Ontario Auditor General issues warning over unfunded liability for auto insurance

Ontario's motor vehicle accident claims fund (MVACF) has an unfunded liability, no action has been taken since 2011 to address that liability and provincial officials estimate MVACF can only meet its financial obligations through the 2020-21 fiscal year, suggests the fall report of the Ontario Auditor General, released this week.

"The Fund's actuarial report shows that the unfunded liability was about $99 million as of March 31, 2013, or about $10 million less than at March 31, 2011," according to Auditor General Bonnie Lysyk's report, released Tuesday.
The MVACF, considered the “payer of last resort,” provides compensation or statutory accident benefits to injured persons who either have no recourse to auto insurance or who are involved in accidents with uninsured or unidentified drivers. The fund also, where legally permissible, recovers funds from the drivers or owners of money paid out on their behalf. It earns a fee of $15 from every driver upon issuance or renewal of their licence.
In her 2013 fall report, the Auditor General noted that the consulting actuary for the Financial Services Commission of Ontario (FSCO) "recently estimated" that MVACF "will have sufficient funds to meet its financial obligations through to the 2020/21 fiscal year."
In 2011, then-Auditor General Jim McCarter had recommended that FSCO "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."
The purpose of that recommendation, according to the 2011 report, was to ensure MVACF "is sustainable over the long term and able to meet its future financial obligations."
The 2013 fall report included a follow-up section on some of the recommendations from the 2011 report - including a section on auto insurance.
"Many of the recommendations in our 2011 Annual Report were either substantially or partially implemented, although additional work remains to be done in several areas, where we will continue to monitor progress," according to this year's fall report.
For example, FSCO advised the Office of the Auditor General that "no changes had been made to address the unfunded liability" of MVACF since 2011.
"FSCO continues to formally monitor the status of the Fund, and ongoing Ontario automobile insurance reforms have had a positive impact on the Fund's unfunded liability," the Auditor General noted. "The updated cash-flow analysis was completed in fall 2013, following a recent legal decision that will affect the collectability of accounts receivable owed by bankrupt debtors."
That was an apparent reference to an April 12 ruling by the Ontario Superior Court of Justice, against the Minister of Finance, in a case where FSCO had tried to collect money from - and threatened to suspend the licence of - an uninsured driver who had gone through the federal bankruptcy process.
Sandra Clarke had been driving uninsured in 1989 when she got into an accident that injured her passenger, who got paid from MVACF. Clarke had started making payments to MVACF but had also made a consumer proposal under the federal Bankruptcy and Insolvency Act. She had listed MVACF has a creditor but MVACF had not filed a proof of claim.
"The federal BIA takes precedence over the provincial legislation," Mr. Justice Robert Goldstein wrote in his April 12 decision, adding the Ontario Motor Vehicle Claims Act is in conflict with the federal bankruptcy law "and is inoperative to the extent of the inconsistency." The federal Superintendent of Bankruptcy had intervener status in Clarke's case and argued there is a conflict between provincial law and the federal bankruptcy law, which stipulates that claims against people making consumer proposals are released upon discharge.
In her fall 2013 report, the Auditor General noted MVACF "had $109 million less in assets as of March 31, 2011, than it needed to satisfy the estimated lifetime costs of all claims currently in the system," and that this shortfall "was expected to triple" by the 2021/22 fiscal year.
"FSCO noted that any changes to funding would require amendments to regulations and to the existing Motor Vehicle Accident Claims Fund fee on issue or renewal of an Ontario driver's licence, which are the responsibilities of the Ministry of Finance and the Ministry of Transportation."
The 2013 report also noted that in 2011, the Auditor General had recommended that FSCO "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."
In 2010, the province had put a $3,500 cap on auto accident benefits payments for injuries falling under the MIG, which can include, among other things, sprains, strains, whiplash associated disorders, contusions, abrasions and lacerations.
"In July 2012, FSCO retained the consulting services of medical and scientific experts who have been working to develop an evidence-based treatment protocol for the most common injuries from motor-vehicle accidents," the Auditor General noted in her 2013 fall report. "The treatment protocol, if approved by government, could be incorporated into a Superintendent's Guideline and used by insurers and health-care providers when treating minor injuries resulting from automobile accidents. The protocol will help to reduce disputes in the auto insurance system and ensure motor-vehicle-accident victims receive effective, scientifically proven treatment."

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