In the wake of a significant increase in insurance industry profits, insurance reform is needed more than ever. Easing the pressure on premiums should not be taken as a signal that all is well in auto insurance. Rather, it is the opportunity to address other important areas in need of reform.
For many years the insurance industry argued that poor returns justified significant reductions in the rights of accident victims to compensation in order to keep the industry viable. The threat of dramatically increased premiums and the potential withdrawal of some insurers from underwriting auto insurance prompted political panic. It was widely perceived that the New Brunswick Conservative government nearly lost an election over the issue of high car insurance premiums. This sent the Liberal and Conservative parties in Ontario scrambling for ways to address the perceived problems with auto insurance in the months leading up to the October 2003 election. Under pressure from the insurance industry for a quick fix, and fearing the political fallout, the political parties opted for changes that further reduced the rights and entitlement of accident victims.
The changes put forward by both parties sought savings largely at the expense of accident victims rather than by addressing other important contributing factors to the expense of auto insurance. Given the vigour with which the insurance industry cried “poor”, it came as quite a surprise when it was recently announced that insurance company profits rose almost 800% in 2003. That is 2.6 billion dollars in profit for 2003. In the first 6 months of this year federally regulated insurers earned a significant profit of $1.7 billion. Just this month the Toronto Star reported that if this trend continues for the balance of the year the industry will see an incredible 17% return on shareholder equity.
Incredibly, the insurance industry is trying to attribute some of this dramatic increase in profitability to increased gas prices. Moreover, the spin being put on these changes by the industry tends to take the focus away from the impact of diminished rights for accident victims as a significant contributing factor.
The apparent change in insurance company profits (something that was undoubtedly expected long before it was announced and when the industry was predicting gloom and doom) may be seen as good news to some. To accident victims, however, there is no consolation. The changes detrimental to their interests are already in force. Our government sees the insurance industry response to it’s sudden change in fortune as the opportunity to come through with reduced premiums. This will undoubtedly allow the McGuinty government to deliver on an election promise of reduced premiums. But there are further significant savings to be had that will allow for lower premiums and a return of some of the rights unjustly taken away from innocent accident victims. Auto insurance is no longer a hot political issue and therefore the will to address other very significant problems in the industry may be lost.
It might be reasonable to conclude, based on the recent good fortune of the insurance industry, that they were merely “crying wolf”. At a minimum, the recent draconian changes which came into effect on October 1, 2003 should be undone. However, more is needed and pressure needs to be kept up to address the systemic problems that take away compensation from accident victims. Reducing waste, fraud and expenses while at the same time reconsidering the level of no fault accident benefits will help achieve the restoration of fairness to innocent accident victims at the same time as allowing affordable insurance and a viable insurance industry.
The focus should not be solely on premiums, though affordability is vital. Rather, the attention must be on the product and the system in which it operates. Changes need to be made with respect to tort claims and accident benefits compensation. A reduction in expense associated with accident benefits will go a long way to restoring resources needed to provide fair and adequate compensation in tort.
The Accident Benefits schedule is unduly complex and expensive to administer. Each amendment to the regulations has succeeded in adding further layers of complexity which in turn add further expense. Most accident victims are incapable of understanding the system or negotiating their way through it. More personnel are required with each successive change. There are more forms to be filled out; more adjusters hired to handle the claims; more health care professionals to evaluate the claims; more office space and rent to be paid. The bureaucracy has grown out of control and consequently so too has the cost. This in effect diverts huge sums that might otherwise be available to provide fair compensation to innocent accident victims.
Premiums will be kept under control only with continued reforms to auto insurance. The other side of the equation is fairness and equity for victims of accidents. To balance both, we need to fix the problems now. With insurers profitable and premiums under control, insurance reform will not be an important issue for our provincial government. We need to convince them otherwise.