Insurance the Main Issue Come Election Time

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It must be election time. It seems that regardless of the province, or the parties in power, you can count on auto insurance to become an election issue. Soaring auto insurance premiums almost cost the wunderkind Premier of New Brunswick, Bernard Lord his job. It was also an issue in “too close to call” Nova Scotia.

In Ontario, where both the governing Tories and the opposition Liberals are in full election mode, no issue is higher on the agenda right now than insurance rates. So the Tory Premier talks about the possibility of rate caps, the Liberals suggest a watchdog and the NDP calls for a government-run scheme.

Of course, it’s easy to be cynical. But reform is needed. (For the record, OTA does not support a government-run scheme, nor do we support rate caps. We do not think that someone should be forced to provide a service. The market is still the best approach.)

The insurance system is highly regulated and it is compulsory that one has insurance to drive a car or truck. So, there is always scope for improvement.

In particular, something needs to be done to reign in the cost of claims, for example. The awards being granted by the courts can be astronomical. So when the politicians talk about tort reform we are interested.

And, by the way, what about commercial vehicle insurance?

Too often the political reform packages pay no heed to the differences between car and truck insurance or that such a market even exists.

Once again, OTA is trying to make sure that our legislators, if indeed they are going to try and deal with automobile insurance, also consider commercial vehicle insurance.

As an election approaches OTA will be refining its position further. But for now, here are three things OTA recommends be included in an Ontario insurance reform package:

1) Eliminate the loss transfer provision for accidents involving commercial vehicles and other types of vehicles;

2) Limit a carrier’s liability for costs to the extent to which they are found to be responsible for causing an accident;

3) Allow the deductibility for tax purposes of self-insurance reserves.

In a sense, these are all areas of the current system where trucking is at least treated unfairly, if not discriminated against.

The no-fault insurance scheme does not exist where a truck and a car are involved in an accident.

The current insurance regulations allow for the subrogation of costs between a motor carrier’s insurance company and an automobile owner’s insurance company. Where there is a crash between a car and a truck, the carrier’s insurance company must pay the amount of any claim on the part of the car driver that exceeds a threshold of $2,000 – regardless of the extent to which the carrier is responsible in any way for causing the accident.

This policy of loss transfer is based on the assumption that commercial vehicles, because of their size, are automatically responsible for any damage exceeding the threshold, regardless of the negligence of the carrier.

This policy creates an unfair upward pressure on commercial rates and should be eliminated.

The current no fault regime in Ontario still allows parties to seek damages in cases of personal injury. Moreover, in the case of car-truck accidents, the courts have had a tendency to assign a greater share of the costs to carrier insurance policies.

They take the position that a trucking company is more able to pay (the so-called “deep pocket” theory). For example, a motorcyclist ran into a legally parked commercial vehicle. The driver of the motorcycle received a settlement from the carrier’s insurance company in excess of $3 million despite the fact that there was no negligence on the part of the carrier. The reason for this award was the fact that the motorcyclist did not have sufficient insurance.

The “deep pocket” approach is patently unfair to the trucking industry. The government’s tort reform package should include a limitation on the carrier’s liability up to the extent that it was negligent.

The lack of competition in the insurance market and skyrocketing premiums is leading companies to take on higher levels of self-insurance.

In so doing, prudence demands that they set up reserves in the years when their claims are low. However, tax law does not allow deductibility of reasonable reserves.

Consequently, carriers face the choice of increased administrative costs to implement legal structures such as “captive” insurance schemes, or they might simply reduce coverage which is not in society’s best interest.

– David Bradley is president of the Ontario Trucking Association and chief executive officer of the Canadian Trucking Alliance.

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