A war on wheels

No-fault insurance sparks a heated debate

JOHN DALY February 19 1990

A war on wheels

No-fault insurance sparks a heated debate

JOHN DALY February 19 1990

A war on wheels

No-fault insurance sparks a heated debate


Anita Ling says that she would gladly forgo any amount of money if only her doctor could sit her down and tell her, “In another month, you can play squash again.” Ling, a 39-year-old counsellor at a London, Ont., medical centre, was driving to her health club in April, 1986, when she was involved in a terrible collision with another vehicle. While fighting back tears, Ling told Maclean ’s that, because of the whiplash injury she suffered, bolts of excruciating pain still shoot through her arms, and that at times she can barely lift a glass of water, let alone a squash racket. Although Ling expects to obtain an accident settlement soon, she is concerned that under a restrictive, no-fault automobile insurance plan being proposed by Ontario’s Liberal government, innocent accident victims will be barred in future from going to court to seek compensation for their prolonged pain, suffering and lost income.

Last week, an all-party legislative committee finished hearing public submissions regarding the controversial plan, and both Ling and her lawyer, Nigel Gilby, a member of a lawyers’ group lobbying vociferously against the plan, travelled to Toronto, where Ling testified against the legislation. Introduced last September by Murray Elston, minister of financial institutions, the plan would replace an accident

victim’s right to sue for damages, except for the most severe injuries, with a governmentset schedule of benefits—a so-called meat chart—to be paid by the victim’s insurance company. In such an almost automatic payout system, Elston maintains that there will be less need for lawyers—and their legal fees—and that therefore the plan will reduce the cost of processing claims, a saving that should, in part, slow or stop the increase in insurance premiums. It should also help victims obtain faster settlements. At the same time, in opting for a privately operated plan, Elston rejected the government-run systems adopted by Manitoba, Saskatchewan and British Columbia, and a pure no-fault, privately based system such as Quebec’s, where victims have no recourse to the courts at all.

So far, however, only insurance companies have expressed strong support for Elston’s plan. Without it, they say, they will have to raise the premiums that they charge Ontario drivers by 30 per cent or more this year to cover the cost of claims. Those drivers already pay the highest premiums of any province in the nation—an average of $671 in 1988. Elston predicts that his plan will freeze premium increases for rural Ontario drivers and hold increases to an average of eight per cent for drivers in the Greater Toronto area, while

raising government-guaranteed benefits paid to victims from private insurance plans and various government disability programs to a maximum of $450 a week from $140.

Still, the plan is under siege from lawyers, groups representing physically and psychologically disabled accident victims, and the Consumers’ Association of Canada. And consumer advocate Ralph Nader, based in Washington, told Maclean’s that Ontario’s plan, like no-fault schemes in such U.S. states as Michigan and New York, is simply “a way to avoid having to pay out what people deserve.”

Under Elston’s proposal, only victims who suffer such permanent serious disfigurement as a lost limb or such serious impairment as a pianist’s losing flexibility in the wrist would be allowed to sue for damages and compensation over and above the no-fault benefits. While dollar figures have not been set for all potential payouts, the loss of life for the head of a household is valued at $25,000. But critics argue that about 95 per cent of the roughly 120,000 people injured in auto accidents in Ontario each year will be restricted from recovering any more compensation than that authorized by the government.

Elston said that by restricting the right to sue, he also hopes to reduce the $500 million paid to lawyers each year to help settle claims disputes. According to the minister, “The sheer volume of litigation has gotten out of hand.” But the Committee for Fair Action in Insurance Reform, a coalition of lawyers, doctors and academics who oppose Elston’s plan, says that it may not produce any savings at all. Lawrence Mandel, a Toronto lawyer who is counsel for FAIR, argues that accident victims

will still need legal assistance in recovering benefits from their own insurance companies, which may resist paying out full benefits. Said Mandei: “We are a necessary evil.”

But a 1987 study of U.S. accident claims in states that have no-fault insurance plans found that, compared with counterparts in other states, claimants paid lower premiums, received quicker settlements and had fewer of their claims dollars eaten up by attorneys’ fees. Regardless, Nader says, “I don’t like people saying, The system is too inefficient and cumbersome, so let’s reduce people’s rights.’ ”

Still, in drawing up his plan, Elston did not face any easy choices. His proposed legislation is a response to an auto insurance crisis that has been building in Ontario since 1986, when premiums jumped by an average of 24 per cent. Confronted with the politically daunting prospect of close to six million angry motorists, Premier David Peterson’s then-minority government announced a freeze on premiums indefinitely in April, 1987, and set up an automobile insurance board to review any proposed increases.

In the campaign leading up to the. September, 1987, provincial election, the opposition New Democratic Party described Ontario’s system of private car insurance as “highway robbery,” and claimed that a government-run scheme would save the average Ontario driver almost $300 a year. Three days before the election, Peterson answered that his government had “a very

specific plan to lower insurance rates.”

But after the Liberals were returned to power with a strong majority, they referred the controversy to the insurance board for further study. Meanwhile, the board authorized increases of up to 4.5 per cent in January and again in August, 1988, and ordered a 7.6-per-cent cap for last year.

Despite those increases, auto insurers are threatening to withdraw from Ontario altogether because they claim that it is impossible for them to earn any money. In 1988, the 140 Ontario auto insurers collected $3.4 billion in premiums in Ontario but reported total losses of $408 million. In 1989, even with higher rates, the losses still totalled $63 million for the first nine months of the year.

Like many other insurance companies, the province’s largest auto insurer, Guelphbased Co-operators General Insurance Co., in the fall of 1988 simply refused to accept any new clients for auto insurance in the Toronto area because it said that it was paying out $1.50 in claims for each dollar it collected in premiums.

But the NDP and the Consumers’ Association

question the insurers’ loss figures, noting that the insurance board, using a different method, estimated total losses at only $150 million in 1988. They also claim that actuarial studies released by the government last week show that Elston’s plan, in the first year alone, will save the companies $837 million that they would have had to pay out in claims to accident victims. And they add that this windfall will come at the expense of the 95 per cent of accident victims who they say would be denied the opportunity to sue.

Instead of the government’s industry-run plan, the k NDP and the Consumers’ As2 sociation are proposing a gov-

0 ernment-run no-fault system.

1 They say that such a plan would produce even bigger

2 savings for motorists. To bolg ster their arguments, they u rely on NDP estimates for

1989 that show that average premiums in the three provinces with government-run plans are significantly lower than the $682 average paid by Ontario’s 6.2 million drivers. In Manitoba, the equivalent average was $373, in Saskatchewan, $322, and in British Columbia, $553. According to Tom Delaney, a Toronto-based

financial adviser who is the Consumers’ Association’s spokesman on auto insurance in Ontario, provincially operated auto insurance monopolies are more efficient than 140 competing private companies.

Meanwhile, in Quebec’s privately run plan, auto insurers still managed to earn a profit in 1988 under that province’s strict no-fault system, even though the average premium was

more than $100 lower than in Ontario. By combining no-fault and a government-run plan similar to Manitoba’s, Saskatchewan’s and British Columbia’s, Delaney claims, Ontario could afford to pay higher benefits than under Elston’s proposals and still offer lower premiums. Declared Delaney: “I can guarantee at least $120 in savings from the current situation for every driver in Ontario.”

But insurance company executives dispute the suggestion that a government-run monopoly would automatically produce big savings. Insurance Bureau of Canada president John Lyndon said that comparisons of average premiums in different provinces can be misleading. He says that drivers in Nova Scotia and New Brunswick also pay much lower premiums than Ontario motorists, even though they rely on private insurers. He adds that premiums in Ontario are higher because its roads are the busiest and judgments and settlements of claims disputes have tended to be larger. In addition, he claimed that the government-run plans benefit from indirect subsidies. And he noted that, under government plans, there can be large premium increases as well. Indeed, British Columbia’s Autopian announced last November that it will have to increase premiums by up to 13 per cent this year to cover higher claims costs.

The Liberal-dominated legislative committee considering Elston’s plan will publicly review it and begin debating any proposed changes to it this week, before the plan returns to the legislature for final approval. But as Elston considers any modifications, he risks incurring the wrath of lawyers and advocates of accident victims’ rights on one side and motorists with a low tolerance for premium increases on the other. And whatever options he chooses, both sides will likely be dissatisfied.

JOHN DALY with correspondents’ reports


Source: Insurance Bureau of Canada, provincial ministries

government-run, no-fault insurance (right to sue) ** pure no-fault insurance (no right to sue)

Latest comparable figures for all jurisdictions