The June 12 election in Ontario was triggered by the New Democrats’ refusal to support their Liberal government coalition partner’s 2014 budget – in part, they claim, because of its failure to reduce auto insurance rates as promised. This plan is likely to backfire on the New Democrats and return everyone’s focus to the real underlying causes and technology-enabled solutions for unnecessarily high auto insurance rates.
If, as current polling predicts, the Liberals win the election with an outright majority, then it is most likely that they will work more cooperatively with all auto insurance industry stakeholders to address the fundamental issues that have caused Ontario auto insurance rates to be among the highest in North America and all parties can drop the wasteful exercise of setting and meeting artificial, unrealistic mandated auto rate reductions.
Insurance company executives understand the underlying causes all too well and acknowledge that auto insurance rates are unnecessarily high due to:
No Fault Insurance
In 1990, the Ontario government introduced the no-fault insurance system to replace the old tort system. No-fault insurance was meant to expedite the processing of claims, to combat fraud and to prevent injured parties from suing those who caused the accidents (except in rare circumstances).
One of the intended goals of the no-fault system was to keep auto insurance costs down. Instead, insurance rates in Ontario have continued to rise. Ontario has the highest auto insurance rates in Canada due to the systemic fraud within the system due to exaggerated claims from rehabilitation clinics, lawyers, repair shops, tow truck operators and accident victims.
- Average insurance payout for a no-fault injury claim in Ontario is (2012) $26,863. In Alberta, it is $3,628 and in Atlantic Canada, it is $7,713 (IBC, January, 2014)
- Average insurance payout for a non-minor injury claim where there is an at-fault driver in Ontario is $157,133. In Alberta it is $50,964 and in Atlantic Canada, it is $49,454 (IBC, January, 2014)
Technology to the rescue
A review of North American property & casualty carriers whose market shares have held or grown and whose financial performance is better than industry and peer group averages have several characteristics in common, one of them being investment in and focus on innovation and technology adoption, especially within claims operations.
Legacy Systems and Slow Adoption of Newer, Innovative Claims Technologies
Core claims management system replacement is expensive, daunting and disruptive but more astute carriers have come to understand that they cannot achieve meaningful claim cost reductions or claims excellence and better customer retention rates without modern claims platforms which can provide capabilities such as workflow document management and the ability to operationalize predictive analytics to contain fraud. Older systems are highly manual and quite expensive to maintain and resources to handle maintenance are shrinking as older employees retire.
Simply put, claims handling is now recognized as a major source of competitive advantage for property & casualty companies and claims excellence is difficult, if not impossible, while working on legacy systems.
A range of new and emerging claims technologies are being adopted by the most visionary carriers in procurement, supply chain and vendor management, mobile and self-service claims capabilities, auto and property loss estimating and valuation and business intelligence and analytics across a wide variety of claim applications from workflow to case management to fraud detection and investigation.
Some insurers are considering and adopting new technologies such as usage-based insurance which monitors driving behaviour and is linked it to insurance premium — and results in deeper customer engagement.
The industry, with the cooperation and support of the Provincial and Federal Government, is cracking down on fraud and considering other cost reduction initiatives, including provincial oversight of the towing industry and collision repair shops.
As a primary example, CANATICS (Canadian National Insurance Crime Services) formed in 2013 is a non-profit insurance industry supported organization focused on fighting insurance crime by providing insurance companies with superior intelligence, derived from analytics performed on industry-pooled data. CANATICS’ mandate is to analyze pooled auto insurance industry data, initially from Ontario, using the most current tools, to identify suspicious claims that individual insurers can then investigate. In January CANATICS announced it has contracted with BAE Systems Detica (now known as BAE Systems Applied Intelligence) to provide automated risk scoring and prioritization of suspicious claims to help expose hidden patterns of fraudulent behaviour. Detica anti-financial-crime solutions are currently used by over 130 clients spanning four continents, including six of the top 10 financial banking and insurance institutions in the world.
The adoption of these new and more effective claim technologies and solutions, together with government cooperation in curbing the unintended and fraudulent abuses attributable to Ontario No Fault insurance rules and regulations, are certain to help the industry maintain its profitability, improve customer service and satisfaction for policyholders – the vast majority of whom are honest – and make Ontario’s auto insurance rates more reasonable and affordable.
What do you think?
Will the polls drive increased tech utilization? Exercise your franchise and comment below.
Editor’s Note: Stephen Applebaum, Principal, Insurance Claim Solutions Group, is a subject matter expert in insurance information technology as applied to the North American Property & Casualty insurance industry ecosystem, including the claims supply chain. Stephen frequently contributes his thought leadership in this space and at the Insurance-Canada.ca Technology Conferences