Minister explains automobile insurance reform bill

Walter Noel, Minister of Government Services and Lands, today outlined the details of Bill 28, an act to amend the Automobile Insurance Act, the Insurance Companies Act, and the Highway Traffic Act. The minister said Bill 28 would bring about significant improvements in our automobile insurance system and spoke about government�s continuing efforts to help make driving safe and affordable.

"Bill 28 responds to issues arising out of the automobile insurance reform consultation process I began last year, and the work of a House of Assembly Select Committee. It proposes legislative changes dealing with, among other things, underwriting guidelines, tied selling, protection for unearned premiums, minimum capital requirements and benchmarks established by the Public Utilities Board. This is one of four bills presented to the House of Assembly this year embodying government�s efforts to make driving as safe and affordable as possible.

"Bill 15 proposes a ban on the use of hand held cell phones by drivers while driving, and Bill 20 would provide greater penalties for impaired driving. They are expected to be passed this week. Bill 9, authorizing the appointment of the advocate to represent consumers at automobile insurance rate hearings, has already been given Royal Assent.

"There has been considerable public discussion of the initiatives provided for in Bill 28, particularly as insurance becomes more difficult to obtain and costs rise. People want good insurance coverage, but they also want reasonable premium prices, respectful treatment by insurance companies, and diligent efforts by all parties to minimize costs and abuse. Citizens want the insurance industry to be more open, communicative and transparent. Bill 28 provides for that.

"While Bill 28 may not get third reading this session, I want to outline its provisions, make the public aware of the changes that are coming, and speak about our broader efforts.

"Government is taking significant actions to promote driving safety, but the only way to reduce premium prices dramatically is to reduce the cost of claims. A meaningful difference is only likely to occur in the short term if restrictions are accepted on claims, particularly in the area of minor, often questionable, soft tissue claims.

"Because there has been strong opposition to restricted compensation for minor pain and suffering, I am not prepared to recommend that restrictions be implemented at this time.

"However, about half of all Newfoundlanders and Labradorians appear to believe there should be an option to purchase restricted coverage. A recent Corporate Research Associates poll found 50 per cent of respondents are in agreement with the statement: Insurance coverage for pain and suffering should be optional, allowing drivers to choose whether or not to pay extra for this coverage.

"We have carried out preliminary research on choice systems in North America, which we have made public. If there is sufficient interest, I will recommend that government commit the resources necessary to undertake a detailed analysis to determine if such a system is feasible for our province."

Under a choice system, a driver buying insurance has a choice between receiving compensation for non-economic loss (pain and suffering) for less serious injuries or having restrictions on such compensation.

Restrictions on non-economic loss compensation usually apply only to the driver choosing this option and his/her immediate family living in the same household.

A driver choosing to have restrictions on compensation for non-economic loss pays less for insurance than a driver who chooses not to have restrictions.

Pennsylvania implemented a choice automobile insurance system 12 years ago. Initially 75 per cent chose full compensation and 25 per cent chose restricted compensation. Currently 55 per cent have full coverage and 45 per cent have restricted coverage. Liability insurance premiums are about 40 per cent less for restricted coverage.

Minister Noel said: "If consumers are interested in a choice system, we can look at the various options available."

Next month, the minister plans to hold information forums to discuss various insurance related issues. He will invite representatives from the insurance industry, regulators, and other interest groups to participate. The forums will operate somewhat like town halls, and the public will have opportunities to ask questions and make comments.

The topics to be discussed will include automobile insurance reform; choice automobile insurance systems; homeowners insurance, particularly availability and cost of insurance in downtown St. John�s; implementation of government�s home oil storage tank regulations and its affect on insurance; the exclusion of fire after terrorism by some insurance companies; and availability and cost of commercial insurance, particularly liability coverage.

Minister Noel said: "We are doing everything reasonable to help consumers deal with volatile insurance issues, and to make driving as safe and affordable as possible. We encourage citizens to work with us in trying to make improvements. We have to make sure our insurance system is as competitive and efficient as possible, remembering always that consumers pay the entire cost of providing insurance. The cost of claims has to be controlled in order to control the cost of policies."

Bill 28

Media contact: Rick Callahan, Director of Communications, (709) 729-4860

Backgrounder
Automobile Insurance Reform
Summary of Changes

(i An underwriting rule is prohibited if it:

• is subjective
• is arbitrary
• has no relationship to the risk, or
• is contrary to public policy. Examples of this include:

• contrary to Human Rights Code
• contrary to Canadian Charter of Rights and Freedoms
• rules based on religion, race, nationality or ethnic group.

(ii An insurer cannot decline, refuse to renew, or terminate an automobile insurance contract for the following 
   reasons:

• age, sex, marital status
• not at fault claims
• unpaid claims and enquiries on coverage
• lapse in coverage
• another insurer refused to insure
• age of vehicle (inspection may be required after 8 years).

(iii A prohibition on coercive tied selling.

(iv An insurer may not use a risk classification system that includes the following elements: that is not just 
    and reasonable

• not reasonably predictive of the risk
• does not distinguish fairly between risks

or elements such as:

• not at fault claims
• unpaid claims and enquiries on coverage
• lapse in coverage, unless due to non payment of premiums, suspension of drivers licence, failure to inform insurer of an accident that would have led to a higher premium.

(v All insurers must file their underwriting guidelines and risk classification system with the 
   Public Utilities Board.

(vi Should the Public Utilities Board identify an underwriting guideline or an element in the 
    risk classification system that is contrary to the above, it will order the insurer to cease 
    and desist using it. Failure to comply will result in license suspension.

(i Drivers placed in Facility Association be provided the reason they are placed there in 
   writing.

(ii Facility Association be required to be written on the policy certificate.

(iii Drivers in Facility Association be given an annual report on their status.

(iv Facility Association to provide a quarterly report to the Superintendent of Insurance 
    advising of the number of drivers placed there in the quarter and the reasons why.

(v Facility Association to provide a monthly premium payment plan to insureds with a 
   maximum rate of 3% of premiums due.

(vi The Superintendent of Insurance be given the authority to withdraw approval of any 
    section of Facility Association�s plan of operation.

All property and casualty insurers operating in the province required to be a member of a compensation corporation and in the event of the failure of an insurance company, coverage for unearned premiums be increased to 100 per cent up to a maximum of $5,000.

All insurers with 5,000 or more auto policies in the province to provide a monthly premium payment plan with a maximum interest rate of 3% of the total premium payable.

(i The income loss portion of a claim to be based on 100 per cent of the net loss as defined 
   in regulation.

(ii An injured party is entitled to ask the courts for an order for payment of their claim on a 
   periodic basis instead of a lump sum.

(iii The courts to reduce a personal injury award by 25 per cent where the individual was 
    not wearing a seat belt and they cannot establish that failure to wear a seat belt did not 
    contribute to the injuries they received.

(i Insurers be required to settle claims as expeditiously as possible. Failure to comply to 
   be considered by the courts in awarding costs.

(ii Insurers be required to make interim payments to an injured party when fault is 
   determined but the final amount of the claim is not settled. Failure to comply to be 
   considered by the courts in awarding costs.

(iii Insurers be required to inform the insured of a claim received from a third party at the 
    time the claim is made, and to inform the insured of the amount paid out under the 
    claim when it is settled.

(i The Public Utilities Board to enforce only a maximum benchmark rate.

(ii Transfer responsibility for the statistical plan, including the setting of rating territories, 
    from the Superintendent of Insurance to the Public Utilities Board.

Capital Requirements

Capital requirements for new insurance companies incorporated in the province increased to $3 million.

(i Minimum fines for driving without insurance be increased from $1,000 to $2,000 for the 
   first offence and $3,000 for subsequent offences.

(ii The vehicle operated by an uninsured driver be impounded for a period of 30 days upon 
    conviction, with the owner required to pay all towing and impounding expenses.

(iii The drivers license of an uninsured driver be suspended for a period of 30 days upon 
    conviction.

(iv Motor Registration Division continue to examine an effective method to have 
    cancellations of insurance reported to them.

Brokers to disclose to applicants the companies they represent, from whom they requested a quote, and the amount of the quote, if requested by the consumer.

Consumer Education

(i The Superintendent of Insurance initiate discussions with the insurance industry to 
   encourage the provision of plain language documents to assist consumers in making 
   informed choices about insurance coverage.

(ii The Superintendent of Insurance, as resources permit and with the assistance of 
    industry, engage in a public awareness campaign with a focus on accident prevention.

(iii The Motor Registration Division include insurance-related questions on all drivers� 
     license examinations as soon as possible.

(iv Fault determination rules be established as a guideline and printed as a driver education 
    tool.

2002 12 17                                       10:40 a.m.