Is Self-Regulation Realistic, For The Ontario Towing Industry?

The recently released report of the Ontario Automobile Insurance Anti-Fraud Task Force recommends province-wide regulation of the towing industry, which has strong support from the insurance industry. The Task Force would like to see a province-wide licensing scheme administered by an Administrative Authority (AA).

 There have been a number of attempts to review and/or regulate the cost of towing and storage of vehicles in Ontario over the past decade, several of which I had some involvement. In 2003, the government attempted to introduce a $300 cap on towing and storage costs through a revision to the Ontario Automobile Policy (OAP 1) but that was abandoned out of concern that consumers would be responsible for any excess charges.

In 2004, the Ministry of Finance and the Financial Services Commission of Ontario (FSCO) formed a working group with representatives from the government, insurance industry, police forces and towing industry to address some of the abuse reported by consumers and insurers. There was no consensus coming out of the working group and it was eventually abandoned.

On June, 4, 2008, MPP David Zimmer introduced Bill 87 which would have provided for the self-regulation of the towing industry in Ontario. The bill never proceeded beyond second reading. David Zimmer reintroduced the bill at Bill 147 on December 10, 2010 but it also failed to proceed beyond second reading.

History of Administrative Authorities 

 The key to the Task Force’s recommendations on regulating the towing industry is the formation of an AA which would act as the regulator. Personally, I have some concerns with these recommendations.

Administrative Authorities are not new to Ontario. In 1976, the government established its first AA when Board of Funeral Services was established by the Funeral Services Act to regulate funeral services. As well, Tarion (formerly the Ontario New Home Warranty Program) was established by the Ontario New Home Warranties Plan Act to administer warranty coverage to new homebuyers.

In 1996, the Safety and Consumer Statutes Administration Act came into effect which allowed for the creation of a number of AAs. Between 1997 and 1999, the government delegated authority and responsibility for day-to-day regulatory administration to the following sectors in accordance with this Act:

• Motor Vehicle Dealers and Salespersons → OMVIC 
• Real Estate Salespersons and Brokers → RECO 
• Travel Retailers and Wholesalers → TICO 
• Electrical inspections and safety → ESA 
• Safety in 4 sectors: boilers & pressure vessels, amusement & elevating devices, hydrocarbon fuels, upholstered & stuffed articles → TSSA 

  In 2000, the VQA Ontario was designated as the not-for-profit corporation responsible for administering the Vintners Quality Alliance Act.

On May 1, 2010, the TSSA became a statutory corporation with enhanced accountability requirements upon the proclamation of the Technical Standards and Safety Statute Law Amendment Act, 2009.

 The Retirement Homes Act, 2010, established the Retirement Homes Regulatory Authority (RHRA) and sets out its role, responsibilities and powers with respect to care, safety standards and other requirements applying to licensed retirement homes in Ontario with oversight by the Ontario Senior’s Secretariat.

Key objectives of this model in the 1990s was to reduce government expenditures, deliver services more efficiently, avoid unnecessary regulatory burden, and harmonize regulatory regimes across jurisdictions in response to mounting trade pressures.
 

Administrative Authority	Type	Evolution
Technical Standards and Safety Authority (TSSA)	Public safety	Responsibility transferred in 1996 from the Technical Standards Division of the Ministry of Consumer and Commercial Relations
Electrical Safety Authority (ESA)	Public safety	Responsibility transferred in 1998 from the Electrical Inspection Division of Ontario Hydro
Ontario Motor Vehicle Industry Council (OMVIC)	Consumer protection	Responsibility transferred from the Ministry of Consumer and Commercial Relations
Real Estate Council of Ontario (RECO)	Consumer protection	Responsibility transferred from the Ministry of Consumer and Commercial Relations
Travel Industry Council of Ontario (TICO)	Consumer protection	Responsibility transferred from the Ministry of Consumer and Commercial Relations
Tarion Warranty Corporation	Consumer protection	Evolved from the New Home Warranty Program that was originally established in 1976
Board of Funeral Services (BOFS)	Consumer protection	Formed in 1976 but predecessor organization established in 1914
Vintners Quality Alliance Ontario (VQAO)	Consumer protection	Established by Ministry of Consumer and Commercial Relations in 2000

  Will the AA model work for the towing sector? 

The Ministry of Consumer Services has oversight responsibility for eight of the authorities currently in operation. With the exception of the VQA sector, the government regulated the other seven sectors directly. These sectors were selected for delegated responsibility because they were mature sectors which had demonstrated their ability to work in partnership with government, and had a track record for addressing and resolving consumer and public safety concerns. With exception to the VQA sector, there were pre-existing statutory standards in all of these sectors.

The first problem with a proposed Towing AA is that there is no existing provincial public authority is currently regulating the sector. There are only municipal authorities that issue business licences but they do not really regulate the industry. Therefore, there is no regulatory expertise or knowledge to transfer to the private sector.

In addition, the towing sector does not have the maturity or a track record in dealing with consumer complaints and public safety issues. Representatives from the towing sector (Provincial Towing Association (Ontario) and Ontario Recovery Group) met with the Task Force to express support for self-regulation but their enthusiasm will not make up for the lack of regulatory expertise.

The Task Force reported that participants repeatedly complained that towing operators are engaged in organized or premeditated auto insurance fraud. There were concerns expressed regarding road safety concerns, insufficiently trained employees, improper equipment, a lack of clarity around fees and the illegal referral fees. Industry representatives reported that they have been unable to deal with corruption in their industry and legitimate operators have become so frustrated that they have begun to leave the industry. This does not sound like an environment where you can create a self-regulatory body.

I’m not suggesting that an AA model for the towing sector can never happen. To its credit the Task Force points out that there is a need for capacity-building in the towing industry. I just think it would be irresponsible if it were to happen in the near future.

So where can we go from here? 

The current patchwork of municipal licensing systems is not protecting the public. The Task Force is correct that a province-wide regulatory framework needs to be established. I believe the first step to creating a Towing AA is to establish a regulatory authority within government to develop and enforce industry standards. If the government is contemplating creating a government-run regulatory system for treatment and assessment facilities then it should also consider creating one for towing operators. Only after a regulatory system has been established should consideration be given to transferring it to the private sector. This will provide the towing industry and its associations time to develop some experience in working with the government, working with consumers and establishing some credibility.

Ontario Automobile Insurance Anti-Fraud Task Force Releases Their Final Report

The Ministry of Finance has released the final reportof the Ontario Automobile Insurance Anti-Fraud Task Force outlining 38 recommendations, many of them will expand the power of FSCO, the province’s insurance regulator.  

The report confirms that fraud is a substantial problem in Ontario despite the fact the Task Force was unable to accurately quantify how much it costs policyholders.  The report indicates that the public is aware that fraud is a problem but calls for educating consumers so they can better recognize and avoid fraudulent activity.  In addition the report calls for greater public disclosure on the part of insurers, provincial-wide licensing for the towing industry and licensing health care and independent assessment facilities.  My report to the Task Force on licensing heath care and independent assessment facilities was also released by the Ministry of Finance.

There is a considerable expansion in responsibility for FSCO proposed by the Task Force.  In recognition of the challenge that the implementing the recommendation will present FSCO, the Task Force is recommending that the governmentt should ensure that government-wide hiring constraints do not delay or prevent the FSCO from acquiring necessary resources to carry out an expanded mandate.

In addition, the Minister of Finance should, at an appropriate time, commission an independent review of how well FSCO is carrying out its new responsibilities.

Some Unusual Comprehensive Claims

In Ontario comprehensive coverage is optional and pays for the cost of repairing or replacing your vehicle up to the actual cash value if it is damaged by other unexpected situations such as falling or flying objects, vandalism, fire, theft or attempted theft, a natural disaster, or a riot or civil disturbance.  Just about everything that isn't the result of a collision.

I thought I would share some photos of unusual comprehensive claims - no hailstones or falling trees here.  No one was injured in these incidents.

  

Are We Still Trying To Figure Out What Is a Minor Injury?

The other day Mike Bullard was talking about a recent accident he had on his motorcycle on his radio show.  I’ve provided a video of that segment of his show below.  What isn’t covered in the taped segment is Bullard’s description of his interaction with his insurer.  That can be heard on the podcast of the show (November 16, 2012). 

Fortunately as you can hear from his story he did not sustain serious injuries. What you can hear on the podcast is a description of how the adjuster assigned to his file provided him with paper work to begin treatment under the MIG.  Bullard refused indicating he didn’t think his injuries were minor and he was waiting for his doctor to report back on his MRI.  As a result of his refusal to accept treatment under the MIG, he received a letter from the adjuster indicating that his physiotherapy treatment was being denied.. His doctor did finally report that, in fact, his knee is in pretty bad shape and he has a torn ACL and two tears in the meniscus.   

I raise this story because from time to time I hear similar ones.  I don’t know how frequently it occurs but it does happen.  This was an insured that had returned to work two days after his accident and had refused other services. 

The MIG was developed predominantly to deal with whiplash injuries in addition to minor strains and sprains.  Torn knee ligaments probably do not fall under minor injury definition but I’m not in a position to make a determination.  Sometimes adjusters are too quick to classify an injury without fully considering all the medical evidence.

When a health care provider exaggerates a diagnosis he or she undermines the integrity of the auto insurance system. Similarly an adjuster that inappropriately directs claims into the MIG undermines the system.  Both situations increase demand for dispute resolution services and delay access to appropriate rehabilitation services.  It is more than 2 years since the SABS minor injury definition was introduced and although disputes that have yet to be resolved regarding the definition, there should be a better understanding of what falls under the definition. 

FSCO's Mediation Backlog Is Getting Smaller

There appears to be some good news coming out from FSCO regarding the backlog of mediation cases.  Based on data released by the Commission, the number of disputes waiting to be assigned to a mediator has been falling throughout the year.

At the end of 2011, 29,305 cases were waiting to be assigned to a mediator.  However, the backlog was continuing to increase in the early part of 2012.  A blog post by an insurance stakeholder in May of this year indicated that the backlog was 35,000 cases at the time.  As of September 30, 2012 FSCO reports that the backlog had dropped to 23,745 cases.  That is a 19.0% drop in nine month or as much as a 32.2% drop in just five months based on the unconfirmed figures.

In addition, ADR Chambers was selected by FSCO through a Request for Proposal to provide dispute resolution services specifically to target the mediation backlog.  FSCO began assigning mediation files to ADR Chambers on September 19, 2012.  Up to 2,000 mediation files per month are expected to be assigned to ADR Chambers. This is over and above the files that will continue to be handled by FSCO’s mediators.  Therefore, the mediation backlog may very well be below 20,000 cases at this time.

So how has FSCO tackled the backlog?  Well beside the ADR Chambers contract, the DRS eCalendar has had a significant impact on mediation process at FSCO. 

The DRS eCalendar was first launched in July 2011 and made mandatory on February 1, 2012.  The system allows claimant representatives and insurers to book and manage their files online.  Not only has it freed up mediators’ time from doing scheduling but has allowed the parties to quickly fill up vacant time in the mediators’ calendars resulting in a significant improvement in productivity.  Mediators have been handling many more cases per week – FSCO reports an increase of 63 per cent closed files for the period of February 1, 2012 to August 31, 2012 compared to the corresponding period in 2011.

In addition, the number of applications has begun to drop off.  FSCO stats show that back in 2007 FSCO averaged about 1,200 mediation applications per month.  The application rate steadily rose over the next four years peaking at 3,000 per month in 2011.  Over the first nine months of 2012 the average number of mediation application has been 2,500.  If new applications continue drop off, it will allow FSCO to chip away at the backlog that much quicker.

On February 10, 2012, in Leone and State Farm, a FSCO arbitrator ruled that mediation was deemed to have failed because it did not take place within 60 days of an application being filed and that the parties could not extend the time limit on consent once 60 days had expired.  On July 31, 2012, a decision​ was released by the director’s delegate that upheld the 60-day deemed failure.  This decision has likely had an impact on the backlog by allowing insureds to jump out of the mediation queue. 

FSCO statsshow that the monthly average number of cases closed with full settlements and partial settlements increased by 29% and 38% from 2011 to 2012.  However, the monthly average number of cases closed that failed increased by 76% from 2011 to 2012.  So it appears failed mediations may also be having an impact on the backlog.

To head off a possible backlog of arbitration cases, the contract with ADR Chambersincludes the ability to assign up to 500 arbitration files per month to the vendors. Again, this is over and above the files that are currently handled by FSCO’s arbitrators.

So when will the backlog disappear?  Well it’s difficult to predict as there are a number of factors chipping away at the numbers.  My guess is that 12 months from now it may be down to 2,000 cases which would be below the number cases waiting to be assigned to a mediator in 2007. 

More Could Be Done To Reduce Premiums

Current environment within the auto insurance sector is best described as uncertain.  The 2010 reforms changed the playing field but no one knows by how much.  Over the past 2 years industry data shows that accident benefit costs have dropped significantly but premiums have not followed suit.  Why not?

The 2010 reforms reduced the level of mandatory benefits that consumers much purchase.  As many people predicted almost all consumers chose the minimum coverages merely to avoid further rate increases.  However, a recent court decision (Zefferino v. Meloche Monnex Insurance) creates uncertainty even with regards to the impact of lower coverages.  The courts have signalled that if consumers were not properly informed of their options then insurers may be on the hook for the optional benefits.

This is not a problem that the government can fix.  Insurers need to be satisfied that they or their agents or brokers are properly informing policyholders about the optional benefits?  They need to be certain that they will be able to defend a claim by a policyholder that they were not properly informed about optional benefits.


To its credit, the government has continued examine auto insurance system and work on longer term reforms following the Five Year Review.  An expert panel was appointed in 2010 to review the SABS definition of catastrophic impairment.  However, the Superintendent's report on the expert panel's work has had minimal stakeholder support.  It appears that there has been no attempt to reach a compromise position to get more buy in from stakeholders and so that we can move forward on this issue.

In 2011, the Auto Insurance Anti-Fraud Task Force was appointed by the government to measure the impact of fraud in Ontario and recommend changes that would reduce the incidence of fraud.  The Task Force has now completed their work and we are awaiting the release of their final report.  In their status report released in their summer the Task Force indicated that some changes are already taken place such as changes to HCAI and better training for police regarding fraud identification.

Some of the more significant measures will require legislative and regulatory amendments.  It's up to the government to move forward on these recommendations if consumers are to see premium relief.  I also can't see why the insurance industry cannot set up an agency similar to the U.S. National Insurance Crime Bureau in Canada and duplicate some of its work.  It does not appear to require any legislation.  Not all the solutions can come from the government.

One of the more significant reforms introduced in 2010 is the SABS definition of minor injuries
along with the $3,500 cap on rehabilitation and assessment costs. This definition and cap should have brought about a significant reduction in premiums in Ontario.  However, a set of circumstance has failed to save consumers any money.  Most stakeholders have expressed some uncertainty as to whether the current interpretation of the SABS definition will withstand challenges within the dispute resolution system.  It is over 2 years since the reforms were implemented yet no disputes have made their way to arbitration at FSCO as a result of the ongoing backlog of cases in the dispute resolution system.

There are no quick fixes to address the chronic high caseloads at FSCO. However, FSCO could have facilitated more certainty in the system and lower premiums had it fast-tracked a number of cases through their system.  Nine million drivers are waiting to see whether the reforms have actually reduced costs in the system.  In addition, had these cases revealed flaws in definition (meaning a different interpretation than intended by the government) those issues could have already been addressed through regulatory amendments.