Customized Insurance

Posted September 1, 2004

The Liberal Government has recently announced that, as part of their commitment to improve the automobile insurance product for Ontario motorists, it is considering implementation of a “customized” auto insurance policy.

Such a policy would continue to require motorists to carry a standard package of coverage which would include:

  1. minimum limits for liability coverage (currently $200,000.00),
  2. the same coverage for compensation for repairs to an owner’s own automobile (when the accident is not the owner’s fault)
  3. protection for oneself and one’s family in the case of being hit by an uninsured automobile
  4. a minimum level of standard accident benefits coverage, including medical and rehabilitation benefits, attendant care benefits, case manager services in catastrophic injury cases, funeral benefits and transportation expenses.

The portion of the proposed “customized” policy which would be optional and which could be tailored to meet one’s needs, would take the form of “Buy-Up” or “Buy-Down” packages of coverage, which would be added to the standard automobile insurance policy or declined.

The Proposed Buy-Down Benefits, which would be packaged in bundles include:

  1. No Income Replacement Bundle – Insured would decline coverage for income replacement benefits and the lump sum death benefit
  2. No Dependants Bundle – Insured would decline coverage for the Caregiver benefit and Lost Educational Expenses
  3. No Minor Losses Bundle – Insured would decline coverage for Housekeeping & Home Maintenance Expenses, Visitors Expenses, and Damaged Clothing/Glasses/Hearing Aids etc.

The Proposed Buy-Up Benefits, which would also be packaged in bundles include:

  1. Optional Income Replacement Benefits
  2. Optional Caregiver and Dependant Care Benefits
  3. Optional Medical, Rehabilitation and Attendant Care Benefit
  4. Optional Death and Funeral Benefit

The Liberal Government states that the Customized Insurance Policy would result in motorists being able to reduce their automobile insurance premiums, by allowing motorists to “customize” their insurance to their needs. While at first blush such a proposal seems enticing, there are a number of difficulties.

Many years ago the Kruger Commission considered whether a customized automobile insurance policy was a viable option for the motoring public, and concluded that such a policy was not good for the consumer for a number of reasons:

  1. Most people will simply opt for the cheapest coverage they can purchase. They will not properly understand what they are giving up by declining some of the customized coverage. Most people will not appreciate what they have given up, until they have been in an accident and need the benefits, only to find that they do not have them.
  2. When people decline the optional coverage, they may find that they do not have enough money to pay for necessary medical/rehabilitation expenses or attendant care. Injured parties may then have to resort to OHIP funded treatment. With the recent cutbacks in OHIP coverage, and possibly more to come in the future, injured motorists may be left with few options for treatment or care after the standard benefits are exhausted.
  3. Proponents of a customized policy recognize that even if such a system was to be introduced, significant public education regarding the options would be necessary. This would require each motorist to sit down with their insurance broker or agent, to carefully determine exactly what type of coverage they require. Experience has shown that despite the fact that there are some optional coverages available under the existing standard automobile policy, most motorists have no idea what those optional coverages are, and most have never received a proper explanation of the optional coverages which are currently available to them.
  4. Insurers or insurance brokers cannot always be relied upon to adequately educate the public about their rights. Under the current legislation it is clear that most motorists are not aware of their rights under this complex system. This promises to get worse with these proposed changes.
  5. There is no proof that a customized automobile insurance policy will lead to lower insurance premiums for the average motorist. Those motorists who are most likely to have private insurance coverage for the type of “optional” benefits proposed, already have such a policy in place. In the event of an accident, those with private coverage are forced to resort to their private coverage first, before they are entitled to any benefits under the automobile insurance policy. Under our current system those motorists with private coverage are, in essence, partially subsidizing the cost of auto insurance for those who do not have private coverage. Under a customized system, those motorists with private coverage will decline the optional coverage, and the cost of this “optional coverage” will be borne exclusively by those who opt for the “optional coverage”. As a result, the optional coverage will likely be expensive, and the average motorist (without private coverage), may actually find that their premiums will increase for the same coverage they have under their current automobile policy.
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