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CONTENTS OF THE APRIL 2004 ISSUE
Vol.72(1)
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2nd SPECIAL ISSUE AUTOMOBILE INSURANCE AND COMPENSATION REGIMES
Introduction GENERAL ARTICLES L’assurance automobile au Québec, près de
30 ans après le dépôt du rapport du Comité d’étude sur l’assurance automobile
EVALUATED ARTICLES by Michael L. Smith
Merging Automobile Insurance Regulatory
Bodies:The Case of Atlantic Canada
Auto Insurance Reform for Canada’s Tort
Provinces
Insurer Liability for Medically Related
Motor Vehicle Accident Costs in Alberta
COLUMNS
Assurances et gestion des risques Faits d’actualité Marsh
Technical Study Gestion des risques
financiers Gestion des risques majeurs RIMS (Risk Management Society Inc.)
This second special issue contains five articles and one column on automobile insurance. It is more focused on the industry’s problems in other provinces than the previous one. The exception is Jean-Louis Gauvin’s article on the Quebec insurance plan. This issue also introduces two new columns: one on the management of financial risks by Martin Boyer and the other on the management of major risks by Jean-Bernard Guindon. Mr. Gauvin is still of the opinion that the current no-fault insurance scheme is the best for Quebec; he does, however, criticize the way the SAAQ (Société de l’assurance automobile du Québec) manages compensations. The author also has positive things to say about the private sector’s administration of material damages; here, competition among insurers provides some of the lowest premiums in Canada. This private administration is not regulated. Americans are actually questioning the advantages of regulating insurance rates (Cummins, 2002). Mr. Gauvin does not go into detail on the right to sue, which some would like to reintroduce, but he does remind us that, strongly motivated by the 1974 Gauvin Committee Report, the Quebec government chose in 1978 to consider the right to compensation as a fundamental element of its plan. He also clarifies a reality which is misunderstood by more than a few, this being that civil liability does not truly penalize those individuals who cause accidents because they can ensure themselves against the losses incurred (coverage not of deductible). It is rather all policyholders who, through higher insurance premiums, pay for privately insured drivers who cause accidents. Finally, the author shows that there are not actually more accident victims in Quebec than in the rest of Canada, whereas before 1978 this was the case (almost 2,000 deaths per year before 1978 versus about 800 over the last few years). He mentions various factors which may explain this improvement in Quebec’s road record, these include: vehicle safety, driving environment, and changes in attitude towards safe driving. Of course, this latter aspect is partially the result of the various safe-driving incentives set up and managed by the SAAQ. The 1999 data indicate that the number of deaths on Quebec’s roads amounted to 9.88 per 100,000, as compared with 9.84 in Canada, 13.32 in France, and 15.50 in the United States (the different sources of these data are cited in the bibliography). Canadian provinces, several American states, and France use a system with civil liability. According to many specialists, a no-fault insurance system would not seem a very promising incentive for safe driving; however, contrary to all general predictions, the statistics show that the current Quebec scheme, when combined with safe-driving incentives, is indeed effective. It is always best to be cautious when making this kind of international comparison, when different legal systems are involved. And Michael Smith rightly reminds us of this fact in his article. For example, the denominator used to compare the mortality data is important; this denominator measures more or less directly citizens’ exposure to risk in different countries and regions. The important thing here is not to show that one measure is superior to another, but to point out that results must undergo sensitivity studies before any definitive conclusions are reached. The number of deaths per 100, 000 license holders is better at taking into account drivers’ exposure to accident risks, but does not perform well when it comes to pedestrians and cyclists. And the number of vehicles registered may simply show that richer societies, such as the United States, have more vehicles per license holder. This study also shows how complementary measures of exposure to risk can reconcile apparently contradictory results. Martin Boyer and Jörg Schiller examine some of the difficulties experienced by automobile insurance plans in the Canadian maritime provinces. For these authors, insurance fraud is one of the major causes of the increased costs of claims and premiums. They suggest that the four provinces should merge their automobile insurance regulation, which would allow them to reduce the costs of checking doubtful claims. What they finally propose is an insurance tax system designed to help reduce insurance fraud. Norma Nielson and Anne Kleffner propose an analytical framework designed to improve the management of insurance liability in Canadian provinces. They suggest means of reducing the costs of claims and of improving compensations to victims. The main recommendations consist in: (1) improving the coordination between organizations providing health care; (2) setting compensation for victims at levels that reduce administration costs; (3) reducing compensations for non-economic losses that do not entail permanent damage; (4) improving the system of conflict resolution; (5) introducing an equitable system of insurance rates that would also encourage safe driving. The article by Philip Jacobs, Douglas Lier, and Donald Schopflocher studies the scope of the medical costs linked to automobile accidents in Alberta where there is a private insurance system with liability. Insurers there are also committed to reimburse the government for costs incurred by non-liable accident victims. These costs increased a great deal for 1997 to 2002, rising from $ 35 M to $54 M. However, it is not evident that the existing methods of measurement are still suitable for evaluating these costs. The article develops a new approach to counting the costs of injuries, based on newly available information. These data cover the number of visits to emergency rooms as well as the opening of patient files on accident victims and their follow up over time. This new information allows a more direct measurement of costs. The complementary data obtained from insurers and from the system of administration for non-hospital costs make it possible to assess hospital costs for accidents that do not involve hospitalization. The method proposed is also capable of estimating the degree of liability of accident victims. The article gives a detailed description of the new procedure developed, thanks to collaboration with different actors in the field.
In his column, Assurances et gestion des risques, Gilles Bernier discusses the problems now current in the field of automobile insurance in Canada. He describes the corrective measures envisioned in provinces with the most serious problems: Ontario, Alberta, and the Maritimes. Two of these provinces are covered in an article in this issue and an article on Ontario is being written for the next issue. It seems that claims for bodily injuries are the most costly, since they often end in law suits. It is interesting to note that most of these provinces see regulating premiums as the solution, rather than letting the market fix the price as Quebec does for material damages. American studies lead to the conclusion that regulating insurance premiums does not necessarily lower their level (Harrington, 2002); premiums are more likely to depend on problems associated with claims, as indicated by most of the articles in this issue. References Cummins, J.D. (Ed.) (2002) Deregulating Property-Liability Insurance, AEI-Brookings Joint Center for Regulatory Studies. Gauvin, J.L. (1974) « Rapport du Comité d’étude sur l’assurance automobile », Québec, Gouvernement du Québec. Harrington, S.E. (2002) « Effects of Prior Approval Rate Regulation of Auto Insurance », dans/in Deregulating Property-Liability Insurance, J.D. Cummins (Ed.), AEI-Brookings Joint Center for Regulatory Studies. Canada Death: Causes of Deaths, Statistique Canada Canada Population: Annual Demographic Statistics, Statistique Canada. France Death: Observatoire National Interministériel de Sécurité Routière. France Population: INSEE. USA Death: National Vital Statistics Report, Deaths: Final Data. USA Population: US Bureau of Census. The author thanks Claire Boisvert, Martin Lebeau and Rémi Moreau for their help
L’assurance automobile au Québec,
près de 30 ans après le dépôt du rapport du Comité d’étude sur l’assurance
automobile
Abandoning the right to sue a third
party in exchange for the right to compensation for economic and non economic
losses, including adequate rehabilitation and compensation in case of bodily
injury, was the major recommendation of the Study Committee on Automobile
Insurance in 1974. This major change was implemented in the 1978 reform. Since
1978, while significant few changes have been made to the benefits and in order
to improve the monopolistic system, an independent review from the SAAQ should
be mandated at specific periods to insure a level of benefits in Quebec in line
with expectations of the public. Regarding property damages, Quebec is the only
province with a true competitive system where rates and classification of
insured are not regulated. This approach has been truly effective and consumers
in Quebec are saving millions of dollars annually compared with jurisdictions
where rates and classification are strictly regulated.
Evaluating
Deterrence Incentives across Legal Systems: Effects of Changing the Basis for
Measuring Exposure
In the area of
motor vehicle safety, legislators and public officials often rely on statistical
measures to evaluate the effect of road design on safety or to evaluate legal
and financial incentives for drivers to avoid accidents. The evidence used for
evaluation typically takes the form of a rate such as a death rate per
vehicle-mile, where the denominator of the rate reflects a measure of exposure.
This paper shows how the basis for measuring exposure can affect such
comparisons. Although this principle applies to any evaluation involving
alternative measures of exposure, the empirical tests in this paper focus on the
origin of countries’ legal systems. The tests show that fatality rates from
motor vehicle accidents vary significantly across countries classified by origin
of legal system, although rankings of legal systems can depend on whether
fatality rates are measured relative to population, vehicle count, or a basis
combining population and vehicle count. Despite evidence of differences between
legal systems that persist over time, rankings also can depend on the time
period from which data are drawn. The paper also illustrates how supplemental
data can be used to reconcile discrepancies occurring when different measures of
exposure are employed.
Merging Automobile Insurance Regulatory
Bodies:The Case of Atlantic Canada
The recent automobile liability
insurance crisis in Atlantic Canada has prompted the four provincial
legislations (Newfoundland and Labrador, New Brunswick, Nova Scotia and Prince
Edward Island) to setup a task force to redesign, if necessary, the personal
automobile insurance system. After reviewing some of the most interesting new
regulatory changes, our paper proposes a new area of discussion: The merger of
the four provincial insurance regulatory bodies to combat insurance fraud. We
base our paper on the principle that recent premium increases are mainly due to
an increase in insurance fraud. We show that merging the regulatory bodies may
reduce insurance fraud if the merger allows savings on the average audit cost
and on the development of better fraud detection technology. Finally, we suggest
a fraud reducing insurance taxation scheme to finance insurance fraud
investigations.
Auto Insurance Reform for Canada’s Tort
Provinces Due to its mandatory nature, and because a majority of the population drives, a cost-effective and efficient system of automobile insurance is in the interest of all parties involved. Although a tort system for compensating automobile accident victims works reasonably well for that relatively small number of claimants with serious losses, it does not work very well for the higher volume of relatively minor accidents. In this paper, we suggest means by which Canadian jurisdictions operating a system of tort liability can control costs and improve compensation for accident victims. Suggested reforms focus on improving coordination between public and private-pay aspects of health care; setting first-party benefits at a level which reduces the transaction costs without increasing aggregate costs; reducing or limiting access to payments for compensation for non-economic losses for non-permanent injuries; encouraging an efficient mechanism for dispute resolution; and developing a pricing system that is perceived to be fair by insureds while also providing incentives for safe driving. Keywords: Automobile insurance; injury accident claims; non-economic damages; insurance price regulation; coordination between private payers and public health system; tort reform; no-fault insurance design; dispute resolution.
Insurer Liability for Medically Related Motor Vehicle Accident Costs in
Alberta
In Alberta, automobile insurers are
liable for medical costs of casualties who are not responsible for the accident.
There is a levy ($43 million in 1999) but there is also a considerable degree of
uncertainty about the amount that should be transferred for medical costs. We
conducted an analysis of these costs that included the following data: motor
vehicle accident claims for most insurance companies in Alberta in 1999 (which
were linked to provincial health insurance registrations); all hospitalizations
and emergency room visits in the province that were related to motor vehicle
accidents; records (physician, inpatient hospital, outpatient hospital,
ambulance, insured drugs) for subsequent one year post accident utilization; and
unit administrative costs for health services, set by the province. A second
analysis, using 1997 – 2000 data and only hospital inpatient and emergency
admissions, was conducted for 3 year utilization experience, and projected
beyond. Liability reduction factors were obtained from provincial transportation
statistics. Our results indicated that total costs (using administrative prices)
amounted to $119 million in 1999 and estimated liability was $82 million.
Several areas of uncertainty remained; these included the actual costs beyond
three years post – accident, the relationship of administrative prices to actual
resource costs; and the roles played in liability by other groups (Workers
Compensation and non-insured drivers). This study forms a basis for setting the
insurance levy which is more objective than methods used before.
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Last updated:April 2004
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