Why Are We Paying Higher Auto-Insurance Premiums?

Why should a few rotten apples on the roads ruin it for the bunch?

Written by Luis Fernando Arce, Chief Interviewer

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If you drive a car, be weary, because your next renewal date will bring with it higher premium rates.  My father is paying around $40 dollars more per month, and chances are that that figure is rather conservative.

In 2009, the average insurance premium in Ontario was $1281, higher than in B.C., Saskatchewan, Manitoba or Quebec, all five of which offer consumers the option of Public Auto Insurance. But since the Ontario government’s passing of new regulations in 2010, consumers have repeatedly complained that they are basically paying more for fewer benefits.

Compensation for catastrophic injuries has remained at $1 million, though this group of people only comprises about one percent of the 65,000 annual injuries. Retribution for non-catastrophic but serious injuries was cut by half to $50,000; and benefits for minor injuries like whiplash and strains were brought down to $3500 from the previous $100,000.

The provincial government’s decision stems in large part from the consensus among themselves, the Financial Services Commission of Ontario (FSCO) and the Insurance Bureau of Canada (IBC), which considers insurance fraud the main culprit. As a result, they claim, insurance premiums must rise to make up for the huge monetary losses they incur.

[pullquote]The reality is that we continue to pay higher and higher premiums for what seem like lesser and lesser benefits every year. [/pullquote]Indeed, on Thursday February 23, 2012 an auto-insurance fraud ring was busted in Toronto thanks to an operation called “Project Whiplash”, a joint effort between the police, the FSCO and the IBC. Among the 130 charges laid, 77 were for false collision reports, and others included fraud, forgery and falsification of books and documents.

These types of activities – where car accidents are staged, either among knowing parties or using unsuspecting individuals as bait in order to process claims through the insurance – cost Ontarians about $1.3 billion per year, or about 15% of our premiums. Statefarm alone reported losing about $4 million in fraudulent payouts. Car insurance claim costs are said to have risen by $3 billion in Ontario between 2006 and 2010 – around $450 per car!

And all this is due to those bad apples who decide to cheat the honourable insurance industry….right?

Well, the matter is not so black and white. Sure, there are a lot of insurance scammers out there, but we must remember those tactics we learned in high-school math and thought we would never use: you know, the ones that said that what is done to one side of the equation must be done to the other as well.

Although consumers have been put under the lens for close investigations regarding fraud, insurance companies are also coming under the fire for an increasing number of claims being denied based on flimsy and unprofessional reasons.

Deidre Sperry, a Toronto speech therapist, told the CBC that she has seen five recommended cases denied since September 2010, more than she has seen in the last 11 years; where the cases were approved, she continued, they were only “partially approved”.


Dr. Donna Ouchterlony also told the CBC that as many as 40% of her recommendations are being turned down after adjusters with no medical training chose to revoke the doctors’ recommendations.  In an editorial in the Toronto Sun, columnist Alan Shanoff also mentions an increasing number of cases of doctored reports, where the actual doctors are only writing up a portion of the report, allowing the rest to be filled out by nurses or other staff with little medical training. He also mentions many cases where the physicians that work with the insurance companies deny victims’ claims after only doing “paper reviews” – that is, without ever even physically seeing or examining the patient.

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In another article, a registered Massage Therapist in Ontario complained that her patient’s insurance company had denied her $500 treatment-plan and had asked for a review by a Toronto surgeon who, without ever seeing the patient, determined that they were not in need of the treatment the therapist had recommended. They were paid $1500 for their work.

Mr. Ralph Palumbo, a spokesperson for the IBC, doesn’t believe that as much as 40% of claims are being denied. He believes that in fact, “people are trying to milk the system,” as he told the CBC, in order to make personal profits. He has cited that since 2005 to 2010, there has been 150% increase in claims-payouts while there has only been a 30% increase in injury reports, with the average claim running up to $56,000, about five times higher than in other jurisdictions.

However, the 40% figure is actually a little conservative according to the findings of a survey led by the Alliance of Community of Medical and Rehabilitation Providers, which represents 80 companies and 3500 health care providers. After the Health Claims for Auto Insurance Office, which is responsible for transferring claim forms between insurers and the health facilitators, refused to provide the Alliance information regarding the health claims being denied, the Alliance led a survey of 1143 rehabilitation providers and found that 42% of them had rejected claims, compared to 11% the previous year.

On top of this, it seems that the process for legitimate victims who dispute their insurer’s decisions is demonizing, to say the least. Firstly, it may be a year long for a mediation process. Then it may take another year until arbitration happens. This is one of the reasons there is a backlog of over 10,000 cases, as Adam Wagman, member of the Ontario Trial Lawyers Association, told the CBC. Meanwhile, as you wait all this time just to beg the FSCO’s to ask the insurer to review its decision, they investigate every action and word you or your physicians or therapists make, reinforcing thereby the sentiments of Mr. Philip Howell, CEO and superintendent of the FSCO: that there is a “zero tolerance for those who abuse the system and drive up premiums”. Yet this institution, which is funded by our tax dollars, has stayed hushed on the subject of unqualified insurer-commissioned assessments.

[pullquote]All this is due to those bad apples who decide to cheat the honourable insurance industry….right?[/pullquote]The reality is that we continue to pay higher and higher premiums for what seem like lesser and lesser benefits every year. Now we are being told that it is because of the high-crime area in which we are unfortunate enough to live. We need steps taken against this; we cannot throw everybody under the same bus just because some apples are simply rotten.

Rick Dubin, vice-president of the Investigative Services Department of the IBC, believes that by getting fraud offenders to pay restitution and by putting pressure on prosecutors to push for tougher sentences, premiums may stop going up. But why should responsible drivers incur the cost of offenders in the first place, to the point where even legitimate claims are denied and people are left without treatment owed? And why is the provincial government allowing benefits to be cut down so drastically for what is considered minor injuries? Why are institutions like the FSCO and IBC not scrutinizing insurers and their adjusters as they are doing consumers?

To aid those consumers that are going through the lengthy processes of appeals, arbitration and mediation, many plaintiff-side personal injury lawyers are bypassing the mediation process “by commencing lawsuits or arbitration once 60 days have passed since the date[…]” of filing, according to an article in the Law Times Newspaper, a timeline referenced in the FSCO’s dispute resolution practice code. The decision has been validated by the Ontario Superior Court.


Mr. Mario Sergio, a private MPP in the York West riding has also introduced Bill 43 to the House of Commons, which deals with insurers rating premiums based on driving records rather than on postal codes. On March 7, 2012, it went through its first reading. Though Private Member bills rarely become law, let’s hope for all our sakes that many of those voting on it have to pay sky-high premiums because of the crime-prone neighbourhood they live in…..Ha!

What do you think can be done on our part as citizens and consumers to put pressure on both insurance companies and provincial governments in order to regulate insurance premium prices?

ARB Team
Arbitrage Magazine
Business News with BITE.

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