Driving cost from Ontario auto insurance

A recent flurry of news reports throws some serious shade at providers of automobile insurance in Ontario.

“Grand Theft Auto,” accuses one headline. “Ontario drivers have fewest accidents, pay highest insurance premiums,” charges another.

Enter the Marshall Report

The unfavorable attention comes in the wake of the April 11, 2017 report by David Marshall, Special Advisor to the Minister of Finance, tasked in early 2016 with reviewing the province’s ailing automobile insurance system.

Provocative headlines aside, the more relevant takeaways from the report are found in the reasons behind provincial disparities and Marshall’s vision for premium reductions to bring Ontario in line with the national average.

In a 103-page analysis—Fair Benefits Fairly Delivered: A Review of the Auto Insurance System in Ontario—Marshall conducts a thorough examination, provides a diagnosis, and writes a prescription to heal an automobile insurance system that for more than a decade has left Ontario drivers with a bad case of indigestion.

Apples and oranges

With variable coverage, comparing the cost of automobile insurance in Ontario with other provinces is like comparing a Porsche to a Ford Fiesta. We pay much more for a Porsche, but we also expect more in quality and performance. Not everyone needs a Porsche, in fact, many car owners are perfectly content with the affordable and fuel-efficient Fiesta.

In Ontario, accident benefits coverage is broader than what is provided in other provinces—but there are inefficiencies. The benefits available are fair, but they are not being fairly delivered, Marshall contends. The Porsche is overheating and its performance is compromised; considerable maintenance expense is being incurred beyond the sticker price.

The premiums Ontarians pay for insurance are predicated, not just on the direct cost of claims and benefits consumers actually receive, but by superfluous legal fees and duplicative healthcare costs from which no benefit to the injured party is derived. “The structure is flawed: Current trends do not indicate that the system will self-correct,” Marshall warns.

Care, not cash

The report cites examples of inefficiencies where parties work at cross-purposes: insurers focus on cost control rather than the delivery of care to customers; accident victims pursue entitlements rather than needs; lawyers escalate the value of claims to increase contingency fees; health providers are paid on volume instead of results.

Marshall proposes the first step in reform is to establish and empower an arms-length regulator to overhaul existing regulations. He recommends substantial change to the system of compensation for the catastrophically injured—where money currently funneling to lawyers is redirected towards care for accident victims.

“The system needs to adopt a care, not cash approach,” Marshall asserts. He claims the care approach is a key to minimizing disputes that lead to delay of care and unnecessary legal cost. “The need for accident victims to hire lawyers to access benefits needs to be greatly reduced by simplifying the benefits and making them more readily available.” The report further suggests: “Billions of dollars currently spent on disputes can be diverted and made available to provide benefits for accident victims and those who pay premiums.”

Marshall also recognizes the insurance industry’s need for agility in a rapidly changing technological and competitive environment, and acknowledges the creative shackles of heavy regulation and price controls: “More open systems should be explored including changes to allow insurers to introduce new consumer products and to compete more freely on price and service in the marketplace.”

Welcome news to Ontario insurance providers is the report’s clear rejection of public insurance as a solution to the problem—a conclusion enthusiastically shared by the industry: “There is no need to make a disruptive change from a private to public system of delivery.”

Needed: Arms-length regulator with a skills-based board

No attempt is made to apportion blame for the current state of Ontario automobile insurance, but Marshall hints at a collective legislative origin: “No one government bears the responsibility for the current state of automobile insurance in Ontario. Successive governments from all political parties over the past 30 years have tried to improve the cost and value that auto insurance delivers to the citizens of Ontario.”

It is inevitable that the hand of regulation will be present for mandatory products of broad public interest, but there are arguably few statements more sobering to insurance executives than Marshall’s assertion: “The regulator will need to be very much more involved and proactive in the functioning of the auto insurance marketplace than it is today.”

What takes some of the sting out of the declaration, in this case, is Marshall’s call for an “arms-length regulator with a skills-based board.” If this translates to an independent committee of experts from the insurance, legal, and health services sectors—with full authority to develop the product and structure, free of political interference—it may just be the start of something promising.

Few industries are as amply serviced and predisposed to the forces of competition than the insurance industry. The barrier to market-driven automobile insurance coverage and pricing in Ontario has been an irreconcilable combination of product design and price control, largely motivated by political expedience.

If the fruits of Marshall’s labour amounts to the development of an improved and sustainable product and an environment of competitive innovation—rather than reactionary compliance—the objectives of the report could be a win for Ontario drivers and the insurers and brokers who provide the product.

Whether it involves a Porsche or a Ford Fiesta, change that improves the quality of automobile insurance at less cost to drivers and insurers, has the makings of a headline we could all buy into.