Now Hearing the Case of Insurers vs Lawyers
As we go to press, the furor continues over the study by two profs from York University’s Schulich School of Business, Fred Lazar and Eli Prisman, who claim Ontario drivers are being gouged by the billions for their auto insurance. Not so fast, say the Insurance Bureau of Canada and the Insurance Brokers Association of Ontario, who don’t like the New Math. They point out the study excludes about a third of the industry, and they may well be on to something. On its page 18, the conclusions start with “When we exclude the companies with negative ROEs, the average ROEs for the remaining auto insurance companies in Ontario increase dramatically to 9.7 percent over the period 2001-11.” As it happens, this kind of number-crunching and logic was brought to you by the Ontario Trial Lawyers Association, which paid for the study.
Weeks before the report’s release, Top Broker went to chat with Barb Taylor, director of policy for the Insurance Bureau of Canada, and the always colourful and quotable Ralph Palumbo, Ontario vice-president. It was Palumbo who would end up leading the charge for the defence at the professors’ news conference in mid-April. But around the conference table at the IBC’s Ontario office in Toronto, he and Taylor were already making points that would never get much attention on the six o’ clock news. Taylor noted that “the personal injury lawyers are one of the few players in the auto insurance system who don’t have regulatory oversight.” (Though, of course, they are bound by the canons of their respective law societies). Whereas, for brokers and insurers, as Palumbo put it, “we’re regulated up the yin yang.”
Taylor argues that auto insurance premiums are high because costs are high—costs that don’t necessarily mean payments in the pockets of injured people, but fees going to rehab providers and yes, lawyers. Among the reforms she’s called for are a reduction in the eligibility period for med rehab and income replacement benefits claims.
It’s thinking that crosses oceans. Aviva UK complains that whiplash claims in Britain are rising enough to prompt double-takes. It wants to see a new time limit for Britons launching claims (instead of three years, they’d only have one year to file), plus requirements that symptoms last longer than three months, independent medical reports to back up the claimant’s assertions, and that insurers pay for treatment instead of handing over cash.
“Here’s the thing about lawyers,” says Palumbo, who’s a member of the bar himself. “They can say—and they do in the auto insurance field—just about anything they want, and they’re never really caught out. We can’t do that. Because, you know, the numbers are the numbers. FSCO knows what the numbers are. If we cry poor, they look at our financial statements and they say, ‘You know what, you can afford to take an increase.”
Of course, Palumbo was telling us this before the York U findings, which criticize how a study by KPMG in 2014 seemed to make the case for insurers. KPMG concluded: “The industry was very unprofitable, with loss ratios of 95 percent and 89 percent respectively for 2009 and 2010. These ratios are significantly higher than the target loss ratio of approximately 69 percent that is generally considered adequate for a reasonable return.” And as Barb Taylor points out, the Ontario Government is aiming for a 15 percent drop in premiums by August, which have already sunk by 6.1 percent.
She says that in 2013 the return on equity percentage for the industry was 7.4 percent, while the year before it was 6.4, and “if you look at other industries, for example, you’ll get the banks, they’re probably averaging around 12 to 15 percent… In order to get capital, okay, if I want a low risk, high return, where am I going to go? Is insurance low risk? You can have a catastrophe any day. You can have a Toronto flood, you can have an ice storm, you can have all kinds of stuff that’s going to impact auto insurance rates, too.”
Copyright 2015 Rogers Publishing Ltd. This article first appeared in the April 2015 edition of Canadian Insurance Top Broker magazine