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Canadian Institute of Actuaries. L’Institut canadien des actuaires. 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009. 2009 Seminar for the Appointed Actuary Colloque pour l’actuaire désigné 2009.

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2009 seminar for the appointed actuary colloque pour l actuaire d sign 2009

Canadian

Institute

of

Actuaries

L’Institutcanadien

des

actuaires

2009 Seminar for the Appointed Actuary

Colloque pour l’actuaire désigné 2009

slide2

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

Legal Challenges and Automobile UpdateSeptember 18, 2009PD-12Presenter: Christopher Cooney, FCAS, FCIAVice President, Pricing RBC General Insurance Company

slide3

Regulatory Reforms and Recent Loss Trends

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Alberta / Nova Scotia / New Brunswick Auto - BI
    • Introduction of Bodily Injury non-pecuniary loss caps post 2003
    • Generally, despite the uncertainty created by the legal challenges, the results appear to be stable and beneficial to consumer rate levels
  • Ontario Auto - BI and AB
    • Bill 198 amended accident benefit regulations impacting claims occurring October 1, 2003 and later
    • Bodily Injury threshold strengthened
    • Regulation of paralegals
    • Restriction on cash settlements prior to 12 months
    • Dispute resolution costs for arbitration dependent upon arbitration outcome and participant conduct
slide4

Alberta BI – Loss Cost Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Bill 53 capped BI claims at $4,000 for non-pecuniary loss effective for claims Oct 1, 2004 and after
    • Cap adjusted for inflation thereafter
    • Selected trends may depend highly upon experience period utilized
slide5

Alberta BI – Frequency Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Bill 53 capped BI claims at $4,000 for non-pecuniary loss effective for claims Oct 1, 2004 and after
    • Cap adjusted for inflation thereafter
slide6

Market Response – Facility Association

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Facility Association RSP Balances have traditionally been a good indicator of rising market pressures
    • Alberta RSP is showing no substantial changes in utilization
slide7

New Bruns BI – Loss Cost Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Bill 1 capped BI claims at $2,500 for non-pecuniary loss effective for claims Jul 1, 2003 and after
    • Cap adjusted for inflation thereafter
    • Selected trends may depend highly upon experience period utilized
slide8

New Bruns BI – Frequency Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Bill 1 capped BI claims at $2,500 for non-pecuniary loss effective for claims Jul 1, 2003 and after
    • Cap adjusted for inflation thereafter
    • Selected trends may depend highly upon experience period utilized
slide9

Market Response – Facility Association

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Facility Association FARM balances have traditionally been a good indicator of rising market pressures
    • New Brunswick FARM volumes continuing to decline
slide10

Nova Scotia BI – Loss Cost Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Bill 1 (+ regulations) capped BI claims at $2,500 for non-pecuniary loss effective for claims Nov 1, 2003 and after
    • Cap adjusted for inflation thereafter
    • Selected trends may depend highly upon experience period utilized
slide11

Market Response – Facility Association

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Facility Association FARM balances have traditionally been a good indicator of rising market pressures
    • Nova Scotia FARM balance is partly the result of a lack of inexperienced operator surcharges post-elimination of age / gender from rating
slide12

Ontario BI – Loss Cost Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Bill 198 reinforced the threshold and increased deductibles for Family Law Act (FLA) claims
    • Took effect Oct 1, 2003
slide13

Ontario BI – Frequency Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Bill 198 reinforced the threshold and increased deductibles for Family Law Act (FLA) claims
    • Took effect Oct 1, 2003
slide14

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

Bodily Injury coverage appears to be performing well everywhere… …so there’s really nothing to be concerned about, right?

slide15

Ontario Med/Rehab – Loss Cost Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Bill 198 changes removed some cost from the system, but the trend remains unabated
    • Bill 198 regime is a Vogon’s dream (think Hitchhiker’s Guide to the Galaxy)
    • OCFs 1, 3, 5, 18, 19, 21, 22, 25, 26, etc.
slide16

Ontario Med/Rehab – Severity Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Frequency trend is negative, but costs per claim rising at a substantial pace (estimated here at 14.4%)
  • Pay-as-you-go combined with administrative burden serves as a tool to continue eligibility for benefits
slide17

Market Response – Facility Association

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Ontario Facility Association Residual Market (FARM) is not showing obvious deterioration
    • The latest monthly premium total available has cross the 12 month moving average
slide18

Market Response – Facility Association

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Ontario Risk Sharing Pool may be showing early warning signals of increasing market pressure
    • RBC quotes have climbed since June despite little change in marketing activity (“direct writers = canary in the coal mine”)
slide19

Ontario Cost of Examination – Loss Cost Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Cost of Examination costs are rising substantially (23% pa)
    • Payments are an administrative burden to the system for filing of health plans, evaluation of claimant needs, and dispute resolution regarding same
    • Do not contribute directly to claimant recovery
slide20

Ontario Housekeeping – Loss Cost Trend

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Payments often made to a member of the family
    • $100 per week for a maximum of 104 weeks
slide21

Examples – Cost of Examination “Claims”

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Let’s play “Name that Claim!”
    • Guess the amount of the claim based upon the picture below (accident benefit costs only – yes… I am showing you the part of the vehicle that was impacted!)
  • Total Cost: $99,747.56
    • 3 claimants
    • COE = $60,335.02
    • Housekeeping = $2,542.86
    • Attendant care = $5,671.22
slide22

Examples – Cost of Examination “Claims”

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Let’s play “Name that Claim!”
    • Guess the amount of the claim based upon the picture below (accident benefit costs only – yes… I am showing you the part of the vehicle that was impacted!)
  • Total Cost: $108,165.65 paid; $189,388.32 incurred
    • 4 claimants
    • COE = $56,009.97
    • Housekeeping = $7,142.86
    • Attendant care / caregiver benefit = $13,256.20
slide23

Cost of Examination – Predictive Modeling

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • It is possible to predict higher probability of accident benefit conflict (defined by use of “defensive COE”):
  • The challenge is, after identifying the clients most likely to abuse the system, what are our options?
    • Cede to RSP (limited to 5%)
    • Mediation ineffective; Arbitration costly
  • Clearly some correlation with prohibited rating variables – pressures to apply this knowledge are substantial – unfair subsidies are rampant!
slide24

Quote of the Year Award

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Tie going to Barb Addie and Joel Baker:

“It’s a disaster.” (..said in reference to Ontario no-fault)

- Joel Baker (MSA)

“Tweaking a few accident benefits rules and regulations will not bring the system under control. Increasing tort costs with such rich first party benefits makes no sense.

We’ve tried controlling Ontario auto, we’ve also tried altering it to little avail, maybe it’s time to go ahead and delete it.”

- Barb Addie (Baron Insurance Services Inc.)

slide25

What Are Ontario’s Options?

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Continue to evolve the existing no-fault system
    • Cap claimant awards at $25,000 instead of $100,000
    • Examination fee schedules, or limits on assessments
  • Return to a tort system with a cap on non-pecuniary losses
    • Implement a form of Alberta or New Brunswick’s legislation
    • Will need to proceed in the face of strong resistance from the medical lobby
    • Could be considered contrary to the goal of providing timely access to rehabilitation
  • Innovate
    • Reconfigure the system to indemnify clients affordably
    • Can the Canadian Institute of Actuaries play a role?
slide26

Arguments against Evolution – New York State

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Facing an auto insurance rate crisis, Governor Pataki introduces new rules for accident claims effective Sept 1, 2001
    • Rules decrease to 30 days from 90 the period an injured party has to report an accident to the proper insurer
    • Reduce to 45 days from 180 the period for doctors to submit compensation claims
    • Fraud laws were subsequently strengthened to help fight organized fraud

Allstate Blames High Fraud For 10.5% Auto Rate Rise – New York Times, Jan 2002

Nowhere in the country is auto insurance fraud more severe, Mr. Hartwig said. ''New York has become the auto insurance fraud capital of the United States,'' he said. ''It is worst in New York City. But Buffalo, Rochester, Syracuse and Albany are manifesting the same problem.'‘

Mr. Hartwig said that costs to insurers in New York as a result of fraud rose 28.5 percent last year compared with an average of 3.8 percent across the country. Colorado, with an 18 percent increase in claims costs, is one of a handful of other states, including Florida, that are staggering under heavy fraudulent claims.

slide27

Arguments against Evolution – New York State

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

From Long Island Business News, August 2003:

“Lastly, provisions of the no-fault law itself are contributing to the medical fraud problem. The law currently can be manipulated to effect excessive medical utilization, expensive testing, along with other palliatives to build up a pain and suffering claim to meet the definition of serious injury.

Medical treatment authorized under the present law includes aromatherapy, biofeedback, massage, acupuncture, thermography and psychotherapy sessions for post-traumatic stress.

Over utilization of these non-primary treatments allows claimants to build up medical expenses in order to satisfy the no-fault verbal definition for lawsuit eligibility.”

slide28

Arguments against Evolution – New York State

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

From the New York Times, Aug 2008:

“`On average, they have been asking for a 7 percent increase’ in New York, said Michael Moriarty, the state’s deputy insurance superintendent for property and capital markets.”

(regulators subsequently required companies to take gas price increases into consideration in their trends leading to withdrawal of some filings)

From the New York Daily News, Jul 2009:

“Levy allegedly recruited a lawyer, who bribed workers at Lincoln Hospital and other facilities to funnel him names of people who suffered minor injuries in car crashes and were eligible for no-fault insurance.

The lawyer turned over the information to two Levy cronies, who then steered the patients to the clinics, Bronx Sheridan Medical and New Lite Bronx Medical, officials said.

The patients exaggerated their injuries so they could file lawsuits and give Levy

license to order tons of unnecessary treatment - everything from acupuncture and

counseling to neurological tests, the indictment charges.”

slide29

Evolution of the Existing Ontario AB System

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • New York provides a living example of the flaws of trying to reform our current system
    • Despite amendments to the system intended to reduce no-fault abuse, loss cost inflation continues to run substantially above CPI
  • Even if claims are limited to $25,000 per claimant, this is still potentially $100,000 per vehicle (or more)
  • Fraud mechanisms are unlikely to remain stagnant
    • The ability of “bad actors” to adapt to changes intended to thwart no-fault insurance abuse has been proven through prior legislative changes
    • Many of the fraud techniques reported in the New York article are not yet widespread here
slide30

Innovation

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

Ontario’s insurance system should meet the following objectives:

  • Indemnify policyholders
    • Mitigate the impact of loss or injury due to unforeseen events
    • Provide indemnification in a time efficient manner
  • Provide incentive to avoid and / or mitigate loss
    • Fund the system with rates that are proportional to the risk posed by individuals
    • Prevent further loss and / or limit losses once loss occurs
  • Prevent fraud
    • High proportion of benefits directed towards those requiring indemnification
    • Prevent diversion of funds from system through material misstatement of facts
  • Efficient system
    • Low transaction cost
slide31

Innovation – Borrowing Ideas

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

Workers Compensation:

  • Ontario WSIB incorporated in 1914
  • Is the original no-fault system in Ontario to restore workers to health after industrial accidents

Workers compensation “bargain”:

  • Guarantee access to prompt payment of medical, rehabilitation and wage loss replacements in exchange for the right to sue

Per the 2008 WSIB Annual Report, health care cost inflation is estimated at 6.5%

What can we learn by comparing the differences between the Workers Compensation system and SABS?

slide32

Innovation – WSIB Comparison

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

Per the WSIB website:

Who decides what may be paid by the WSIB?

We determine what health care is necessary, appropriate, and sufficient, and the fee payable.

Is there a specific time frame for billing?

All billings and reports should be sent to the WSIB as soon as possible, since late billings may be reduced.

Service delivery model

  • Case manager concentrates on the opportunities and obstacles to return to work
  • Nurse consultant coordinates specific medical interventions… and what health care benefits are allowable
  • Return to work specialist
slide33

Innovation – WSIB Comparison

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

The WSIB approach contrasts with the Ontario SABS approach in a number of key areas:

WSIB has substantially greater control over medical approvals and treatment protocols

  • actively employ medical professionals
  • well established fee schedules
  • benefit from association with government (trust)

WSIB plays an active role in managing a claimant back to health that goes beyond “writing cheques”

  • do disability insurers rely upon health care providers to make the ultimate decision regarding wellness and return to work?
slide34

Questions to Explore

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

  • Can the Canadian Institute of Actuaries play a more active role in this debate?
    • At the FSCO 5 Year Review webpage, the lack of a CIA submission appears to be a missed opportunity
    • Could we be helpful in the discussion to provide an unbiased opinion in the debate?
      • Select commercial lines actuaries, retired actuaries, consultants, disability insurance actuaries
  • Could there be value in exploring a WSIB approach?
    • Have WSIB administer accident benefit case management
    • Align the WSIB and SABS benefit programs in terms of fee schedules and benefit levels, and approvals
      • As Barb Addie alluded to, claimants injured in car accidents should be treated consistent with workers injured in their employment
    • Introduce private insurer case management
      • Play a more substantial role in directing the rehabilitation of clients
      • Enable transparent measurement of recovery success
slide35

Final thoughts to consider…

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

“Democracy is a device that ensures we shall be governed no better than we deserve.”

– George Bernard Shaw

“The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds.”

– John Maynard Keynes

Thank You!

slide36

References

2009 Seminar for the Appointed Actuary

Colloque pour l’actuairedésigné 2009

WSIB – Health Practitioners' Guidelines

http://www.wsib.on.ca/wsib/wsibsite.nsf/public/HealthWorkingWSIB

Facility Association – Premium Volumes

http://www.facilityassociation.com/provprofilesOntario.asp

Insurance Information Institute – New York Fraud

http://server.iii.org/yy_obj_data/binary/715262_1_0/nynofaultauto2.ppt?bcsi_scan_AFAF00FB46ADDC72=1

Toronto Star Article regarding Accident Benefits

http://www.thestar.com/comment/columnists/article/607098