FSCO's Proposed 2012 Auto Insurance Priorities

FSCO recently released a draft 2012 Statement of Priorities for consultation. Section 11 of the Financial Services Commission of Ontario Act requires that FSCO publish in The Ontario Gazette and deliver to the Minister of Finance by June 30 of each year a statement setting out FSCO’s proposed priorities. As in the past, the document includes a number of priorities for the auto insurance sector.

1.3 Implement auto insurance recommendations made in the Auditor General of Ontario’s 2011 Annual Report

The Auditor General of Ontario released his value for money audit of Ontario's auto insurance system in December 2011. There were a number of recommendations made that FSCO will be addressing over the next two years. The most significant observations in the Auditor's report were:

• The total cost of auto insurance injury claims in Ontario rose by 150% between 2005 and 2010, even though the actual number of injury claims rose only 30% over the same period.
• FSCO offers a mediation service for people who disagree with settlement offers from insurers, but since about half of all injury claims end up in mediation, the service is so backlogged that dispute resolution takes 10 to 12 months rather than the legislated 60 days.
• FSCO had not routinely obtained assurances from insurance companies that they had paid the proper amounts for claims. Without such assurances, there is an increased risk of unnecessarily high payouts, which could help insurers get FSCO approval for higher premium increases.

FSCO will address these recommendations while continuing to implement longer-term projects announced by the Ontario government as part of its 2010 auto insurance reforms.

1.4 Work with stakeholders to reduce auto insurance fraud

The Ontario Government’s Auto Insurance Anti-Fraud Task Force is focused on determining the scope and extent of auto insurance fraud in the province and making recommendations to reduce fraud in Ontario’s auto insurance system. An interim report was released by the Task Force in December 2011.

FSCO is actively engaged with the Task Force’s steering committee and working groups, which are identifying potential initiatives to reduce fraud in the areas of:

• prevention, detection, investigation and enforcement
• regulatory practices in the auto insurance system and
• consumer engagement and education.

FSCO is also leading a working group that is investigating how the Health Claims for Auto Insurance (HCAI) system could be used to detect and prevent fraud. The committee brings together insurers, health care providers, HCAI and government representatives.

1.5 Enhance regulatory oversight of compliance with auto insurance requirements

FSCO will complete its first cycle of follow-up activities associated with the 2011 attestation on Statutory Accident Benefits Schedule controls. The annual attestations are part of the Ontario Government’s commitment to address auto insurance abuse and fraud, as announced in the 2011 Ontario Budget.

The annual attestation process will be reviewed with the industry, and amendments will be made as necessary. The review will also include additional assurance on compliance with approved rates.

1.6 Undertake long-term auto insurance reform initiatives

In response to direction from the Ontario Government associated with the September 2010 auto insurance reforms, FSCO is developing a new evidence-based Minor Injury Treatment Protocol. The new protocol will update the approach to treating soft tissue injuries and reflect current medical science. This project is expected to take two years.

In December 2011, the Superintendent provided his report recommending changes to the definition of catastrophic impairment in the Statutory Accident Benefits Schedule to the Minister.

The Superintendent’s report was based on stakeholder consultations and the two reports prepared by the Catastrophic Impairment Expert Panel earlier in 2011. This panel was struck by the Superintendent at the request of the government to examine the current definition of catastrophic impairment in the Statutory Accidents Benefits Schedule.

In the 2012 Ontario Budget, the government announced that it would move forward to propose regulatory amendments to the definition of catastrophic impairment. FSCO will work with the Ministry of Finance to implement the amendments if they are passed.

1.7 Enhance auto insurance information and analysis to support risk-based approach to regulation

The Superintendent is required to review and approve auto insurance rates filed by auto insurers. The rates must be just and reasonable, not impair the solvency of the insurer and not be excessive in relation to the financial circumstances of the insurer.

The current benchmark return on equity level for auto insurance filings was established in 1988 with a minor modification in 1996.

The Auditor General recommended that FSCO review what constitutes a reasonable profit margin for insurance companies when approving rate changes, and periodically revise the benchmark to reflect changing capital market conditions.

FSCO will review the benchmark profit provision used in reviewing rate filings. FSCO will work with the auto insurance industry to complete a closed third party liability bodily injury claim study on tort claims. These findings will support policy analysis.

1.8 Implement Administrative Monetary Penalties model in the insurance sector

In the 2012 Ontario Budget, the government announced that it plans to introduce amendments to insurance-related legislation and the FSCO Act to provide for administrative monetary penalties. FSCO will work with the Ministry of Finance to implement this tool if the legislation is passed.

2.2 Reduce mediation backlog

FSCO has implemented initiatives to deal with the increase in the number of mediation applications and to reduce wait times for the assignment of files to mediators.

Current initiatives include: an electronic scheduling system, mandatory blitz settlement days, a consent to fail process on request and outsourcing.

In January, FSCO issued a Request for Proposal (RFP) seeking up to four private dispute resolution companies to provide dispute resolution services to address the backlog. Successful proponents will be contracted to begin offering dispute resolution services in 2012.

FSCO is currently developing a policy and process to streamline the screening of applications.
In the 2012 Ontario Budget, the government announced that it would engage in a review of the auto insurance dispute resolution system. FSCO will support the government’s review.

These initiatives address the Auditor General’s recommendations on FSCO’s dispute resolution services.

3.3 Raise awareness of FSCO’s auto insurance filing processes and requirements

Following work done in 2011, FSCO will continue to raise awareness of and enhance transparency around its auto insurance filing processes and requirements. FSCO will use several tools to enhance stakeholders’ understanding of legislation, regulations, filing requirements, the rate approval process and overall compliance obligations pertaining to auto insurance rate filings. These include ongoing meetings with the sector and online media such as newsletters, e-bulletins and webcasts.

4.4 Communicate and coordinate auto insurance regulatory issues through CARR

FSCO will participate in common training and education initiatives as well as co-operative research opportunities with other Canadian regulators on matters involving auto insurance rate regulation through the Canadian Automobile Insurance Rate Regulators Association (CARR).


Links

Auditor General of Ontario 2011 Annual Report - Chapter 3, Auto Insurance Regulatory Oversight

Ontario Auto Insurance Anti-Fraud Task Force, Interim Report

Reports by the Catastrophic Impairment Expert Panel

Mediation Backlog Initiatives