How to Fix Private Sector Car Insurance

Flawed design features of private sector auto insurance and excessive government regulation are major reasons to blame for the challenges facing private sector auto markets, says David Marshall, who served as a senior adviser to the Ontario government on automobile insurance and pension plans. funds.

“Among provinces, those that offer auto insurance directly through a government agency appear to offer better value, particularly for bodily injury coverage, than those that offer private sector delivery,” Marshall said in a press release Thursday. “However, the higher costs of bodily injury coverage in private sector provinces are not caused by the inefficiency or excessive profits of private sector insurers.

“The main reasons for the challenges in private sector delivery provinces are faulty insurance product design, which governments have imposed on the private sector, as well as excessive government regulation.”

Marshall, who was formerly president and CEO of Ontario’s Workplace Safety and Insurance Board, is the author of a new CD Howe Institute report. He is also well known for his 2017 car insurance report Equitable benefits fairly distributed which included 35 recommendations.

In the report Time to tune in: Private sector auto insurance reforms could cut costs and add value for consumersMarshall is proposing reforms to private-sector auto insurance that he says could save millions of dollars in savings for Canadian consumers and make auto insurance more responsive to market forces.

One of these recommendations is to reduce the regulatory burden to allow the private sector to compete on innovation, price and value.

According to Marshall, five flawed design features of the private auto insurance market include:

  • Complex product design with open-ended commitments to restore the injured person to their pre-injury condition
  • A “misaligned” healthcare delivery system that exposes private sector auto insurers to paying for overtreatment, unnecessary treatment and potential fraud
  • Lump sum cash payments to claimants instead of paying for specific medical care
  • Excessive regulatory burden
  • Inadequate benefits for seriously or catastrophically injured victims.

To address these challenges, Marshall is proposing a series of measures to reduce fraud and waste in the system and increase consumer choice while maintaining strong personal injury medical coverage. Among the measures are the following:

  • Remove open-ended commitments in the insurance product and replace them with clear criteria for rights and benefits
  • Abolition of lump-sum cash settlements
  • Restrict prosecution to only the most serious cases
  • Increase consumer choice in benefit selection
  • Review of manufacturers’ “restrictive practices” that increase repair costs, and recommendation to use only certified repair shops to reduce fraud and make repairs safe and efficient
  • Significantly increase no-fault entitlement for disabled accident victims
  • Reduce the regulatory burden to enable the private sector to be competitive on innovation, price and value

The report notes that Canada does not really have a private sector insurance product, since the offerings offered by insurers in private sector provinces are designed and controlled by the government.

“Provincial governments decide on the characteristics of the product, control how it is delivered and control its price,” the report says. “The product is very inefficient and has many poor design features which makes it useless and unnecessarily expensive.

“We find that bodily injury coverage is, on average, four times more expensive in provinces where the private sector provides insurance than in provinces with government delivery systems, even though government systems provide higher benefits. for bodily injury.”

Marshall outlines some explanations for the lower cost base of government-run systems – including the fact that they are single-payer empowered agencies that pursue active health cost management and do not have to deal with tort claims. On the other hand, public auto insurance does not respond to market forces, faces the risk of political interference, and premiums can sometimes underestimate true costs.

Ultimately, Marshall does not recommend that provinces with private sector auto plans switch to government auto insurance delivery systems. “In particular, there is a risk that at some point governments will interfere through their agencies to pursue policy objectives that distort the price/value of the insurance product,” he says. “The future is about being responsive to rapidly changing consumer needs, especially around features like pricing and innovation.

“Provincial governments should not perpetuate the wasteful and wasteful auto insurance schemes they have designed in private sector delivery provinces. There are sensible solutions that will save consumers substantial amounts of money each year, reduce litigation and provide much better value.

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