Repairing Ontario Auto Insurance
By Richard C. Halpern | April 14
 Ontario automobile insurance is in need of repair.
On this matter the insurance industry and lawyers representing accident victims agree. Yet, even as we await the report from the Superintendent of the Financial Services Commission (FSCO) in relation to the mandated 5-year review of Ontario auto insurance, the debate about how to fix auto insurance rages on.
The position advocated by the Ontario Bar Association (OBA) stands in stark contrast to that offered by the Insurance Bureau of Canada (IBC) and its members.
The position adopted by the insurance industry seems destined to repeat the mistakes made by industry-promoted reforms in the past.
It is important to recognize that although the insurance industry has recently acknowledged serious problems with auto insurance, these problems are not new. The fundamental flaws have been there all along.
Failing to recognize the defects in the system in any meaningful way before 2008 is simply a matter of economics. The auto insurance business in Ontario in 2003 through 2007 was too lucrative for the industry to raise any concerns. Now, with a global economic crisis and escalating costs, the matter of auto insurance reform has become crucial to the industry.
While the OBA approach to reform is not motivated by the industry’s number one concern—profit—it nevertheless approaches reform in a way that recognizes the importance of a business environment that allows insurers a reasonable rate of return for their shareholders. At the same time, the OBA has ensured that access to justice and affordable auto insurance for consumers are equally important. Further, the OBA is convinced that all of these objectives must be achieved at the same time if a lasting solution is to be found.
As we have witnessed what has become the inevitable ebb and flow of the insurance industry’s return on equity (ROE) over the last 20 years and more, we have seen multiple attempts by the industry to promote reform that has repeatedly failed to address what is wrong with auto insurance. The latest proposals by the industry (in their July 2008 submission to FSCO) are just more of the same. The IBC proposals reflect a single overriding concern – profitability. The fact that this objective is to be achieved through the erosion of the protection consumers expect from their policies does not appear to bother the IBC. It’s time the industry adopted a more robust strategy.
In contrast, OBA, the Ontario Trial Lawyer’s Association (OTLA) and others believe reform must be comprehensive, resulting in a lasting solution for consumers, accident victims and insurers. That means addressing costs at the same time as addressing access to justice. Although expanded access to justice, taken in isolation, involves added costs, when tort rights are appropriately balanced with needed change to the first party benefit system, the objectives of improved industry profitability, better affordability, product stability, enhanced access to justice and protection for consumers will be achieved.
The first step in finding the solutions is identifying the core problems—it is our position that perceived problems raised by the industry about our judges and arbitrators are the not core to the situation. Instead, the solution to repairing auto insurance must be concerned with access to justice, reducing complexity, reviewing benefit levels, lowering transaction costs and limiting assessments. Adopting this approach will lead to lasting solutions.
In addressing these issues, those involved in reform would be well-advised to adopt some of the recommendations suggested by former Associate Chief Justice Coulter Osborne, in his recent report to the Attorney General of Ontario on Civil Justice Reform.
First, Osborne has recognized the problems with limitations on tort rights in the current legislation. Essentially, having both a verbal threshold and a deductible is redundant.
Second, Osborne points out that a verbal threshold results in unwarranted costs to the system in that the threshold does not get determined until the end of the case.
Third, he identifies the potentially discriminatory impact of the threshold.
Finally, Osborne recommends the introduction of “proportionality” into the civil justice system, a notion that ought to be incorporated into auto insurance reform. Proportionality involves the limiting of procedure and costs so that they bear some relationship to the amount in issue and the importance of the issue to the parties.
We must abandon what has proved to be nothing more that a gradual erosion of consumer protection to bolster insurer profits. Ensuring a reasonable ROE for insurers does not have to happen at the expense of accident victims. The insurance industry will only come to appreciate this as a fact when it agrees to take a hard look at increased access to justice taken together with reform that delivers an auto insurance product that consumers can understand; that incurs only that expense in relation to first party benefits that common sense would allow; and that teases out costs that lead to inefficiency and bloating of the product.
By Richard C. Halpern, partner, Thomson Rogers, chair of the Ontario Bar Association Working Group on Auto Insurance.
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