for benefits they cannot use.

For example, people over the age of 65 have a limited need for the coverage, but are required to buy it. In most cases they cannot collect the income protection, which is an expensive part of the benefit. Most of the benefits for injuries, as well as prescription drugs, are covered under the Ontario Health Insurance Plan. Still, they must pay for coverage since they need liability insurance, which is compulsory. Should seniors not have a choice?

The 2012 Ontario Populations Projection Report indicates that seniors represented 12.4% to 26.8% of the population, depending on the specific region, in 2011. By 2036, the range will be as high as 30.4% and 44.1% in some parts of Canada.

In spite of the demographic studies, little consideration has been given to seniors. They are becoming an important part of the voting population and elected members of government would be well-advised to consider this fact.

To simply suggest that auto insurance rates should be reduced by 15% is not adequate. There must be greater thought given to how to accomplish the reduction. It is as foolish as elected officials saying they want to reduce taxes by 15% without a plan.

TAKING THE TIME

Now that no-fault is in place, it would be hard to eliminate it entirely. However, it is not too late to make changes - consider that the product has been altered many times over the past 30 years.

It is necessary to take the time to examine the groups that would be better off without no-fault. Some jurisdictions in the United States have tested no-fault and, in many cases, returned to the tort system. Some still continue a limited no-fault benefit, but the main portion of compensation is still under the tort system. Rates in most states are much lower than those in Ontario and fraud is under control.

Since it is unlikely that Ontario will ever revert back to the tort system, it is possible to introduce an alternative for motorists. People who do not need no-fault should be able to opt out of the system, although they would need liability insurance to cover third parties in an at-fault accident. Their insurer would pay for the damage and injuries to the innocent parties, and physical damage coverage would pay for the damage to their car, subject to a deductible. If a third party was responsible for the accident, then that person's insurer would pay for the damage, and injured persons would be compensated by the third-party insurer.

It would work in the same manner as in the past before no-fault. Insurance was much cheaper and fraud was much less of a problem. It worked in the past and still works in most jurisdictions in the U.S. at a much lower cost.

Under the current system, seniors are helping to subsidize younger drivers since they are paying for coverage that is of limited value to them. When they are living on a limited income, the cost of car insurance can be a hardship.

The political leaders in Ontario should recognize the fact that a high percentage of the population will reach age 65 very soon and will want fair treatment. Seniors now represent about 20% of the voters, while 20% of the population is 17 years or younger - and do not vote. This is an area that needs immediate attention, especially since the 45 to 64 age group represents another 27%.

ACTION NEEDED

In addition to seniors, there are other groups that should not be forced to carry accident benefit coverage. Taxi owners are having difficulty buying insurance in Ontario. Their rates have doubled in recent years. This is one segment that should be allowed to opt out of no-fault.

Many accident benefit claimants are non-residents and are taking advantage of no-fault benefits. As paying passengers, they should be required to prove fault, not simply claim damages. Eliminating accident benefit coverage for taxis would reduce this problem.

As well, truckers who provide workers' compensation for their employees should not have to pay for accident benefits. They should be able to decline the coverage. This is just another example of where no-fault is not as good as the tort system.

The evolution of no-fault has turned automobile insurance into an inefficient product: it does not work, it is too expensive and it requires an immediate fix. Voters will expect some action very soon since so many people are, or will be, in the senior age group.

_{Source: canadianunderwriter.ca By: William Star, President & CEO, Trillium Insurance Group Inc. 2013-08-01}