On June 1st another big change is coming to automobile insurance in Ontario. You can read more about it here, but the reality is that it’s better for insurance companies and worse for regular citizens. It’s the fifth or sixth major change I’ve seen since I started practising, which is a lot in the slow moving world of law.
Why do auto insurance laws and benefits change so often? Insurance companies complain about not earning enough money, but everyone else complains that their premiums are too high.
If it’s true that insurance companies don’t make enough money then there are two ways they can increase their earnings:
- Allow insurance companies to raise premiums (the government doesn’t want this), or:
- Reduce the amount of money that insurance companies have to pay out in claims to people injured in car accidents
The government sets the laws and regulations regarding auto insurance, and in the past they’ve been very accommodating of insurance companies. All of the major changes to auto insurance law have come at the request of insurance companies.
What has surprised me most is how often the insurance industry has been completely wrong about the effect their proposed changes will have. My favorite example of this miscalculation was the first major change back in 1990, when “no fault” insurance was introduced.
Insurance companies thought that lawyers were taking a huge portion of claims costs, so insurers lobbied the government for a no-fault system that they thought would reduce the role of lawyers. In return for “cutting out” the lawyers, insurers offered greater medical and rehabilitation benefits. To the great surprise of just about everyone involved, physical therapy and rehab clinics started popping up everywhere, driving medical and rehab costs sky high.
The insurance industry has been trying to recover ever since, but what they found was that it‘s harder to vilify doctors and therapists. Lawyers were easy targets, but therapists help people. How could insurance companies justify cutting back on medical expenses? Well, it’s taken them a while, but they’ve done it.
Insurance companies will never be satisfied. They always want more. They claim not to be making enough money but do we see them closing their doors? Or going bankrupt?
Written by Antonio Azevedo
