Note: This post was originally published on the Ontario Trial Lawyers Association website. Bonn Law’s Kristian Bonn is a director of the Ontario Trial Lawyers Association and a proud contributor to its blog.
Last week, an updated study from York University School of Business Professors Fred Lazar and Eli Prisman was released that reveals consumers likely overpaid $1.5 billion in the last two years for auto insurance. This includes overpayments of $700 million (or about $100 for each insurance policy) in 2014 on top of the $840 million ($120 per policy) in 2013.
This study is further proof that Ontario’s auto insurance system is fundamentally broken. Drivers pay too much for too few benefits, and insurers reap excessive profits on the backs of injured victims.
As noted by Toronto Sun columnist Alan Shanoff for the past 5 years the Ontario government has been taking steps to transfer money from victims of car crashes to insurance companies. There have been drastic cuts to no-fault benefits. Now in 2015, the Ontario government has targeted the fault system and made it much more difficult for innocent victims of car crashes to be fairly compensated.
Most Ontarians don’t know about the threshold and deductible on pain and suffering damages.
The threshold means that before an innocent injured victim can receive pain and suffering damages the person must prove that she has suffered a “permanent serious impairment of an important physical, mental or psychological function”. Even if you can establish a threshold injury, the injured victim is faced with an increasing deductible.
A deductible is a set amount that is automatically subtracted from a settlement. Until August 1, 2015, the deductible was $30,000. As of August 1, 2015, the Ontario government has increased the deductible to $36,540. This number will increase every January 1st to reflect inflation. This means that if a jury awards an innocent injured victim $40,000 for pain and suffering damages the injured victim only receives $3,460. What is even more galling is that the jury is never told about the deductible.
Why do we even need a deductible if we have the threshold? The stated aim of the deductible is to eliminate “nuisance” cases from the system. But that is achieved by the threshold. The deducible is just another way to line the pockets of auto insurance companies. If the Ontario government sees the need to tie the deducible to inflation, why are no-fault accident benefits not tied to inflation? The maximum payout for standard income replacement benefits has remained at $400 per week since 1996. All other benefits have also never been adjusted for inflation. The standard no-fault auto insurance benefits in 1996 may have been adequate, but inflation and government mandated cuts have severely eroded the value of those benefits.
The Ontario government does not need to target auto insurance victims to reach its promise of a 15% reduction to auto insurance premiums. Professors Lazar and Prisman conclude that a combination of a Return on Equity cap of 5.7% and a lower operating cost assumption could reduce auto insurance premiums by at least 6.7% based on 2014 data. This is a reduction that does not unfairly reduce no-fault benefits or limit innocent victims’ compensation.
Maia Bent, the current president of Ontario Trial Lawyers Association strongly recommends that Ontario’s Auditor General conduct a fully independent review of auto insurance in Ontario – focused on premiums, insurance coverage and industry profits. In a press release last week Ms. Bent said, “We need a critical re-examination of auto insurance in Ontario and the auditor is well positioned to provide a truly independent review. At a minimum, we need to advance the discussion about auto insurance beyond the simplistic idea that the only thing that matters is the price we pay.”
Kris Bonn, Personal Injury Lawyer
Bonn Law Office, Trenton/Belleville, ON