2013 Ontario Budget - Auto Insurance

The section on auto insurance in the Ontario Budget document is likely the longest I can remember.  Certainly the auto insurance file has been given a higher profile given rate relief is one of the demands coming from the NDP over the past few months.

To achieve the 15% premium reduction, the government will introduce legislative amendments that would, if passed:

• Legislate a premium reduction of 15% on average within a period of time to be prescribed by regulation.  The Budget does not indicate whether that time period would be 1 year as demanded by the NDP.
• Require insurers to offer lower premiums for consumers with safe driving records. This is an interesting twist.  If the average reduction is 15% and safe drivers are being targeted for the biggest reductions, does that mean they will see greater than 15% reductions?  Also it will be interesting to see how a "safe driving record" is defined.
• Give the Financial Services Commission of Ontario (FSCO) the authority to license and oversee business practices of health clinics and practitioners who invoice auto insurers.  This is part of the implementation of recommendations made by the Auto Insurance Anti-Fraud Task Force.
• Provide the Superintendent of Financial Services with the authority to require insurers to file for rates.  Bill 5 in 2003 removed from the Insurance Act, the authority for the Superintendent to require insurers to refile their rates.  That authority is finally being restored.
• Make the Superintendent’s Guidelines binding — incorporated by reference in the Statutory Accident Benefits Schedule.  This is directly related to the recent Scarlett and Belair arbitration decision. It may soothe jittery insurance company nerves but is not likely needed. 
• Expand and modernize the Superintendent’s investigation and enforcement authority, particularly in the area of fraud prevention.  This is also part of the implementation of recommendations made by the Auto Insurance Anti-Fraud Task Force.
• Consolidate statutory auto insurance reviews. This recommendation was first made by the Superintendent in the 2009 Five-Year Review Report but has never been implemented. Currently, FSCO conducts a two-year review of the statutory accident benefits, a three-year review of the rates and classifications system and a five-year review of the auto insurance system  There are no cost savings related to this proposed legislative amendment.

There are some additional changes being proposed.  A new independent annual report by outside experts will look at the impact of reforms introduced to date on both costs and premiums. The report will review industry costs and changes to premiums, and recommend further actions that may be required to meet the government’s reduction targets.  This appears to overlap with the existing statutory auto insurance reviews so it will be interesting to see who will be involved in developing these annual reports and what they will contain.

Other government announcements include:

• A review of the current auto insurance dispute resolution system by an expert and propose legislative amendments in the fall of 2013.  This initiative was included in the 2012 Budget.
• Basing auto insurance benefits on medical evidence, including directing the regulator to provide an interim report this year on the progress of the Minor Injury Treatment Protocol project.
• Investigating additional new measures to reward safe driving and reduce costs and premiums.

The government will call on FSCO to reduce the current 12% return-on-equity benchmark used in rate filings. Depending on the new benchmark selected, this could fund a significant portion of the 15% rate roll-back.

The government will also conduct further study and consultation on other initiatives to reduce costs, including provincial oversight of towing and amending the definition of catastrophic impairment in the Statutory Accident Benefits Schedule. There are both contentious issues to the government is only committing to further review and consultation.