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Friday, May 29, 2015

Ontario’s 25-Year No-Fault Journey

On September 15, 1989, Murray Elston, Minister of Financial Institutions, announced the unveiling of a new plan to address rising auto insurance costs in Ontario. The plan would provide a “social safety net” where everyone injured in an auto accident would receive compensation without the need to sue. This trade-off between reduced tort access and enhanced accident benefits was meant to reduce costs in the system and stabilize premiums.

Move forward 25 years and the introduction of the Ontario Motorist Protection Plan (OMPP), the first no-fault auto insurance plan in the province, celebrates its silver anniversary on June 22, 2015. 

The Ontario system is nothing like any other private system or no-fault system. It has a broad range of accident benefits, access to tort, complex entitlement rules and an overburdened dispute resolution process. It also has the highest rates in the country. At approximately 25% of Canadian property and casualty industry premiums, the health of the Ontario auto insurance product is important to the industry. Many ideas have been tried over the years, but none have addressed cost pressures in the system for anything more than a short period of time.


Following the 1985 Court of Appeal for Ontario decision, McErlean v Sarel et al., the insurance industry grew concerned about liability claims which, in turn, precipitated a liability crisis. Liability insurance costs shot through the roof and capacity was scarce. Little changed when the case was reversed on appeal in 1987, albeit on liability. Ontario had a serious liability problem that went beyond drivers. The crisis was affecting many institutions, including small municipalities and charities. In response, the Ontario Task Force on Insurance was appointed to study problems of availability, affordability and adequacy of general liability insurance in Ontario.

Although the focus of the task force report, released in May 1986, was not auto insurance, it did include some recommendations concerning auto insurance and tort reform.

A more in-depth analysis of the automobile insurance issues raised in the report were tackled by Mr. Justice Coulter Osborne, appointed in November 1986 to report on the tort system of compensation for injury by automobile accident, the consequences of the implementation of a no-fault automobile accident insurance scheme, and the merits of public versus private automobile insurance delivery systems.

Justice Osborne’s Report of Inquiry into Motor Vehicle Accident Compensation in Ontario, issued in April 1988, identified rapidly increasing loss costs for third-party liability bodily injury claims in the early 1980s without offsetting premium increases as the basis for the auto insurance “crisis.” The report recommended the following:

  • retaining the existing system of combined no-fault benefits and unlimited tort recovery, but expanding the type and level of no-fault benefits; 
  • forgoing public delivery of automobile insurance; and 
  • forgoing a no-fault insurance system. 

Faced with a continuing rate inadequacy problem, the Ontario government responded by introducing a no-fault product, believing it would be less costly. In September 1989, following extensive research and consultation, the government announced its intention to introduce the OMPP. Threshold/no-fault insurance came into effect June 22, 1990. Colleen Parrish, former director of policy for Ontario’s Ministry of Financial Services, says “it was hoped that the OMPP would be more consumer-friendly and many claims under the threshold could be settled with the involvement of just the claimant and insurer. Legislation addressed some of the volatility in the marketplace and went beyond the introduction of partial no-fault.”


Despite current concerns, the ability to access accident benefits following an accident was an important feature and still is. Kathy Bardswick, president and chief executive officer of The Co-operators Group Limited, maintains that “the industry supported no-fault because they believed it would allow more money to flow to accident victims quicker, and more of each claim dollar spent on injury would actually go to rehabilitation and support the injured party rather than in support of the administration of the tort system. Too often in a pure tort system, it was taking far too long for many accident victims to see financial support for their recovery. In addition, a no-fault system would provide insurers with the opportunity to deal directly with their own clients through the claims process.”

So what went wrong? Bill 164.

The NDP government abandoned its initial intention to introduce a government-run auto insurance scheme in favour of another set of reforms. On January 1, 1994, Bill 164 replaced the OMPP with a complex no-fault schedule and eliminated the ability to sue for economic losses. Designed for a public insurer, the requirements could not realistically be delivered by the private sector.

That system lasted less than three years with the passage of Bill 59, launching Ontario’s third no-fault system within a decade. Although Bill 59 restored some of the balance that existed under the OMPP, it retained the broad range of accident benefits, complex entitlement rules, and the overburdened and protracted dispute resolution process introduced under Bill 164.

Further reforms rolled out from 2003 through 2010, including those relating to health care provider fees and assessment, pre-approved treatment guidelines and an increased deductible for court awards for pain and suffering, as well as introduction of additional “checks and balances” upon the elimination of the designated assessment centre (DAC) system.

In 2010, standard accident benefits were scaled back, optional benefits were expanded and a minor injury definition and treatment cap were introduced. Over the past three years, additional reforms have been introduced to address fraud, but even these measures have increased the complexity of the system.

Today, the system is overly complex and confusing. It is an entitlement system with far too much moral hazard. The problems first appeared under the OMPP, became worse under Bill 164 and have never been properly addressed.

Philip Howell, former Superintendent of Financial Services, accurately describes today’s system as “part insurance and part social program.”

Many people contend it is as adversarial as the tort system. Consequently, lawyers are heavily involved in the accident benefit system, something that was not contemplated when no-fault was introduced 25 years ago, and has led to more disputed claims and higher transactional costs.

There is little accountability within the system. As soon as there are adverse conditions, the insurance industry begins to pressure the government into make changes. Rather than force the industry to take more ownership, the government is inevitably co-opted into yet another round of reforms. This ongoing tweaking has only made things worse. Nick Gurevich, founder and past chair of the Ontario Rehab Alliance, suggests that “insurers are hooked on frequent government intervention. This removes insurers’ motivation to search and implement long-term internal system improvements.” Since 2010, there have been 31 new or amending auto insurance regulations.


High auto insurance premiums in Ontario are driven by a number of factors. Some factors are unique to Ontario, such as urban density, weather and demographics, but many people believe the product largely contributes to stubbornly high rates. Ontario’s Insurance Act stipulates that auto insurance policies are second-payers to other public and private insurance plans, including the public health care system. However, the government has allowed the second-payer status to erode.

Eric Grossman, a partner at Zarek Taylor Grossman Hanrahan LLP, says “the public health care system has been downloading costs to auto insurance for years.” Not only public insurance, but private insurance plans have been allowed to write in auto accident exclusions in their policies.

Rob Sampson, a former Ontario minister with responsibility for auto insurance, agrees. “It is easier for insurers to pass on costs to drivers or persuade the government to make further changes than to address problems on their own. The product has become over-regulated and there is no confidence in the marketplace to manage costs,” Sampson contends.

Bardswick says she believes “there has been too much tinkering and not enough fundamental and significant change to improve the overall cost benefit equation long term. With each tinkering, the system has become more complex, more costly to administer, with any immediate cost savings quickly disappearing as players in the system adjust to the changes implemented. The regulatory burden has also driven out much of the ability or desire to innovate.”

The high cost of handling claims has become a serious problem. Greg Somerville, president and CEO of Aviva Canada, indicates that 48% of accident benefit costs are for non- treatment related activities.”

Grossman notes “the irony of the system is that the high cost of fighting claims encourages settlements which are incentive for more disputes.”

 Finally, fraud, something no one is able to either accurately quantify or define, continues to place cost pressure on the system. While everyone agrees a staged accident is fraudulent activity, not everyone is prepared to accept the notion of opportunistic or soft fraud.


Many people would welcome a system that was simpler and would allow most accident victims to navigate the system without a representative. There is a lot of nostalgia for the OMPP because stakeholders remember it as a system that had few rules and procedures and fewer disputes.

However, it would be naïve to think that the OMPP would not have evolved. It would not have necessarily developed into the existing product, but there would have been pressure to reform the system as a result of growth in the rehabilitation sector, adverse arbitration and court decisions, increased involvement of lawyers, pressure for more consumer protection provisions and fraud.

The accident benefits system has been eroded over the past few years, but it must be acknowledged that eliminating these benefits does not eliminate those costs from the system. Some stakeholders would like to see a system with quite modest accident benefits and any additional compensation provided through tort. However, that would bring the industry full circle to the pre-OMPP, which experienced significant cost pressures.

It is the concept of using an insurance system to provide a social safety net that is flawed. The current no-fault system resembles a government program with special compensation and eligibility rules for caregivers, retirees, the unemployed and students. Bryan Davies, former CEO and Superintendent of Financial Services, says he believes that “if the government wants to provide a social safety net, then it should be delivered by government.”

So what is the answer? The Ontario product has always been different than what exists in other jurisdictions, but looking at elsewhere may not provide an answer. A made-in-Ontario solution should include private insurance companies continuing to provide third-party liability coverage and physical damage coverage, while the government creates a not-for profit Crown corporate to deliver accident benefits.

A single adjudicative body would introduce significant efficiencies, standardize claims practices and eliminate the adversarial nature of the product. Insurers would collect premiums on behalf of the Crown corporation, which would inform insurers how much to charge for accident benefit coverage based on accident benefit and overhead costs. This system would require reduced advocacy and a scaled down dispute resolution process, there would be no settlement of accident benefits, and claims would remain open as long as there were insurable losses to pay.

It is time for the government to get away from tinkering with the system and eliminate the existing design flaws. A public debate is badly needed. The past 25 years has not been a total failure, but it is not working.

*Published in the June 2015 issue of Canadian Underwriter

Thursday, May 21, 2015

Fulfilling your financial obligations with the help of payday loans

Payday loans are without argument among the most sought after cash advances, the payday advances are becoming more and more popular by the day. People seek payday advances as an avenue to settle many financial obligations especially those that need urgent attention, situations that will be best suited by cash advances include taking care of emergencies such as medical bills, automobile accidents, work related accidents, natural calamities (heavy downpour, storms, earthquake, hurricanes, volcanoes) as well as to cater for the usual day to day activities which comprise of grocery shopping, settling overdue debts and also bridging a financial gap among many other monetary commitments. Why do people take these loans out? Reasons that make payday loans highly favored include the following: Simple and straightforward application process The application process of payday credit has become much simplified and very convenient to any potential borrower, the customer logs into the online portal of the financial firm and completing an application form which is very basic and requires no in depth knowledge. After submitting the application, the credit providers review the application and make approvals within a very short time period; this may include an instant pre approval and also a full endorsement within an hour. The borrower is able to have the cash remitted into his or her bank account overnight. Convenient and Affordable Loans are applicable to any person including people who might have a poor credit rating. This aspect makes this form of credit being preferred over the mainstream modes of borrowing, the rates of interest charged on the credit advances are very competitive and also come with very flexible terms of payments that are tailor made to suit different kinds of situations. The user friendly terms and conditions required of a borrower also make the short term loan expedient to most borrowers. Private and Confidential The process of making an application as well as receiving the funds is carried out in a discreet and confidential manner, a borrower is not required to involve other third parties during the application process and also once approvedFeature Articles, the cash advance is remitted directly to the borrower's checking account. The added privacy and confidentiality goes a long way in ensuring that the financial predicament facing the borrower is not exposed to other people. The whole process is carried out online and in a paperless environment consequently making the application and approval time efficient as well as cost effective to any person seeking the Payday loans.

Friday, May 15, 2015

Ministry of Finance Is Consulting on SABS Changes - Updated

The Ministry of Finance is consulting on SABS changes previously announced in the 2015 Ontario Budget.  The changes listed below are listed in the government's Regulatory Registry.  The consultation period ends on June 29, 2015.

The changes to the catastrophic impairment definition have now been described.  Many of the recommendations made by the former Superintendent are to be implemented.  Two significant changes are noted.  Psychiatric impairment based on the GAF scale has not been mentioned.  However, mental and behavioural impairments will have a revise definition which includes updated detailed criteria and new diagnostic tools.  They might be similar to the Superintendent's recommendations but it is unclear from the description provided.  Also combining physical impairments with mental and behavioural impairments will be set out in the SABS.  The 6th edition of the AMA Guides is to be used for quantifying mental and behavioural impairments for the purposes of combining. [NOTE: I have been able to clarify that GAF will in fact be included in the new definition for mental and behavioural impairments as well as a number of the other Superintendent's recommendations] 

  • Change the standard benefit level for medical and rehabilitation benefits to $65,000 (from $50,000) and include attendant care services under this benefit limit. An option will be provided for consumers to increase this coverage to up to $1 million; 
  • Reduce the standard duration of medical and rehabilitation benefits from 10 years to five years for all claimants except children and those with catastrophic impairments; 
  • Include attendant care services with the $1 million medical and rehabilitation benefit for catastrophic impairments, and provide the option for additional coverage of $1 million, for $2 million in total coverage; 
  • Eliminate the six month waiting period for non-earner benefits and limit the duration of non-earner benefits to two years after the accident; 
  • Require goods and services not explicitly listed in the SABS to be "essential" and agreed upon by the insurer; and 
  • Update the definition of catastrophic impairment (CAT) to reflect the most up to date medical information and knowledge. Amendments will be proposed based on the Superintendent's Report on the Definition of Catastrophic Impairment in the Statutory Accident Benefits Schedule, subject to modifications. Proposed updates include: 
    1. Paraplegia or quadriplegia: Revise the definition with updated detailed criteria and new diagnostic tools; 
    2. Total and permanent loss of use of an arm or leg: Revise the definition with detailed criteria and new diagnostic tools dealing with impairment of ambulatory mobility; - Total blindness: Update the definition by adding reference to 20/200 visual acuity threshold (legal blindness); 
    3. Traumatic brain injury: For adults, eliminate Glasgow Coma Scale (GCS) and adopt the Extended Glasgow Outcome Scale (GOS-E) as the clinical assessment tool; for children under age 18 adopt use of King's Outcome Scale for Childhood Head Injury (KOSHI) as the clinical assessment tool; 
    4. Allow for automatic CAT designation of children in certain cases; 
    5. For mental and behavioural impairments, revise the definition to include updated detailed criteria and new diagnostic tools; and 
    6. Combination of impairments: For other physical impairments not listed retain current definition and adopt new diagnostic tool (6th Edition of AMA Guides to the Evaluation of Permanent Impairment) for quantifying mental and behavioural impairments for the purposes of combining.