Marshall.Benefits
Reading: “Fair Benefits Fairly Delivered,” pp. 8-12.
Authour: Marshall, D.
BA Quick-Summary: Delivery of Ontario Benefits
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Contents
Pop Quiz
Study Tips
This paper is only 5 pages and is an executive summary of the state of auto insurance in Ontario. (Spoiler alert: Auto insurance in Ontario sucks!) The frequency of accidents has been going down, but the severity and overall costs have been going up, and Ontario has the highest premiums of any province in the country. The water-cooler gossip is that too much money is going to lawyers and not enough to medical care for victims.
The source paper is easy to read, but I honestly don't think it's worth it. I've identified the most likely exam questions in the wiki article and the BattleCards.
Estimated study time: a few hours (not including subsequent review time)
BattleTable
| Questions held out from Fall 2019 exam: #3. (Skip these now to have a fresh exam to practice on later. For links to these questions, see Exam Summaries.) |
Outdated → questions highlighted in orange are outdated.
reference part (a) part (b) part (c) part (d) E (2019.Spring #11) Ontario ACTION PLAN:
- S(CI)L$S ← Skillsvalue gap:
- explainE (2018.Fall #5) BC vs ON auto:
- injury compensationICBC.Affordable ON injury compensation:
- concernsON injury compensation:
- proposals for improvement
In Plain English!
Problems with Ontario Auto Insurance
Auto insurance in Ontario is mandatory, and has two component benefits:
- no-fault (accident benefits): provides benefits regardless of fault
- tort (bodily injury): allows you to sue the at-fault driver
These benefits are fair (in terms of compensation dollars), but are not delivered fairly.
Question: what are the causes of unfair delivery of benefits in Ontario auto insurance
Here is the answer:
reason explanation Cost control at the expense of care insurers emphasize cost control instead of care, but then victims don't recover from injuries and final costs are higher, not lower Lawyers lawyers' contingency fees are a percent of the settlement → lawyers seek higher settlements not better care for victims Entitlements victims seek to maximize entitlements versus addressing own care needs (you can't buy a new flat-screen with physio appointments!) Volume providers are paid on volume of treatment, not results (the poor victims are churned through an assembly line!)
My dumb memory trick for this is: CLEV. It doesn't spell a real word, but whenever you hear about problems in Ontario auto insurance, just think CLEV. I'll remind you about this later.
Alternate memory trick (thx BZ!): You can also rearrange the letters to "spell" E-CLV. This isn't a word either, but it's an acronym for an important pricing concept: Expected Customer Lifetime Value. Of course, if you're asked on the exam to list causes of unfair delivery of benefits, don't write expected customer lifetime value! Make sure you write, Entitlements, Cost control, Lawyers, Volume and also give a short explanation of each. Two memory tricks - double the fun! :-)
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Solutions
If there is a problem, there must be a solution, right? Of course! And the technocrats have come up with a super-fantastic ACTION PLAN!
Question: what is the 5-part ACTION PLAN to address the problem of unfair delivery of benefits in ON auto insurance [Hint: S(CI)L$S ← Skills]
- See this forum post for an explanation of the hint. (thx beniddo!)
Here is the answer:
# action item explanation 1 Structural flaws fix structural flaws by appointing an arms-length regulator with powers to enact policies & procedures 2 Catastrophic Injuries change compensation system for catastrophic injuries because lawyers are taking too big a chunk 3 Lawyers make contingency fees transparent (and simplify benefits so there is less need to hire lawyers) 4 care not ca$h focus on timely, appropriate medical care, not cash payouts 5 Smart regulation allow insurers more regulatory freedom to compete on price & service
Miscellaneous Facts
The most important items in the paper were covered in the previous section. The paper makes an interesting point, however, concerning public versus private auto insurance systems. BC has a public system, whereas Ontario has a private system, but the paper says neither is inherently better than the other. The public can be well-served either way.
The last thing I'd like to mention is these two phrases:
- opportunity gap: this just means there is an opportunity for Ontario auto premiums to be much lower without impacting quality
- value gap: the value of medical care could be better if there were more focus on active medical management (versus maximizing cash payout)
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BC versus Ontario Auto Insurance
| Skip this section: Material on BC auto insurance (ICBC.Affordable and KPMG.BC) has been removed from the syllabus. |
A great exam question would be to compare and contrast BC and Ontario auto insurance with respect to:
- the auto insurance product
- problems with each system
- proposed solutions
(I wrote the above question in the summer of 2018 then on the 2018.Fall exam, a very similar question showed up as question #5. That shows the value in trying to predict likely questions. Remember, you can't learn everything. You have use judgment in deciding what to memorize and what to skip.)
Before you look at my answer, review the article ICBC.Affordable. I think this could be a 3-point question. (More than anything else, thinking about how to answer this will help you learn this material). Anyway, here are my thoughts:
For the auto insurance product:
similarities insurance is manadatory for both both include tort & no-fault benefits difference BC has a public system ON has a private system difference BC emphasizes the tort system (litigation) ON has stronger no-fault benefits (accident benefits)
- An interesting point made in the Marshall paper is that neither a public nor private system has any advantage over the other. The goals of sustainability & affordability can be met either way with a well-designed product and regulatory system.
For the problems with each system:
similarities severity is increasing in both legal costs are too high in both difference BC frequency is increasing ON frequency is decreasing difference BC severity of minor injuries is increasing ON severity of all injuries is increasing
For the solutions for each system:
similarities shift focus from cash to care in both reduce legal costs in both difference BC - increase road safety (because frequency is increasing) ON - frequency is a lesser issue difference BC reform emphasizes auto product redesign ON reform emphasizes structural changes in regulatory system
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BattleCodes
Memorize:
- components of the auto insurance system in Ontario
- problems with the DELIVERY of auto insurance benefits in Ontario
- proposed solutions to these problems
Conceptual:
- Conditions in society are always changing and you should understand that products like auto insurance, along with their regulatory systems, must evolve with these changes. As particular examples, you should be aware of the similarities and differences between the auto products in BC and Ontario, their respective problems, and the proposed solutions.
Calculational:
- None
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POP QUIZ ANSWERS
Auto insurance in BC is provided by ICBC (Insurance Corporation of British Columbia).
ICBC is the sole provider of a mandatory basic insurance package called Basic Autoplan. It offers 5 coverages: (TPL, UM, AccBen, hit & run, inverse liability)
