Scrap the five year review and create a tiered auto product: CEO panel

The government of Ontario may have taken a page from The Prince when it comes to dealing with the province’s auto insurance.

At least, this is the perspective of AXA Canada’s Jean-Francois Blais. While speaking at the Independent Brokers Association of Ontario’s 89th annual CEO panel, Blais suggested that the government was pulling a Machiavallian approach to the auto insurance product—waiting to release amendments; prompting insurers to raise rates (and looking bad in the eyes of consumers); and then swooping in to “save the day,” said Blais.

However, Gore Mutual’s Kevin McNeil said “We have to take some responsibility for creating this problem ourselves, as insurers.” By not raising rates in small increments, to reflect a changing and more and more complex product, insurers actually help perpetuate auto product problems.

Aviva’s Robin Spenser focused on the “incessant need for change every five years.” Since the 1990s, provincial governments have been mandated to undertake reviews of the auto product to ensure that it is accessible and affordable, the two principal mandates guiding the construction of the product. “How do you explain the difference in the product if the product is totally reengineered every five years?” he asked. “And try to understand the costs associated with the constant changes. This five year review doesn’t make sense.”

Intact’s Charles Brindamour expressed concern not over the product per se but on whether or not the product was truly accessible and affordable as is. According to Brindamour, 5% of disposable income for consumers in Ontario goes to auto insurance. “That’s unacceptable in terms of affordability and we need to reexamine.”

This inability to meet the two universal mandates—affordability and accessibility—is why The Dominion’s CEO, George Cooke, expressed concern over the “fundamental flaws” inherent with the current system. In particular, the product is too generous and the definitions are too precarious.

“We need to turn it around,” said Cooke. “Rather than start with [the definition] of catastrophic [injury] and work backwards… we should start with minor injury.” Cooke argued that if mistakes are made when defining a catastrophic industry, the hardship can be severe and damaging. “I would rather under-treat someone with a  twisted ankle or a bruised shoulder,” then a person suffering from a severe impairment.

As such, Cooke suggests that the auto product be reworked to include different levels of benefits—this would provide consumers with a better understanding of what is available and what coverage they may/may not need.

Originally published in Canadian Insurance Business Magazine in October 2009