What's Behind the 2012 Budget Announcements

There are a few key things that we can take away from the 2012 Budget announcements yesterday. Should the minority government survive a number of significant auto insurance initiatives will occur. Note that the Budget also addressed on a number of initiatives that have already occurred or are underway. It is not unusual to repeat previous announcement in particular where they have no monetary impact on the government.

1. Auto Insurance Anti-Fraud Task Force

The section of the Budget document has nothing really new. The announced initiatives were included in Task Force's interim report that was released in December 2011. For example. the government notes that it has amended regulations (see Ontario Regulation 194/11) to ensure that treatments are provided as invoiced and issued a Superintendent’s Guideline to ensure that insurers are not being invoiced for medical devices at a significantly higher than market rate. The Budget document also sets out areas where the Task Force has committed to making recommendations.

2. Scientific and Evidence-Based Approaches

The government has signalled that it is moving ahead on two important projects. One is that minor injury guideline is to be developed the is evidence-based, that is, based on medical ad scientific research to be conducted by a consultant. FSCO released a Request for Proposals in November 2011 to hire the consultant but no announcement has been made regarding the successful bidder. This work should take two years to complete.

The second project is deals with the definition of catastrophic impairment found in the Statutory Accident Benefits Schedule (SABS). In December 2010 FSCO appointed a Expert Panel lead by Dr. Pierre Cote to review the SABS definition. That panel submitted two reports to the Superintendent which are both available on the FSCO website. The Budget document indicates that the Superintendent has made his final recommendations and his report will be made public. In addition, the government intends on making amendments to the SABS based on those recommendations. No time frame has been provided but regulation changes do not need to go to the Legislature for approval. Cabinet has the authority to amend the SABS.

The Expert Panel reports deal with such things as combining psychological and physical impairments, more objective tests for spinal cord, brain and psychiatric impairment and interim benefits for those waiting for a catastrophic determination. Hopefully the government will move quickly on this issue.

3. Other Initiatives

The government has signalled that it will review FSCO's Dispute Resolution System. Cracks have appeared in the system which has not undergone significant reform since it was first introduced in 1990. However just think about how much Ontario's auto insurance system has evolved over the past 22 years. Apart from the mediation backlog, a comprehensive review is likely overdue. No timeframe has been provided nor a mechanism for undertaking that review.

The government has signalled a willingness to work with insurers to explore voluntary usage-based auto insurance policies. I will likely address this issue in future postings. I feel that as traditional risk classification criteria are being chipped away at (ie, credit scoring, territories), usage-based policies may be the answer to predicting risk.

The government will harmonize the timing of statutory automobile insurance reviews. There are currently three statutory reviews in the Insurance Act. At least once every two years, the Minister is required to table a report before the Legislature in respect of the adequacy of statutory accident benefits and setting out changes made to the SABS (section 289). The Superintendent is required to undertake a review of Auto Insurance sections of the Insurance Act and related regulations at least every five years and recommend any amendments that the Superintendent believes will improve the effectiveness and administration of the Act and regulations (section 289.1). The Superintendent is also required, at least once every three years, to consult on the operation of those sections of Ontario Regulation 664 that deal with rating and risk classification and submit to the Minister a report containing the Superintendent’s recommendations for amendments to the regulations (section 417.1). A similar recommendation was made in the Superintendent's Five Year Review report in 2009 and the 2011 Auditor General's report.

The government intends to propose amendments to give the Superintendent the authority to impose administrative monetary penalties (AMPs) in the insurance sector. AMPs are monetary penalties viewed as a middle ground between a ‘slap on the wrist’ and quasi-criminal proceedings, enabling insurance regulators to issue a penalty proportionate to the infraction.

Auto Insurance Annoucements in the 2012 Ontario Budget

Insurance

In 2010, the government made major changes to the auto insurance system. As a result, premiums are stabilizing for drivers across Ontario. Building on the success of the 2010 reforms, the government is taking action to tackle fraudulent and abusive practices, base insurance benefits on scientific and medical principles, and ensure its regulator continues to identify and respond to new and emerging issues. The government’s ongoing work in the area of auto insurance, including fraud, should continue to reduce the pressure on premiums.

Auto Insurance Anti-Fraud Task Force

The government remains committed to combating insurance fraud and continues to support the Auto Insurance Anti-Fraud Task Force. The Task Force was announced in the 2011 Budget and delivered an interim report in December 2011. The government is working with stakeholders to address the Task Force’s early recommendations and has already:

• enhanced auto insurance fraud training for police officers;
• started a pilot project using the Health Claims for Auto Insurance database, which will allow health care providers to flag clinics that are misusing their credentials and cut down on identity theft;
• amended regulations to ensure that treatments are provided as invoiced;
• issued a Superintendent’s Guideline to ensure that insurers are not being invoiced for medical devices at a significantly higher than market rate;
• encouraged the industry to communicate the issue of fraud across a number of media platforms, and measure the current state of consumer engagement and awareness on the issue; and
• required CEOs of automobile insurers in Ontario to annually attest that their accident benefit cost controls are effective and that legitimate claimants are treated fairly.

The Task Force recommended that the government should provide the Superintendent of Financial Services with the power to impose administrative monetary penalties for contraventions of legislation and regulations. The government is proposing amendments that will provide this authority in order to enhance regulatory effectiveness.

The Task Force is continuing its important work this year. Since the interim report, it has been building relationships with the Workplace Safety and Insurance Board (WSIB) and Crime Stoppers to share best practices in fraud prevention.

The Task Force’s final report will provide recommendations on the following:

• regulation of health clinics;
• other gaps in regulation;
• establishment of a dedicated fraud unit;
• consumer education and engagement strategy; and
• a single web portal for auto insurance claimants.

Scientific and Evidence-Based Approaches

Scientific and medical knowledge on how to identify and treat a variety of injuries has improved remarkably over the last decade. The government will ensure, where possible, that insurance regulations reflect the most relevant science on identifying and treating injuries from automobile accidents. Clarity will help minimize disputes in the auto insurance system, ensure people get the treatment they need and ensure that treatments provided are based on medical evidence.

Newer scientific and evidence-based approaches can be applied to serious and minor automobile accident injuries. Recommendations on a new Minor Injury Guideline, based on the latest research on successful treatment, are being developed. The government has also received the report of the Superintendent of Financial Services on catastrophic impairment based on the work of an expert panel. The government will make the Superintendent’s report public and will move forward to propose regulatory amendments in this area.

Modern Insurance Regulation

Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), will continue to modernize to meet today’s challenges. The government has welcomed the recommendations of the Provincial Auditor General, which will strengthen the oversight of the auto insurance system in particular. The government will further enhance the effectiveness of FSCO regulation of the insurance sector by proposing to:

• engage in a review of the automobile insurance dispute resolution system;
• strengthen the Superintendent’s authority regarding Unfair or Deceptive Acts or Practices;
• clarify the Superintendent’s authority regarding rate and risk classification approvals;
• support a Superintendent’s review of the profit provision benchmark in auto insurance rate change approvals;
• work with insurers to explore the implications of voluntary usage-based auto insurance policies;
• harmonize the timing of statutory automobile insurance reviews; and
• improve solvency supervision of Ontario insurers.

Analysis and comments to follow.

Some U.S. States are Considering Credit Score Restrictions

As in prior years, proposed credit scoring restrictions continue to be a focus in many states. Here is a brief recap of some recently introduced bills:

• Illinois: HB 5839 proposes to require insurers, which are using credit information to underwrite or rate risks, to recalculate the insured's insurance score at the request of the insured, but not more than once annually. The purpose is to determine whether the insured is eligible for a reduction in his or her premium rate.

• Kentucky: SB 121 would require insurers to provide reasonable exceptions for extraordinary life circumstances, as well as prohibit insurers from declining, refusing to renew or cancel an automobile policy solely because of credit history, lack of credit history or extraordinary life circumstances that directly influence the credit history of the applicant or insured. SB 31 would declare the use of credit history or the lack of credit history, including a credit score or insurance score, of an insured or an applicant as the basis in whole or in part to decline, refuse to renew, cancel, rate, or determine the premium rate for any insurance policy, contract, or plan of insurance an unfair or deceptive trade practice.
  

• Maryland: SB 785 proposes a prohibition on private passenger motor vehicle insurers from rating a risk based, in whole or in part, on the credit history of an applicant or insured in any manner.
• Minnesota: HF 2279 would require that no insurer be permitted to limit coverage under or determine the premium rate for any person, in whole or in part, on the basis of credit information, without consideration and inclusion of any other applicable underwriting factor. Insurers would also not be permitted to use credit as a factor in adverse decision considerations if the credit information is adversely impacted or cannot be generated due to the absence of credit history.
  
  
• Missouri: HB 1406 proposes to prohibit taking any adverse action based on a credit report or insurance credit score against a person currently insured under an existing insurance contract with the insurer.
  
  
• Rhode Island: Both SB 2296 and HB 7411 would prevent the consideration of an applicant's credit history in determining automobile insurance rates.
  
  
• Virginia: HB 355 proposes prohibiting an insurer from setting rates or making pricing decisions based on a person’s credit information contained in a consumer report, bearing on an individual’s creditworthiness, credit standing, or credit capacity except as otherwise permitted under existing Virginia law. Also, an insurer would not be permitted to take any adverse action based in whole or in part upon an individual applicant’s or individual insured’s credit information contained in a consumer report if the applicant or insured has a perfect driving record. Both HB 432 and SB 350 would prohibit insurers from setting rates or making pricing decisions based on a person’s credit history, lack of history or credit score.
  
  
• West Virginia: HB 2049 proposes to prohibit the use of a person's credit history in insurance transactions, while HB 2319 would prohibit the use of a credit score in casualty insurance rate filings. HB 2467 proposes to prohibit credit scoring from being considered as a factor in calculating rates in homeowners or automobile liability policies.

Insurance News - Friday, March 23, 2012

New York Senate Passes Tough Auto Insurance Fraud Measures

On Thursday the New York Senate passed three bills to combat auto insurance fraud, which costs New Yorkers more than $1 billion a year, as well as legislation that would impose stronger criminal penalties for staging auto accidents. Recent cases of auto insurance fraud have uncovered massive crime rings, including doctors, lawyers and scam artists who staged accidents and used New York’s no-fault insurance program as their own, giant, state-sponsored ATM machine.

Senate Bill 4507B would enable insurance companies to retroactively cancel policies taken out by people who commit auto fraud. Senate Bill 1685 would establish a new felony-level crime of staging a motor vehicle accident. Senate Bill 2004 would make the use of “runners” illegal in New York. All three bills need to be passed by the state House before becoming law.

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New York State Targets Doctors Involved in Auto Insurance Fraud

In the wake of an epic car-insurance scam, New York state officials are preparing to crackdown on doctors who loan their names to clinics that are nothing more than billing mills.

New York Superintendent of Financial Services Benjamin Lawsky said he plans to zero in on white-collar criminals in white coats within a month.

A rigorous statewide initiative is underway to close medical offices billing for services that are either wholly unnecessary or never rendered to auto accident victims. Under the new regulation, physicians engaging in unscrupulous billing practices to siphon funds from New York’s personal injury protection (PIP) system will ostensibly turn themselves into pariahs, at least in the professional sense.

The Department of Financial Services has already identified 135 medical providers whose billing practices have raised concerns regarding possible no-fault fraud through audits and information obtained from law enforcement and insurers. As part of an ongoing investigation, letters are being sent to all 135 medical providers demanding a response and information. According to the department, failure to answer the letters may automatically lead to the medical provider being banned from the no-fault system.

The Federal government in March charged 36 people in a massive $279 million scheme to bilk New York insurers out of the state's PIP no-fault benefit. The fraud is alleged to have started in 2007 and continued until discovered last year. The organization allegedly scammed the medical system by having doctors prescribe physical therapy, acupuncture and chiropractic treatments as many as five times a week.

Florida Passes Auto Insurance Reform Law

Governor Rick Scott got the legislation he wanted to reform Florida’s mandatory motor vehicle no-fault law and crack down on the abuses in personal injury protection cases that have led to skyrocketing increases for coverage.

Whether the new measure will be effective remains to be seen.

The measure (HB 119) passed on a 22-17 vote in the State Senate after some heavy duty lobbying by Gov. Scott on Friday, March 9th just before the annual legislative session was to end. The Bill had passed the House earlier in the day.

The personal injury protection (PIP) law was adopted in 1972 to make sure anyone injured in an auto accident would quickly get money to treat their injuries. The legislation provided that a driver’s insurance company pay up to $10,000 to cover medical bills and lost wages after an accident, no matter who is at fault.

PIP costs have risen by $1.4 billion since 2008, largely because of the runaway fraud that threatens the system, most notably in the metropolitan Miami and Tampa areas. Florida ranks first nationally in staged accidents.

The legislation requires an accident victim to obtain treatment within 14 days in an ambulance or hospital, or from a physician, osteopathic physician, chiropractic physician, or dentist. The full $10,000 PIP medical benefit is available only if a physician, osteopathic physician, dentist, or a supervised physician’s assistant or advanced registered nurse practitioner determines that the insured has an “emergency medical condition.” Otherwise, the PIP medical benefit is limited to $2,500.

Follow-up services and care requires a referral from a physician, osteopath, chiropractor or dentist. Massage therapists and acupuncture was eliminated from eligibility for PIP benefits.

The bill would also establish an organization within the Division of Insurance Fraud to combat motor vehicle insurance fraud.

Health-care practitioners found guilty of insurance fraud would have their licenses revoked for five years and banned from seeking PIP reimbursement for a decade.

Another provision in the bill requires the Office of Insurance Regulation to hire an independent consultant by September to calculate the savings expected from the Act.

The bill includes a 10 percent rate reduction on PIP that’s not guaranteed. If insurers who offer PIP do not provide their customers a minimum 10 percent rate reduction, they must explain in detail why not. A second rate filing required on Jan. 1, 2014, proposes insurers have a 25 percent premium reduction for policyholders unless they can show why they’re unable to provide the cut.

The final bill represents a compromise as both the Senate and House had passed different legislation to reform PIP. However a bill must be passed by both bodies to become law.

The original House bill required those injured in auto accidents to get treatment in an emergency room within 72 hours or with the medical provider of their choice if the cost is under $1,500. It also capped attorneys' fees in both individual and class-action disputes and allows insurance companies to examine policyholders under oath when investigating claims.

The original Senate bill tightened procedures for licensing medical clinics and authorizing who can provide treatment and required long-form incident reports as a way to root out staged accidents. It updated the bill-payment system and gave hospitals priority standing in personal injury protection claims.

Lessons for Ontario:

One of the shortcomings of the Ontario system is the ability of a wide range of health care practitioners to recommend treatment and assessments. The Florida bill requires treatment recommendations come from a physician, osteopathic physician, dentist, or a nurse practitioner. Otherwise only $2,500 in treatment is available. However, in Ontario treatment has already been restricted to $3,500 for accident victims with minor injuries.

Florida has essentially delisted massage therapy and acupuncture treatment. In Ontario there is a need to limit treatment to interventions where there is scientific evidence to support those interventions.

The Florida bill would ban health care providers who are convicted of fraud from billing auto insurers for 10 years. A similar ban is needed in Ontario.

Bill HB 119 can be found here.

Three new auto insurance private member's bills introduced in Ontario

Let's be perfectly clear, very few private member’s bills become law. However, the fact that three private member's bills were introduced in the Ontario legislature in one week indicates a growing awareness that problems with the Ontario auto insurance system persist.

Mississauga-Brampton South MPP Amrit Mangat reintroduced her auto insurance bill, which she first introduced in June 2011. The purpose of Reducing Automobile Insurance Premiums by Eliminating Fraud Act, 2012 (Bill 41) is to protect people who report insurance fraud. It is also intended to ensure that insurance investigators have the proper tools to investigate fraud.

York West MPP Mario Sergio introduced Insurance Amendment Act (Elements in Classifying Risks for Automobile Insurance), 2012 (Bill 43), which deals with allowable elements of a risk classification system.

Then a similar bill was tabled by Bramalea-Gore-Malton MPP Jagmeet Singh. The Insurance Amendment Act (Risk Classification Systems for Automobile Insurance), 2012 (Bill 45) also deals allowable elements of a rsk classification system.

Bill 41

The Bill provides whistle-blowing protection to an inspector under the Independent Health Facilities program of the Ministry of Health and Long-Term Care, health regulatory College investigators, insurance company employees, IBC staff and the police. It does not protect private citizens. The Bill protects these employees from dismissal and other forms of discipline as well as from harassment and other forms of coercion. It also protects them from civil suits as long as their were acting in good faith.

The Bill allows the health regulatory Colleges to appoint investigators to determine whether College members have been involved in fraudulent activities related to auto insurance claims. I believe the College Registrars already have that authority. The Bill does go further by requiring that the police be notified if an investigation suggests that there has been such fraudulent activity.

The Bill also amends the Independent Health Facilities Act to provide that a licensee under the Act must be a member of a health profession college. This amendment appears to be irrelevant. An Independent Health Facility is a facility where members of the public receive services (lab tests, diagnostic imaging, laser surgery, etc.) paid for by the Ministry of Health and Long-Term Care. They are not involved in auto insurance claims.

The Bill can be found here.

Bill 43

The Bill amends the Insurance Act by requiring automobile insurers to use a person’s driving record, a person’s age, the type of automobile, and any element prescribed by regulation in classifying risks for a coverage or category of automobile insurance. The Bill also prohibits automobile insurers from using a person’s home address or postal code and any element prescribed by regulation in classifying such risks.

Essentially the Bill would eliminate territorial rating. The Ontario Cabinet already has regulation-making authority to prohibit territories as an element of a risk classification system. Section 16 of Ontario Regulation 664 deals with prohibited elements. The impact of this Bill is that it removes discretion from Cabinet regarding the use of territories as an element of a risk classification system.

The Bill can be found here.

Bill 45

The Bill amends the Act to require that elements of a proposed risk classification system use the following mandatory factors in decreasing order of importance:

1. The driving safety record of the insured person, but only in respect of accidents where the person was found to be principally at fault.

2. The number of kilometres driven annually by the insured person.

3. The insured person’s years of driving experience.

4. The population of the statistical area in which the driver primarily resides.

If other factors are used, they cannot, when taken together, be given more weight than the fourth mandatory factor.

Insurers are prohibited from using a geographical region in which an insured person resides as an element in classifying risks. Other elements may continue to be prohibited under the regulations. Insurers must provide written explanations and other prescribed information regarding rate determinations in specified circumstances.

This Bill goes beyond the proposed amendments in Bill 43. Not only does the Bill eliminate territorial rating but it requires insurers to use specific factors in classifying risks and sets out their relative weights.

The Bill can be found here.

Both 43 and 45 have been introduced by politicians in riding where rates are high. The amendments to the Insurance Act do nothing to reduce auto insurance rates by reducing fraud or costs in the system. Instead they reduce rates in regions where costs are higher and increase rates in regions where the risk of being in accident and costs are lower. Pitting consumers against each other in the end benefits no one.

Staged Accident of the Week

Curb Drive Down Fraud

This video illustrates the popular "Curb Drive Down" staged car accident. Staged traffic accidents are on the rise, endangering the lives and boosting the car insurance rates of innocent drivers who may unwittingly think they're at fault.

Insurance News - Thursday, March 1, 2012

$279 Million No-Fault Auto Insurance Scam In NYC Called Largest Ever

A cadre of corrupt doctors and scam artists sought to cheat auto insurance companies out of $279 million in bogus medical claims — the largest-ever fraud involving New York’s no-fault law, authorities said Wednesday.

The investigation resulted in federal racketeering, health care fraud, mail fraud and money laundering charges against 36 people, mainly of Russian descent. They include 10 physicians and three lawyers. One had the nickname “KGB.”

At a news conference, U.S. Attorney Preet Bharara said while the false claims totaled $279 million, the actual loss to private insurers was $113 million. Some of the ill-gotten gains were spent on vacations in Mexico, shopping sprees at Saks Fifth Avenue and rides in limousines, he said.

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A $250 Million Fraud Scheme Finds a Path to Brighton Beach

The plot involved 10 doctors, 9 separate clinics in New York City and 105 different corporations, all in service of a health care fraud ring that federal authorities say conspired to steal more than a quarter of a billion dollars from insurance companies. And when the details were announced on Wednesday, they cast an unflattering spotlight on how immigrants from the former Soviet Union have often dominated such schemes in the city.

This one, like many others, was rooted in Brighton Beach, Brooklyn, the locus of the city’s Russian-speaking immigrant population, many of whom grew up under a Communist system that bred disdain for the rules and a willingness to cheat to get around them.

Brighton Beach has one of the highest rates of health care fraud in the nation, according to federal statistics. In fact, an analysis of data from the Centers for Medicare and Medicaid Services, the federal agency that regulates those two programs, shows that more health care providers in the Brighton Beach ZIP code are currently barred from the programs for malfeasance than in almost any other ZIP code in the United States. (The top spot is in southern Florida, with its high proportion of older residents.)

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