Auto Insurance Reform Backgrounder with Appendix

Backgrounder
Appendix
1. Rates and Examples
2. Backgrounders

Backgrounder

Minimum Mandatory Reductions

Government will legislate minimum reductions based on the actuarial study of:
- 9 per cent Third-party liability
- 27 - 37 per cent Collision
- 19 per cent Comprehensive
- 11 per cent Uninsured motorists
The average overall savings is 15 per cent.
The range of savings is between 9-20 per cent, depending on the coverage carried and area of province where you live.
Reforms will be effective the date the legislation is proclaimed. Insurance companies will be required to issue a refund to paid customers on the remainder of their policy.

Reforms

Third-Party Liability

$2,500 deductible on all pain and suffering claims.
Lost wages will be paid based on 100 per cent of net wages instead of gross (gross wages less income tax, Employment Insurance premiums and Canada Pension Plan contributions).
Any compensation from other insurance plans will be deducted from the amount of the award. This eliminates double recovery, and ensures a claimant doesn't earn more being off work because of an accident than if they were working.

Rate Freeze

Rates are immediately frozen for one year, or until a new closed-claims study is completed and a hearing held by the Public Utilities Board.

Underwriting Guidelines

Underwriting guidelines are used by insurance companies to determine rates and whether to insure a person. An insurance company will no longer be able to refuse coverage or rate individuals solely based on:

not at-fault accidents and claims;
minor damage where no claim is paid;
NSF cheques;
another company refusing to insure the individual;
lapse in coverage (unless the lapse is caused by a policy cancellation for failing to make payments; failing to disclose a conviction or claim that would cause a higher premium to be charged, or a driver's licence suspension for driving with no insurance).

A company will no longer be able to refuse coverage based on:

age, gender or marital status;
age of vehicle (may request an inspection after eight years);
not having other policies with the company, known as tied selling;
the individual currently being in Facility Association.

A company will no longer be able to cancel a policy for a NSF cheque if the amount is paid within 30 days, unless the returned cheque is for the first payment.

Excluded Driver Endorsement

Drivers will be able to legally exclude anyone from coverage. This means parents will now be able to exclude driving-age children in the household from their policy, reducing the parent's insurance costs.
If the excluded individual drives the car and gets into an accident, the vehicle is considered uninsured and the driver is subject to the penalties for driving without insurance.

Facility Association (FA)

Facility Association is the market which must insure drivers who can't get insurance in the regular market. To ensure drivers are fully aware that they are in Facility Association and why, companies must:

advise drivers they are in Facility Association and the reason
write FA on the application, policy certificate and pink slip
provide drivers with an annual report on status detailing what they can do to get out of facility, and how much longer than can expect to be in the category
provide a monthly payment plan

Monthly Premium Plan

All insurers with 5,000 policies or more must offer customers a monthly payment plan
Insurers can charge interest, but regulations will set the rate at no more than 3 per cent of premium
Insurer may require the monthly premium be paid automatically by electronic transfer from a bank account

Claims Practices

Companies must make interim payments to individuals whose claims are being processed where liability is not in dispute
Companies must inform policy holders of claims made against them and the amount ultimately paid out
Claimant may have settlement paid periodically instead of in a lump sum

Brokers Disclosure

Insurance brokers must disclose, in writing if requested, the companies they represent and the quotes obtained. This ensures policy holders are aware of the number of companies the broker represents.

Capital Requirements for Property and Casualty Insurers

The minimum amount of capital required to start an insurance company will increase from $1 million to $3 million.

Uninsured Drivers

Minimum fine for uninsured drivers will increase to $2,000 from $1,000 for the first offence. Maximum fine will increase to $4,000 from $3,000.
Minimum fine for the second offence will increase to $3,000 from $1,000. Maximum fine will increase to $5,000 from $3,000.
Vehicle will be impounded for 90 days upon conviction
Driver's licence will be suspended for 90 days upon conviction
Government will explore other ways to reduce the number of uninsured drivers on the road

Failure to Wear Seatbelt

Claimants will have a 25 per cent reduction in award for not wearing a seatbelt which is consistent with court rulings. They will still have the right to show not wearing a seatbelt did not contribute to injuries.

Withdrawal Notice

Companies must give six months notice before withdrawing from the auto insurance market in province or pay a minimum fine of $100,000, up to maximum of $1 million.

Other Reforms

Government is investigating other possible measures, including:
- penalties for claimants who provide false testimony or evidence
- stiff measures to combat impaired driving
- preventing claims from impaired drivers and uninsured motorists involved in not-at-fault accidents
- prohibiting insurance companies from rating based on age, gender or marital status
- permitting group rating
- forcing companies to disclose to injured parties that they are, or have been, under surveillance
- mandatory accident benefits

Public Hearing

These and other measures will be discussed at a public hearing into auto, homeowner, marine and commercial insurance at the completion of a new closed-claims study. Legislation will be introduced to give the Public Utilities Board authority to conduct the hearing and the study. The hearing will require full disclosure from the insurance industry. Government may implement additional reforms or amend existing components of the legislation based on the outcome of the hearing.