Your Automobile Insurance NIGHTMARE

Spring 2004 CSANews Issue 50  |  Posted date : May 05, 2007.Back to list

You bought a nice new car a few years ago and have taken very good care of it. Being a good driver, you have obeyed all the traffic rules and have had no traffic tickets for many years. You also have never had an accident. Why, then, are you paying auto insurance premiums worth almost as much as the value of your car? Something is dreadfully wrong with the system.

Every time you open a newspaper you see articles about the huge profits insurance companies are making and stories about the poor kid who has to pay $12,000 to insure his new Corvette. Provincial governments are freezing and rolling back auto insurance rates and passing new laws to regulate auto insurance. Insurers are refusing to underwrite business in certain provinces due to steep losses, and we are in a vicious spiral of ever increasing rates, government mismanagement and public misinformation.

The thing that finally drove me to madness was a recent decision, by one of our several automobile insurers, to place ridiculous conditions on snowbirds who take their cars to the southern United States each winter. The new "rules" include high minimum deductibles, calling the insurer when you leave the province for more than seven weeks, and substantial premium surcharges for the privilege of making that call. I will not mention the name of the company, as I expect they will come to their senses before implementing such rules.

But let's deal with those obscene profits insurers make. Here are a few facts from a recent Broker Bulletin written by Rowan Saunders, President and CEO of the Royal & Sun Alliance, the parent company of Ascentus, which underwrites the CSA Auto/Home program.

1. The last year in which the Canadian insurance industry made real profits (excluding investment income) was 1978 ­ about 25 years ago!

2. The average profit for each Canadian bank was $1.8 billion, about 140 times the profit of the average insurance company!

3. The years 2001 and 2002 were the worst years in the entire history of the insurance industry!

4. In Ontario, auto insurers paid out $1.17 for every dollar of premium collected in 2003!

This certainly does not sound like the obscene profits we read about in the media every day. So, what is the real truth behind our insurance nightmare?

You should already know the answer ­ it is our governments. Although there are many differences between provincial governments and their auto insurance rules and regulations, one thing is fairly consistent across Canada, and that is fraud. Let me explain.

Many years ago the governments, in their wisdom, thought it would be a good idea to build a disability plan into our auto insurance. If you were injured in an auto accident, you would immediately be eligible to collect a weekly or monthly income from your insurer. This little disability plan is part of the "Accident Benefits" section of your auto policy, and when it was first introduced it cost about 20 bucks. I have seen policies this year that have been priced, for just the Accident Benefit section, at over $1,000. This is the real reason for the enormous rate increases we have seen over the past several years

Why is no one talking about this? It appears that no one wants to upset the disabled people, but they are not the cause ­ the cause is fraud. Here is an example that should curl your hair: 12 people get together and rent two cars (so the future accident will not affect their insurance rates, of course); six people get in one car and six people get in the other car, then they "cause" an accident with each other; 12 people now claim to have whiplash and they start collecting their "disability" cheques from the auto insurer. That is just the beginning. They then go to their doctor (who is in cahoots) who refers them to physiotherapists and massage therapy specialists (who are in cahoots) and finally to lawyers (who are in cahoots) and the insurance company just pays and pays and pays. You and I get to pay for all of this in our auto insurance premium.

To clarify this for you in real world terms, let me tell you what happened in a little disability policy we sold through an auto club, years ago. For years it just cruised along with excellent loss ratios. We would pay out $100 per week, for up to 52 weeks, to anyone injured in a car accident and real people got to receive real benefits. Then the crooks found it. The losses increased by over 10 times in less than two years. The same thing is happening in the auto insurance industry. You no longer pay for auto insurance ­ you are paying for crooks to collect disability insurance, when they are not disabled. And you are paying for their physiotherapists, and their doctors, and their lawyers. Most claims relate to whiplash and sore backs, two injuries that are almost impossible to disprove.

We solved this old problem and the government, in consultation with automobile insurers, can solve your insurance nightmare, tomorrow. All they have to do is to put a simple clause in the auto policy that says "No benefits are payable unless injuries are visible on an X-ray or require hospitalization." Overnight there would be no more crooks collecting weekly cheques.

Is that too tough for them? Then try this. The Accident Benefits section of the auto insurance policy is optional! This is a lot more complicated than it sounds, but this would do the trick, as well: only the people who wanted to pay for all the fraud, and the fraudsters, would buy it. The price would become $100,000 per policy, very, very quickly. I am not kidding!

Now it is time for the "naysayers" to speak up. What about the poor person who really has whiplash? To them I would say, "I have had whiplash since 1984, and yes, it is uncomfortable sometimes, but I have never missed a day of work and certainly don't need a weekly cheque for the rest of my life." And that is the other problem. The lawyers will tell you that you cannot get real money unless you pretend to be sicker than you are. They want you to see lots of doctors and physiotherapists and to complain about your problems. More pain, more bucks.

I doubt the government or the auto insurers will do anything about this because they believe they can just increase premiums until the problem resolves. It also looks good on insurers' financial statements to show those huge increases in premium volumes ­ but at what price? It will not resolve! We will just attract more and more criminal elements to the easy money, and premiums will go higher and higher until they are finally out of reach. Government regulated disability insurance included in your automobile insurance policy ­ this is the real nightmare! If we talk about it enough, perhaps we can bring some common sense to our premium levels. Governments do listen.

In closing, I would like to state that 99 per cent of doctors, lawyers, physiotherapists, massage therapists and car drivers are honest, hard working people. It is the one per cent who are creating this nightmare. You may also want to consider the enormous drain on our Medicare system with these misspent dollars, which could be used so effectively in other areas for people who really need care. As I indicated, governments do listen. Will you be heard?