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Thursday, June 26, 2014

Queen's Park Update

A surprise majority for the Liberals in the recent election is expected to set a different tone in Queen's Park after almost 3 years of minority government.  A minority government is all about survival, there is no long-term planning. The Liberals could not focus on deficit reduction, job creation, pensions or stabilizing the auto insurance product without the confidence of having the support of the Legislature.

Despite campaigning under an activist agenda, the Liberals are now signalling that they are serious about deficit reduction. Deb Matthews has been appointed President/Chair of Treasury Board/Management Board which traditionally has been a responsibility of the Ministry of Finance. Treasury Board is not well known outside of government but it is a powerful central agency that manages the fiscal plan of the government including all government spending and approving labour agreements.  A very powerful body.

Charles Sousa continues as Minister of Finance and appears to still be responsible for the auto insurance file.  His Deputy, Steve Orsini has been promoted to Secretary of Cabinet which is head of the Ontario Public Service.  His appointment is intended to also signal that the Liberals are serious about deficit reduction.  He replaces Peter Wallace also preceded Orsini as Deputy Minister of Finance.

There has been some restructuring in the Ministry of Finance.  The Insurance and Cooperatives Policy Unit (which includes auto insurance policy) and the Deposit Taking Institutions Unit of the Industrial and Financial Services Branch will be reconstituted as the Financial Institutions Policy Branch. They will continue to be led by Alvaro del Castillo. Tthe Financial Institutions Policy Branch will join the Securities Reform Division (SRD) reporting to Assistant Deputy Minister Frank Allen who replaces Pat Deutscher. To better reflect its broader mandate the SRD will be renamed the Financial Services Policy Division.

Next week, new MPPs will return to Queen's Park to elect a new Speaker of the Legislature (July 2), hear a new Speech from the Throne (July 3), then debate a re-introduced provincial budget on July 14. It is expected that shortly after that the Legislature will recess for the summer.  That might mean that the reintroduction of industry supported bills such as Bills 171 and 189 might have to wait until the fall.

Friday, June 20, 2014

Rate Evasion Is The Latest Type of Fraud To Hit The GTA

Registering and insuring your vehicle using your parent's address in a neighbouring city might seem like a clever way to save money on your auto insurance rates.

Doing so can save hundreds of dollars.  Using an online quoting system, I found that a 30 year old man, driving a 10 year old Toyota with no tickets or accidents would pay $1,998 if he lived in North York. Change the address to one in Barrie and the rate drops to $1,489. That's a $500 difference.

While fibbing on an address may seem harmless enough, it's a practice known as rate evasion, and it's considered a form of insurance fraud.

With rate evasion, people claim to live in another city or that their car is garaged there, in order to pay lower insurance rates.  If you say you live in Barrie but actually live in Toronto, you're posing a risk in Toronto but you're not paying for that risk. Toronto residents whose vehicles are registered in the right location end up covering some of your share of the costs by paying higher auto insurance rates.

Rate evasion occurs in regions with high auto insurance rates.  It's difficult to detect in the GTA since vehicle plates do not reveal where your car is registered.  In some urban areas in the U.S. it is a little more obvious.  In certain areas of New Jersey, especially northern, urban areas, and the southern part of the state bordering Pennsylvania, it's not uncommon to see plenty of cars with out-of-state license plates regularly parked in people's driveways and on residential streets.  Recently I was involved in a minor collision and the other driver provided me with his driver's licence, vehicle registration and insurance card.  Each document had a different address.  It made me just a little suspicious.

Auto insurance is a pooling system where everyone pays premiums and the pool of funds are used by an insurer to pay claims to those who have accidents.  Everyone is rated based on their risk profile which includes where you live.  To certain extent there is always going to be some form of cross-subsidization based on the rules an insurer follows.  For example, an insurer cannot determine premiums based on whether the policyholder has access to collateral benefits from a workplace (e.g., supplementary health benefits). Those with access to collateral benefits are going to claim less than those without yet they may be rated the same, all things being equal.

When consumers try to beat the system by registering their vehicle at a false address, they are being cross-subsidized by other policyholders.  The difference is they are operating outside of the rules and the law. Therefore, it's fraud.  Still, high premiums in the GTA will continue to tempt some drivers.

Insurance News - Friday, June 20, 2014

Here are the leading auto insurance headlines from ONTARIO AUTO INSURANCE TOPICS ON TWITTER for Friday, June 20, 2014:

Saturday, June 14, 2014

What the Liberal Majority Government Means For Ontario Auto Insurance

The Liberal platform for auto insurance was essentially set out in the 2014 Spring Budget which never proceeded beyond first reading before the election was called.  Now that the Liberals have a majority, it is expected that they will proceed with those commitments.  It also means the NDP will no longer be able to influence government policy.

In the Spring, the Liberals indicates that the rate reduction strategy is on target and average rates will be 8% lower by August 2014 and 15% lower by August 2015. However, the Budget document does not point to any specific initiative that will specifically work towards achieving those targets. Average rates are down 5.6% as of the end of the first quarter of 2014.

The Liberals will  have a challenge bringing down rates further without a few significant systemic changes.  More and more it appears costs have been rising over past few quarters so it should be interesting to see the second half data for 2013.  Rising costs can be attributed to a number of factors including:
  • a severe winter
  • higher claims volumes
  • the backlog of decisions awaiting arbitration
  • deterioration of reforms as parties begin to discover how to work the system
  • claims staff "fatigue"
  • residual fraud
Governments are more likely to make unpopular decisions early in a mandate than immediately before an election.  So there is a possibilities that some tougher decisions make be made on the auto insurance file to stabilize costs and ensure consumers will see lower rates.

The Premier has committed to bringing back the Legislature on July 2 to re-introduce the Budget Bill following a Throne Speech. The Budget Bill itself had no auto insurance provisions.

Instead, legislative amendments to the Insurance Act were part of Bill 171, the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014 which was introduced in March 2014.  The Bill included legislative amendments for the transformation of the dispute resolution system, and further action to crack down on fraud and abuse, as well as other cost-saving measures. The government was to take further steps on developing a dedicated investigation and prosecution office on serious fraud, with an initial focus on auto insurance fraud. The development of this fraud office would be based on the Auto Insurance Anti-Fraud Task Force’s principle that fraudsters should be vigorously pursued and prosecuted where evidence warrants.

There is no timetable for re-introducing Bill 171.  There were some strong objections expressed over several provisions in the Bill - barring access to the courts for accident benefit disputes and reducing the prejudgment interest rate.  It will be interesting to see if there are any changes should the Bill be re-introduced.

The Liberals had also introduced legislation to regulate the towing industry that never passed.  Bill 189, the Roadside Assistance Protection Act would require towing and storage providers to publish their rates, provide an itemized invoices, accept payment by credit card if requested and to disclose to the consumer any interest a towing and storage provider may have in a location or facility to which a vehicle may be towed for repair or storage.  If passed into law, Bill 189 would also stipulate the consumers be given access to towed vehicles in order to remove personal property.

FSCO has been proceeding with the licensing of treatment and assessment facilities on the auto insurance sector.  The licence application process opened up on June 1.  Facilities will have to be licensed on December 1 in order to submit invoices through HCAI.  Application fees were also recently announced.

Perhaps even some outstanding issues, such as the definition of catastrophic impairment and a new minor injury treatment protocol will finally be addressed.

Monday, June 2, 2014

FSCO's Licensing Process for Service Providers Has Begun

The licensing process for auto insurance service providers, first recommended by the Auto Insurance Anti-Fraud Task Force in 2012, has officially begun.  

As if June 1, the application process was opened up by FSCO.  Service providers must be licensed by December 1 to continue to use HCAI and bill insurers directly.  As well, FSCO states that an application received after August 31 may not be processed before December 1.

Service providers can apply as a:

  • Sole proprietor
  • Partnership
  • Corporation
The application fees are now available as well.  There is a one-time application fee of $337. Then there is a annual regulatory fee that is tied to the volume of business conducted with auto insurance companies. Service providers will be charged $15 for each claimant in the system in the calendar year plus $128 for each location it operates from.

So a chiropractor that sees 2 auto insurance claimants per month and operates one clinic will pay:
($15 * 24) + $128 = $488.

A larger provider operating from 5 locations with each location accepting 40 new claims a month will pay:
($15 * 2400) + ($128 * 5) = $36,640.

Regulatory fees will be payable on April 1, 2015 and will be prorated from December 1, 2014 (four months). 

For more information check the FSCO website.