Spring has sprung in Ontario and with it yesterday we received the first budget of our new Premier Kathleen Wynne. As the leader of a minority government, Premier Wynne faced pressures from the NDP to include certain things in the budget or face another provincial election. One of the NDP demands was a decrease in auto insurance premiums by 15% annually. Premium Wynne rose to the challenge and included the decrease in premiums in the budget, but the interesting part is how the government plans on making those decreased premiums a reality.

To clarify, the 15% decrease in premiums will occur within a period of time “to be prescribed by regulation.” Since the regulation prescribing the period of time has not been written yet, it is not clear when we see the decrease in premiums. The timelines for the reduction are still a hot button issue between the Liberals and NDP, and can be expected to be debated heavily before the budget is passed by the legislature.

Additionally, the decrease in premiums will be an average decrease. What does that mean? In areas where fraud is still an issue, and the rate and cost of handling insurance claims is still exponentially higher than other areas of the province (GTA we are looking at you), there may be little to no decrease, while other areas of the province will see decreases greater than 15%. Part of the larger decrease will also be given to safe drivers. Insurance companies will have to offer lower rates to people with clean driving records, but still keeping in mind where the driver lives. Along with tight timelines, the NDP are demanding hard caps on reductions. This means they are pushing for 15% reductions across the board for every driver, regardless of where they live or their driving record. The average premium reduction versus hard cap reductions will also be heavily debated during the budget consultation process.

The 15% reduction will also be attained through changes to the way insurance fraud is being addressed in this province. Everyone in the industry knows that fraud in the current Ontario automobile insurance system is affecting our premiums. In January 2013, the government introduced reforms to the Accident Benefits system that were a result of the final report from the Auto Insurance Anti-Fraud Task Force. The reforms will come into effect on June 1, 2013. The new reforms will require insurers to provide claimants with all reasons for denying a claim, give claimants the right to request bi-monthly detailed statements of benefits paid out (including amounts paid to specific clinics), require claimants to confirm their attendance at a clinic, make providers subject to sanctions if they overcharge the insurers, and ban providers from requesting claimants sign blank forms.

To take these reforms a further step forward towards eliminating the systemic fraud we deal with on a daily basis, the budget has proposed that FSCO be given the authority to license and oversee business practices of health clinics and practitioners who invoice auto insurers. If a provider does not want to be overseen by FSCO, then they would not be able to claim Accident Benefits from an insurer. The extent of the authority FSCO will have while overseeing the providers is not known since the details of this proposal will still need to be worked out in consultations; however, there is a suggestion in the budget that the extent of the authority will be significant. The budget also indicates that the Superintendent of FSCO will have expanded and modernized investigation and enforcement authority, particularly in the area of fraud prevention.

Another way the government has tried to combat fraud and lower premiums was the introduction of the Minor Injury Guideline $3,500.00 cap for treatments/assessments in the September 1, 2010 SABS. On March 26, 2013, Arbitrator Wilson released the first decision since the September 1, 2010 Accident Benefits reforms that examined the validity of the Minor Injury Guideline. In his decision, Arbitrator Wilson found that the MIG, as a Guideline and not a part of the SABS, is informational and non-binding. He further held that the advisory nature of the Guideline was not altered by its incorporation in the SABS.

Perhaps in a direct response to Arbitrator Wilson’s interpretation of the nature of Superintendent Guidelines, the budget proposes to change the definition and binding nature of Guidelines. Currently, s. 268.3(2) of the Insurance Act, R.S.O. 1990, c.I. 8, states that a Guideline shall be considered in any determination involving the interpretation of the SABS. The budget has proposed to amend the Act to make Guidelines incorporated by reference into the SABS binding. As a result, if the budget passes and the amendments to the Act are made, the MIG will be binding and Arbitrator Wilson’s decision is unlikely to be applicable to any other MIG challenge.

The topic of arbitration decisions brings up another issue addressed in the budget, the current dispute resolution system at FSCO for Accident Benefits disputes. Recent year end (March 31, 2013) statistics from FSCO show that while pending mediations at FSCO decreased from 36,425 in 2011/2012 to 23,305 in 2012/13, pending arbitrations at FSCO increased from 5,178 in 2011/2012 to 10,719 in 2012/2013. Although FSCO has made a concerted effort to clear the mediation backlog, it appears to be shifted to the next stage of the dispute resolution process, and is quickly becoming an arbitration backlog. The budget calls for an expert to examine the current dispute resolution system and make recommendations for legislation amendments by the Fall of this year.

In order to monitor premiums and ensure that the promised 15% reduction is attained, the budget also calls for a consolidation of statutory insurance reviews. The Superintendent will also be given the authority to require insurers to file for rates. As for reporting, an independent annual report by outside experts on the impact of all of the reforms made to date will examine the impact of the reforms on the cost of claims and premium rates. The experts will also make recommendations for further actions that may be necessary to meet the rate reduction targets.

The government has also agreed to investigate additional measures to award safe driving and reduce costs and premiums, examine the progress of the Minor Injury Treatment Protocol, investigate the possibility of overseeing towing in the province, and amend the definition of catastrophic impairment in the SABS. Finally, the government has indicated that in the Fall of this year, it intends to amend theAct to require all insurance companies (except members of the Fire Mutuals Guarantee Fund) to be incorporated in jurisdictions where solvency is regulated in accordance with international standards.

Obviously there may be a lot of changes coming to the auto insurance industry in Ontario, and especially Accident Benefits, over the next few months, but first the budget needs to go through consultations, it needs to be debated, and it needs to be passed by the legislature. Then the necessary laws need to be amended and regulations need to be written setting out timelines and granting additional powers to FSCO. If the changes are approved, all levels of the auto insurance industry will be affected, from incorporation of insurance companies, underwriting policies, regulation of treatment providers and the dispute resolution process. It looks like a simple reduction of auto insurance premiums has the potential to turn into an industry game changer.

For a link to the proposed amendments; see Bill 65, Prosperous and Fair Ontario Act (Budget Measures), 2013