Ontario residents are bracing for the most significant regulatory changes to auto insurance change in years.
On July 1, the province’s Statutory Accident Benefits Schedule (SABS) will shift from a comprehensive, uniform benefits package to an à-la-carte model. When that happens, nine of the 12 benefits included today will become optional.
While designed to empower consumer choice, the new model will also create a potential protection gap where coverage is not actively selected.
As claims adjusters, we’ve seen thousands of auto claims, enabling us to anticipate where these gaps are likely to be felt most acutely. And brokers need to be aware of some key considerations as they talk with clients about the upcoming changes.
First, will brokers be able to ensure policyholders understand the impact of à-la-carte decisions?
Under the new SABS regulations, only medical, rehabilitation and attendant care will be mandated benefits. All others must be actively selected by clients. Ontario drivers unaware of the changes – or who select lower levels of coverage – may face an increased risk of underinsurance depending on their circumstances.
Injuries will reveal limitations
For example, consider a hypothetical Ontario driver who sustains multiple physical and psychological injuries in an accident.
If this driver has not selected any optional benefits, they’ll have a combined limit of $65,000 for the mandated benefits of attendant care, medical and rehabilitation. At $3,000 a month for attendant care, and treatment expenses, the driver could exhaust their limit in about 12 to 18 months. That’s significantly less than the five-year maximum eligibility period for reasonable and necessary accident-related treatment.
But, if the insured has selected optional benefits, the coverage could include up to $1 million in combined attendant care, medical, and rehabilitation benefits. Following an accident, they can expect to receive up to $6,000 per month for attendant care, along with access to a case manager to coordinate treatment.
In this scenario, benefits like income replacement, housekeeping and home maintenance, loss of education expenses, and damage to items like clothing, glasses, or hearing aids – all out-of-pocket expenses – will be covered up to selected limits. Reasonable and necessary visitation expenses incurred by a close relative during recovery will also be covered for up to 104 weeks.
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Of the newly optional benefits, the income replacement benefit (IRB) may be one that policyholders forgo – making it one to review carefully with clients.
As insureds make coverage decisions, they must think first about their financial needs. Policyholders should consider how long their existing savings might cover regular expenses like rent, the mortgage, food, and utilities if they were unable to work after an accident.
In cases involving significant injuries, we’ve seen the standard two-year coverage period is not always sufficient. Some policyholders may decide, based on their financial circumstances, that additional optional IRB coverage is less critical. But others may view higher limits as highly important.
After SABS takes effect, carriers and loss adjusters will most likely see an increase in claimants looking to clarify coverage details. These questions will likely go to brokers first, making it important that brokers are educated on the new changes before the claim reaches the adjuster.
Communicating these changes and their potential impacts on clients is essential.
What carriers need to know
For carriers with commercial products, the new à-la-carte SABS regulations may create additional complexity.
If an employee gets into an accident in a corporate-owned vehicle, there may be challenges in determining which insurance policy will kick in, since the company’s auto policy, workers’ comp, and maybe even other coverages may all be involved. The potential interaction of multiple coverage regimes will require insurers to carefully consider underwriting approaches for commercial policies.
The good news for carriers is that some industry participants anticipate new SABS framework could contribute to changes in claims frequency or overall payouts, although outcomes will depend on take-up rates and claims experience. In the end, this will likely enhance cost savings for carriers but could then shift the costs onto the at-fault party’s insurer, or OHIP.
Education will be key
Transitioning to the new SABS model will be a major shift in accident benefits for Ontarians.
Although it introduces more flexibility for consumers and potential cost savings for insurers, it also increases the risk of coverage gaps for policyholders who don’t select optional benefits. The success of this change will depend on industry-wide awareness and consideration.
Adjusters, brokers, and carriers alike must prioritize education and clarity to ensure policyholders fully understand their choices, and are properly protected in the event of an accident.
Michael McNeill is accident benefits supervisor and Brian Hambly is vice president of loss adjusting at Crawford & Company.