As the Ontario government considers regulatory changes to cut accident benefits for auto insurance holders, a fierce debate is emerging over the potential consequences of such a change.

In late March, the Financial Services Commission of Ontario (FSCO) submitted its report on the Five Year Review of Automobile Insurance to the Ontario government. The report finds that growth in loss costs has outpaced insurance rate increases in recent years, which threatens to significantly drive down insurance industry earnings, and could result in huge increases to consumer premiums in 2009 and 2010.

FSCO provided the government with a slew of recommendations to improve the effectiveness of insurance regulations. One recommendation suggests reducing the cap for medical and rehabilitation benefits for non-catastrophic claims to $25,000 from its current level of $100,000.

“The insurance industry has proposed that a reduced cap of $25,000 would adequately meet the needs of many consumers,” the report says. “Consumers that feel they need a higher level of coverage could be provided the option of purchasing $100,000 in medical and rehabilitation benefits to cover non-catastrophic injuries.”

But the new level of claims would fall short for many consumers, according to the Alliance of Community Medical and Rehabilitation Providers, a coalition of 43 organizations in Ontario providing clinical services to accident victims. The alliance argues that many of the crash victims that would be subject to this new cap require months or years of rehabilitation.

“With only $25,000 of basic benefits, they’ll run out of this coverage long before they get better,” the alliance said in a statement. It calls for the government to maintain the current claim limit.

The Insurance Bureau of Canada argues that the vast majority of people injured in car collisions suffer sprain and strain injuries and simple fractures, and in such cases, $25,000 is more than enough to restore them to full health.

“For those who need more, we have called for provisions to be in place to ensure they get more,” added Don Forgeron, president and CEO of the Insurance Bureau of Canada. “The goal is the right amount of treatment for everybody.”

Forgeron noted that Ontario has the most generous auto insurance system in North America. “Other provinces have much lower accident benefit limits than Ontario,” he said. “These systems work well and accident victims return to health more quickly than they do in Ontario.”

The alliance contends that the FSCO recommendations are simply an effort to bolster insurance industry profits. “The insurance industry is crying poor, and FSCO seems to have bought the industry’s argument hook-line-and-sinker,” the alliance said. It points out that P&C insurance companies earned profits of $2.3 billion last year and a return on equity of 7.5%.

But the Insurance Bureau of Canada says the industry is facing a crisis. One problem is surging costs for no fault health care services, which have risen more than 40% in the past four years, according to the bureau. In addition, not enough of the funds go to treatment. For every dollar spent on therapy, another 60 cents goes to providers conducting assessments, the organization said.

The government is expected to make a decision on the recommendations by late June, but the alliance urges the government to hold broad public consultations before adopting any regulatory changes.

“Most people are completely unaware of these issues,” said Patricia Howell, an Alliance member and an occupational therapist who provides rehabilitation services to auto accident victims. “They have a right to be fully informed and heard.”

IE