Are optional auto benefits a good choice for your clients?

Ontario’s recent 2024 budget proposes expanded choice for auto insurance consumers by offering more optional accident benefit coverages, but that may wind up being a zero-sum game that sends clients down a slippery slope, suggests Adam Mitchell, CEO of Ontario brokerage Mitch Insurance. 

Mitchell was giving Canadian Underwriter his take on the provincial government’s 2024 budget, which proposes having mandatory auto accident benefits coverage continue to apply to medical, rehabilitation and attendant care benefits, but make all other benefits optional.

The budget also proposes to make auto insurers the first payer for medical and rehab benefits following an accident. Auto insurers are currently the second payer, meaning if there is another workplace or extended care policy in place, an accident victim must use those benefits first before claiming on their auto policy.  

Ontario Ministry of Finance senior media relations advisor Scott Blodgett tells Canadian Underwriter the changes “empower Ontario drivers with more choice, improved access to benefits and create a more modern system.” They also reduce complexity and administrative burden on insurers and health service providers, while allowing consumers to use their extended benefits for other purposes, he says. 

Mitchell says choice in itself doesn’t necessarily benefit consumers.  “What people are searching for when they’re citing choice is value and comfort, and that they can right-size it for them,” he says in an interview. “But choice is anxiety-inducing. It leaves room for the wrong choice, and the more choice you have, the more wrong choices there are…” 

Slippery slope? 

Mitchell acknowledges the “great idea” of tackling the auto insurance product and trying to improve it for the betterment of consumers and industry. However, “giving people the easy-door option to opt out of a coverage and/or enticing them to not take the coverage could be a pretty slippery slope, because you’re just transferring the coverage from the policy over to their visa statement. 

“And they may not be able to do that.” 

Mitchell says it’s too early to tell what the uptake will be like on optional accident benefits, and whether it will be as soft as it was for opting out of direct compensation property damage (DCPD), which the government made optional last year. A CU poll on auto reform of more than 400 industry professionals (including 250 in Ontario) found limited uptake and the move was widely panned.  

“It’s too early to tell,” Mitchell says of the latest reforms. “We’re taking the cake out before it’s even ready to go in the oven. ‘How do they operationalize this?’ is going to be really where the rubber hits the road.” 

But the changes could wind up being a zero-sum game, Mitchell says. “If 100 accidents happen in a year, and those accidents cost $100,000, all we’re deciding is who’s going to pay those same bills. No part of this is going to say people will become less injured.” 

And if insurers become first payers, they will have more bills to pay and will need to pass on the costs. David Marshall, a consultant who’s served as a senior auto insurance advisor to the provincial government, told CU earlier it’s not clear if the government will allow insurers to recover benefit payments from other plans. This could increase benefit costs for insurers and potentially premiums, he said. 

When asked whether a recovery option will be available to insurers, Blodgett says the government “will continue to work with the sector as it moves forward to implement these changes.” 

For clients, brokers should evaluate optional coverage by looking at income, income replacement and other benefits, and decide how that meshes with today’s auto product, Mitchell advises. 

‘Complete overlap’ 

Referring to DCPD, Mitchell says he read a LinkedIn comment showing a “complete overlap” in a Venn diagram of people who will go without the coverage and those who cannot afford to do so. 

“Insurance in this form is really a buy-now, benefit-later system,” Mitchell says. “If you can’t afford to buy the product now, you really probably can’t afford to do without the benefits later.” 

Ontario’s 2024 budget also requested the Financial Services Regulatory Authority of Ontario (FSRA) to review the Professional Services Guideline and Attendant Care Hourly Rate Guideline. “The government will consider FSRA’s findings in future reviews of the Statutory Accident Benefits Schedule.” 

FRSA tells CU the professional services guideline was issued by FSRA’s predecessor, the Financial Services Commission of Ontario, and last updated in 2014. At that time, maximum hourly rates for medical and rehab services were updated. 

The provincial government also wants FSRA to review the Health Service Provider Framework and the Health Claims for Auto Insurance (HCAI) system to find administrative and cost efficiencies. 

“FSRA is committed to supporting changes to reform auto insurance regulation and developing Health Service Provider supervisory reforms,” the regulator says, noting it is developing a strategy for reforming the regulation of auto insurance rates and underwriting in Ontario. This work includes reviewing the territory rating framework. 

FRSA’s review, which included two reports in December 2022 and December 2023 from an external consultant, “concluded that the current territory requirements are outdated and inconsistent with FSRA’s principles-based regulatory framework.” 

In January 2024, FSRA launched a pilot in their test-and-learn environment (TLE) to modernize Ontario’s territory rating approach and support fairer pricing for auto insurance. The project will run for a minimum two-year period. “FSRA believes this approach will help foster innovation and modernize the current outdated approach to territory rating.” 

As of Apr. 2, the regulator told CU it had received nine filing requests for the territories’ TLE, which remain under review. 

Feature image by iStock.com/everydayplus