Marshall.Benefits

Reading: “Fair Benefits Fairly Delivered,” pp. 8-12.

Authour: Marshall, D.

Forum

BA Quick-Summary: Delivery of Ontario Benefits Ontario has the highest auto insurance premiums in Canada despite having low accident rates. Costs are rising not due to more accidents but because of a structural flaw: the system creates misaligned incentives, where insurers minimize cost, lawyers maximize settlements, and medical providers are paid per treatment rather than outcomes The report calls for a shift from cash settlements to timely, evidence-based medical care, especially for minor injuries. It advocates for a new, independent regulator and programs of care that deliver consistent treatment and reduce disputes.

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 Outdated   → questions highlighted in orange are outdated.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 ← Skills	value gap: - explain
E (2018.Fall #5)	BC vs ON auto: - injury compensation	ICBC.Affordable	ON injury compensation: - concerns	ON 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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  Forum

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)