Report: reduce some auto insurance deductibles

A Financial Services Commission of Ontario report pressing for the reduction of some auto insurance deductibles could help improve access to justice in the province, say lawyers. In its Report on the Five Year Review of Automobile Insurance issued late last month, FSCO includes a recommendation that the government reduce the deductibles for injured accident victims to $10,000 and $20,000, down from $15,000 and $30,000.

The report also recommends that current deductibles charged to families of deceased accident victims be eliminated for awards covering pain and suffering.

Such deductibles relate to awards under $50,000.
The recommendations follow former associate chief justice Coulter Osborne’s report on civil justice, in which he called the deductibles a “tax on pain.”

Richard Halpern, chairman of the Ontario Bar Association’s automobile insurance working group, says the association is looking forward to government follow-through on a recommendation for further study on the prospect of eliminating the “verbal threshold.”

That aspect relates to a section of the Insurance Act stating that individuals must suffer a permanent, serious impairment to an important bodily function before they can get compensation for any pain and suffering.

Halpern noted Osborne’s findings that having both the threshold and deducible are redundant.
“This product is a disaster for consumers,” says Halpern. “One of the things that the Ontario Bar Association, among others, has done is come up with ideas for reform that addressed the consumer.”

Halpern says all interested parties can benefit from changes proposed by the OBA.
“If we improve this product in the way that the OBA has proposed it, it will be better not just for consumers, for innocent accident victims, for lawyers, but it will be better for the insurance industry as well,” he says.

“We recognize that you’ve got to have a product that has access to justice, that is friendly to consumers, but also maintains a viable insurance industry.”

Halpern quickly rejects the idea that the reforms must cost consumers in the long run.
“That is propaganda for the media, designed to get the public outraged,” he says.

“I have proposed directly to the insurance industry, on dozens of occasions, ways that can deliver the changes recommended by FSCO and at the same time save costs so that premiums don’t have to go up.”

With proper reform, including increased access to justice, premiums should not go up at all, says Halpern. He accuses the insurance industry of refusing to come to the table to work out a comprehensive package of changes.

“We need to engage in the process of reforms without these threats of increased premiums,” he says. “Because it’s propaganda, and it’s got to stop.”
Families facing large deductibles after losing a loved one to an auto accident called for reform to the system last year.

A release from the OBA included the story of Julia Rushnell, whose parents were killed when a truck hit their car in 2004. Rushnell faces the prospect of paying up to $300,000 in deductibles, said the OBA.

“No amount of money will bring back my mother and father,” said Rushnell. “But if these recommendations on deductibles are approved, at least other families won’t have to go through the pain and misery that our family was forced to go through by an insurance industry that does not really care about victims.”

 Bryan Yetman, president-elect of the Insurance Brokers Association of Ontario, says that the reduction in deductibles could increase traffic in the courts and increase costs, if other measures are not taken to compensate for the change.

“I don’t think the issue has ever been about, ‘You can’t reduce the cap.’ It’s the result, as we perceive it would be, if you reduce the cap or eliminate the cap, you will be increasing costs when it comes to consumers,” says Yetman.

The FSCO report was mandated in 2003, when Queen’s Park amended the act to force the superintendent of financial services to conduct a review of Part VI of the act and relevant regulations every five years or more, if the minister of finance makes such a request.

An executive summary of the report states that “rate increases have not kept pace with rising loss costs and the insurance sector reports significant rate inadequacy in the system. Declining profitability, significantly lower earnings, and loss cost increases will accelerate in 2009 in the absence of structural changes to stabilize costs.”

The report makes no major recommendations for change to accident benefits, notes Halpern. However, there is a suggestion that would see the limit for medical and rehabilitation benefits for non-catastrophic cases reduced to $25,000 from $100,000.

Finance Minister Dwight Duncan must now consider the report and decide what steps the government will take.

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