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ONTARIO 2016 AUTOMOBILE INSURANCE REFORMS

Summary and Guideline for Best Practices This document is intended to assist brokers in the development and implementation of a plan for communicating with their clients about the 2016 Ontario Auto Reforms. Further, it is designed to provide guidance on receiving and documenting client instructions relating to auto coverage in light of these reforms. Your clients are entitled to your advice on their options under the new standard auto policy. The presence of a clear and consistent approach toward communication and documentation will enable a broker to demonstrate, if asked, that meaningful steps were taken to service their clients in a conscientious and diligent manner.

HIGHLIGHTS SUMMARY

1. A new standard automobile insurance policy will come into effect on June 1, 2016. 2. The new standard includes reductions in coverage particularly as they relate to the

Statutory Accident benefits (SAB) from the current auto policy. 3. Brokers are specifically encouraged to make all reasonable efforts to advise their

clients of these changes. 4. As policies renew after June 1st, brokers should be prepared to review with their

clients how the changes will impact them. 5. Brokers should ensure client files accurately reflect discussions and instructions

received.

NOTE: This best practices document contains a summary of the amendments only and should not be relied upon to be exhaustive. For a list of all amendments, follow this link: http://www.fsco.gov.on.ca/english/pubs/bulletins/autobulletins/2016/Pages/default.aspx

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Background As part of the Provincial budget announced on April 23, 2015, the Ontario Government has issued a number of automobile insurance reforms that will become effective on June 1, 2016. Of particular interest to brokers are a new Statutory Accident Benefits Schedule – Effective June 1, 2016 (“new SABS”). There are a number of other changes to related Regulations which will also be summarized in this document. This best practices document will focus primarily on the impact of the SABS reforms.

HOW THE REFORMS MAY AFFECT YOUR AUTO CLIENTS The new standard Ontario automobile policy, to be effective June 1, 2016, includes several significant changes from the current standard policy including provisions that will result in lower coverage for clients.

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SUMMARY CHART A Summary Chart of the most significant new policy changes that take effect on June 1, 2016, including the current policy provisions as well as consumer choices under the new policy, are set out below: Most Significant Changes On June 1, 2016, if a consumer is buying a new policy or renewing an existing one, brokers should be aware of the most significant changes to auto insurance:

Benefit Current Policy New Policy Client Can Choose Medical, Rehabilitation and Attendant Care Benefit for Non-Catastrophic injuries

$50,000 $65,000

(new combined total)

Increase the benefit to $130,000

Attendant Care $36,000 Increase to $2,000,000

(for catastrophic injuries)

Non-Catastrophic injuries (Minor injuries i.e. sprains, whiplash and serious injuries i.e. broken bones severe strains).

$1,000,000 (for catastrophic

injuries)

$1,000,000 total for Medical,

Rehabilitation and Attendant Care

(for Catastrophic injuries)

Increase to $1,000,000 (for Non-

Catastrophic injuries)

Some important things to remember about these choices:

Medical, Rehabilitation and Attendant Care benefits for minor injuries are fixed at a maximum limit of $3,500. If clients purchase both the additional Medical, Rehabilitation and Attendant Care benefit for catastrophic injuries and for all injuries, the total eligible benefit amount for a catastrophic impairment would be $3,000,000.

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Other Optional Benefits There are many other options available to purchase additional or increased benefits and coverages. The following chart lists some but not all of those and indicates if those options will change on June 1, 2016. Clients can also choose not to increase any benefit or coverage. Brokers should let clients know if they had previously purchased any optional benefits. A further review of documents is required as they may have changed.

Benefit/Coverage Current Policy New Policy Client Can Choose (Options Available to Clients)

Income Replacement benefit

70% of gross income up to $400 per week. No change

To increase the weekly limit to $600, $800 or $1,000 per week.

Caregiver benefit

Available only for catastrophic injuries: Up to $250 per week for the first dependent plus $50 for each additional dependent.

No change To make the same amounts available in current policy for catastrophic injuries available for all injuries.

Housekeeping and Home Maintenance expenses

Available only for catastrophic injuries: Up to $100 per week.

No change To make the same amounts available in current policy for catastrophic injuries available for all injuries.

Death and Funeral benefits

$25,000 lump sum to an eligible spouse; $10,000 lump sum to each dependent; maximum $6,000 funeral benefits.

No change $50,000 lump sum to an eligible spouse; $20,000 lump sum to each dependent; maximum $8,000 funeral benefits.

Dependent Care benefit Not provided Not provided

To purchase this benefit and add up to $75 per week for the first dependent and $25 per week for each additional dependent to a maximum of $150 per week.

Indexation benefit Not provided Not provided To add an annual adjustment for inflation for many benefits according to the Consumer

Third Party Liability

$200,000 minimum for claims as a result of lawsuits against you.

No change Options exist to increase the minimum amount.

Tort Deductible $36,905.40 deductible for court awarded compensation for pain and suffering (Jan. 1-Dec. 31, 2016)

No change Reduce deductible by $10,000 regardless of annual indexation percentage increases.

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MAJOR CHANGES TO THE SABS REGIME AS SET OUT IN ONTARIO REGULATION 251/15

1. The Accident Benefit Reductions Further reductions in available accident benefits have been introduced into legislation. On August 27, 2015, the Ontario government posted Ontario Regulation 251/15 which amends the current Statutory Accident Benefit Schedule (known as Ontario Regulation 34/10). The changes will only impact claims arising from accidents on or after June 1, 2016. The changes will curtail the rehabilitation of seriously injured accident victims. There are THREE major changes:

a) A reduction in the non-catastrophic benefit limits and the duration that benefits are available;

b) A major reduction in the scope of non-earner benefits; and, c) A reduction in the catastrophic impairment benefit limits.

Each of these changes is reviewed below: A) A REDUCTION IN THE NON-CATASTROPHIC BENEFIT LIMITS

AND THE DURATION THAT BENEFITS ARE AVAILABLE For accidents on or after June 1, 2016, the maximum accident benefits available for non-catastrophic impairment claims has been reduced from the current total maximum of $86,000 (being $50,000 for medical and rehabilitation benefits plus $36,000 in attendant care benefits) to a combined total of $65,000 (a $21,000 or approximately 25% total reduction). In addition, the duration for accessing these benefits has been shortened from 10 years to 5 years (260 weeks), except in cases involving children (those under 18 at the time of the accident) where claims can be made until the claimant’s 28th birthday. This represents a significant change. Efforts should be made to educate your auto clients as to its potential impact in their coverage, as well as what options exist to increase coverage in appropriate situations.

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B) REDUCTION IN THE SCOPE OF NON-EARNER BENEFITS For students, stay at home parents, the unemployed and retirees, non-earner benefits have been available to accident victims to provide some modest weekly benefit entitlement. While non-earner benefits are not payable for the first 6 months post-accident, they are, thereafter, payable at a rate of $185 per week for seriously injured accident victims that have suffered ‘a complete inability to carry on a normal life’. For students, the weekly amount increased to $320 per week at the 2 year anniversary of the accident. Non-earner of benefits have always been payable for life, assuming the claimant continues to qualify for them, although the weekly amounts are reduced after age 65. The new legislation, applicable to claims arising from accidents on or after June 1, 2016, reduces the duration of eligibility for non-earner benefits from ‘life’ to a maximum duration of 2 years (while replacing the 6 month waiting period that currently applies with a four week waiting period). Those that were about to enter or re-enter the workforce will now only be eligible for weekly benefits totaling $18,500 over their lifetime ($185 per week for 2 years, other than during the first four weeks) instead of a lifetime of access. This represents a significant change. Efforts should be made to educate your auto clients as to its potential impact in their coverage, as well as what options exist to increase coverage in appropriate situations. C) A REDUCTION IN THE CATASTROPHIC IMPAIRMENT BENEFIT

LIMITED For claims arising out of accident that occurred on or after June 1, 2016, the maximum benefits available to ‘catastrophically impaired’ persons has been reduced from $2 million ($1 million in medical and rehabilitation benefits plus $1 million in attendant care benefits) to a total of $1 million (i.e. a 50% reduction). It should be noted that any benefit reductions will only impact new claims for accidents occurring on or after June 1, 2016. This represents a significant change. Efforts should be made to educate your auto clients as to its potential impact in their coverage, as well as what options exist to increase coverage in appropriate situations.

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2. The Revised CAT Definition The intention to revise the definition of ‘catastrophic impairment’ has been part of an effort to capture only the most seriously injured persons. But, given that all government supported proposals on this issue have included the removal of the Glasgow Coma Scale (GCS) test, the revised definition will undoubtedly be seen as a significant narrowing of the ‘catastrophic impairment’ designation. The new CAT definition stems from the Superintendent’s Report on the Definition of Catastrophic Impairment in the Statutory Accident Benefit Schedule (prepared December 15th, 2011 and released publicly in June, 2012). The new CAT definition will apply to claims arising out of accidents that occur on or after June 1, 2016. A number of new tests have been introduced in support of the new CAT definition. 3. Changes to the Tort Deductible On August 1, 2015, the tort deductible was increased for tort claims for pain, suffering and loss of enjoyment of life and for tort claims of family members for loss of their loved ones’ care, guidance and companionship. After November 1, 1996, a $30,000 deductible applied to all cases whether a judge or jury awarded a plaintiff less than $100,000 for his or her pain, suffering and loss of enjoyment of life. Similarly, a $15,000 deductible applied to the Family Law Act claims of family members who were awarded less than $50,000 for the loss of the injured or deceased person’s care, guidance and companionship. The regulations have been amended to adjust the deductibles with inflation. From August 1 to December 31, 2015, the $30,000 deductible is now $36,450 and the $15,000 deductible is $18,270. As of January 1, 2016, the deductible will be adjusted in accordance with an indexed percentage stipulated in the Insurance Act. On January 1 of every subsequent year, the prescribed amount of the deductible will be revised according to the indexation percentage of the Insurance Act for that year. For 2016 the deductible has been adjusted to $36,905.40. The monetary threshold for applying a deductible for claims for pain, suffering and loss of enjoyment of life was previously $100,000. In other words, where an injured plaintiff was awarded more than $100,000 for his or her pain, suffering and loss of enjoyment of life, the deductible would not apply. The threshold for applying a deductible to Family Law Act claims for loss of guidance, care and companionship was $50,000.

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As of August 1, 2015, the deductible will not apply where the award for pain and suffering is greater than $121,799 for the period of August 1, 2015 to December 31, 2015. Thereafter, the threshold will be inflation-indexed annually. For 2016 the monetary threshold has been adjusted upwards to $123,016.97. The $50,000 threshold for deductible in Family Law Act claims has increased to $60,899, and will also be adjusted annually. These changes apply only to accidents that occur on or after August 1, 2015. 4. Dispute Resolution – Licence Appeal Tribunal In 2014 the Ontario government passed Bill 15 – the Fighting Fraud and Reducing Automobile Insurance Rates Act, 2014. The bill received royal assent on November 20, 2014. Under the existing system, when an insurance company denies reasonable and necessary accident benefits to an insured, the insured can dispute that denial by starting a mediation process with the Financial Services Commission of Ontario (“FSCO”). If the FSCO mediation does not resolve the dispute, the insured person can choose to sue his or her insurer in civil court or they can initiate arbitration proceedings with FSCO. FSCO is one of the regulators of the insurance sector in Ontario. As part of that role, FSCO has a dispute resolution section which has conducted mediation and arbitration proceedings of accident benefits disputes for a number of years. Bill 15 changes this long established system. Under the new system which commences April 1, 2016, mediations and lawsuits will no longer be available over denied accident benefits. FSCO has also been removed from the accident benefits dispute resolution process and is replaced by the Licensing Appeal Tribunal which is part of the Ministry of the Attorney General.

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Other Key Changes Include:

Minor Accident

Insurers can no longer use a minor at-fault accident that occurs on or after June 1, 2016 meeting certain criteria to increase your premiums. The criteria include that no payment has been made by any insurer, that there are no injuries and that damages to each car and property were less than $2,000 per car and were paid by the at-fault driver. This provision is limited to one minor accident every three years.

Interest Rate for Monthly Payment Plans

The maximum interest rate that insurers can charge if you make monthly premium payments has been lowered from 3% to 1.3% for one year policies, with corresponding reductions for shorter terms.

Comprehensive Deductible

The standard deductible for Comprehensive coverage has been increased from $300 to $500.

Non-Earner Benefit

The six-month waiting period for people who are not working to receive benefits has been reduced to four weeks. Also, benefits can now only be received for up to two years after the accident.

Duration of Medical, Rehabilitation and Attendant Care Benefits

For all claimants except children, the amount of time that you can receive this standard benefit is now five years for non-catastrophic injuries, and it will be paid only as long as you remain medically eligible.

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A GUIDE TO BEST PRACTICES Under the RIBO Code of Conduct, brokers are expected to serve clients in a conscientious, diligent and efficient manner and provide a quality of service at least equal to that which members would generally expect of a member in a like situation. With that in mind, members are encouraged to incorporate the following practices into their interactions with auto clients. A. Educate your clients

Members are strongly encouraged to develop a process of educating your clients in such a way that all clients will be treated in a consistent fashion and receive a consistent message. This will allow your client time to review the changes and available options prior to any conversation with you. It is important to determine that your client understands how the cost and coverage options apply to their auto insurance policies.

B. Treat all clients in a consistent fashion Ensuring delivery of a consistent message will not only benefit your clients but it will also reflect a discipline within the brokerage to ‘get the message out’. Brokers should use all reasonable efforts to communicate forthcoming changes with clients. These communications could include but are not limited to mailings, e-mail blasts, and the use of social media. It is also a crucial component that client files reflect that the SABS options were offered and explained as applicable and that the decision reached by the client is documented.

C. Reach out to clients and document interactions with clients Follow up discussions with clients are advisable once communications with client have been initiated. Records should be individualized and reflect both the discussion and any client instructions. One option is that all licensed individuals be provided with a “script”, offering clients a consistent message whether calls are incoming or outgoing. This script would also be applicable to face to face meetings with clients. The same standard will apply to new or transfer clients. Training and the use of a “script” will assist in ensuring the brokerage adopts a consistent approach towards all clients and in achieving consistency in file documentation. At a meeting with the client the script could include handing out a chart outlining the SABS changes as well as an internally generated checklist that is eventually signed by the client. The ultimate goal with clients is to ensure you understand their needs and that those needs are addressed. Cost should not be the sole driver of broker recommendation. If a client calls, take the opportunity to discuss with them the changes under the new SABS and available options.

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D. Seek informed instructions As previously indicated brokers should use all reasonable efforts to communicate with clients prior to the renewal date of individual policies. It is expected then that brokers, upon renewal, will be better able to focus clients on the specific implications to their coverage under the new standard policy and explain to them what options are available. Similarly, clients should be in a better position to give their broker more meaningful instructions. Consider adopting a process for documenting follow-up with each auto client to ensure you have the appropriate discussion with your clients AND that files reflect that process as policies renew.

E. Negative Option Billing Brokers should be aware that “negative option billing” is prohibited in Ontario. In this case, the practice can be defined as requesting a coverage that costs consumers additional premium dollars that they have neither consented to nor made an informed decision to buy. There are two exceptions to this prohibition:

(i) Same Optional Benefits

Where a policyholder has optional accident benefits or other coverages on his or her current policy, the renewal will be issued with the same optional accident benefits or coverages on his or her policy. For example, where the policyholder has selected a higher income replacement benefit of $600.00 per week or the additional $1,000,000 medical, rehabilitation and attendant care benefit for all injuries, these options can be applied to the policy on renewal.

(ii) Comparable Optional Benefit

In situations where a policyholder has purchased the increased optional $100,000 medical and rehabilitation benefit and/or $72,000 attendant care benefit, the policyholder has previously made an informed decision to purchase the next higher level of optional medical, rehabilitation and/or attendant care coverage. With these two optional benefits being eliminated, insurers and intermediaries must first use best efforts to contact the policyholder and receive specific instructions on whether to replace these optional benefits with any of the new optional coverages that are available. If, despite these best efforts, insurers and intermediaries are unable to contact and receive specific instructions from the policyholder, rather than reducing medical, rehabilitation and attendant coverage to the new standard benefit level of $65,000, insurers must substitute these optional benefits on renewal with the next higher optional benefit of $130,000 for medical, rehabilitation and attendant care, which is comparable to the policyholder’s previous direction. If a policyholder subsequently contacts their insurer or intermediary regarding this substituted optional benefit and seeks to make a change, insurers are expected to make a change using the various methods (previously described) on a pro-rated basis.

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F. Recordkeeping Brokers will be able to mitigate the risk of being on the wrong end of an errors and omissions claim or a misconduct complaint by being able to show by detailed notation in a file that a customer was specifically advised of the options for that coverage and chose not to add coverage, for the reasons noted on that file. Client records should be individualized and reflect both the discussion and any instructions received. Ensure detailed notations are in the files and that customers were specifically advised of the options for coverage and that their instructions and reasons are noted. Consider the use of a checklist to document accepted or declined coverage.

TRANSITION TO THE NEW SABS Where a policy is still in effect on June 1, 2016: All ‘buy-back’ options, such as those noted above, will be read into auto policies until the end of their current term. All options previously purchased will continue automatically after June 1, 2016. Policies effective before June 1, 2016 will have the old limits honoured until post June 1st renewal. Claims occurring prior to June 1st will have the old SABS limits and procedures apply. For claims occurring after June 1st, the current limits remain in force, however, the new SABS procedures will apply. Clients renewing on or after June 1st will be under the new policy reforms. On June 1st, a client will also have the right to buy enhanced coverage under the new SABS limits (see previous Charts for Summary). In practice, this would result in a new policy or endorsement being issued. Brokers should take the opportunity to discuss this with clients in order to first determine whether a meaningful cost reduction will occur, given possible rate changes that may have taken effect since the client’s last renewal. Brokers should also explain any advantages and disadvantages of this decision.

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CONSUMER EDUCATION There are a number of other organizations including IBAO, IBC, FSCO and others who have developed documentation and policies consistent with the goal of ensuring consumer awareness and understanding of the changes to auto insurance so that informed decisions regarding optional coverages can be made by clients and insurance consumers. For example FSCO has gone to considerable effort to develop its Point of Sale Disclosure Document (POS Document) which is mandatory for insurers to include along with the revised Certificate of Automobile Insurance (Ontario) for all first issued policies or renewal of policies renewed between June 1, 2016 and May 31, 2017. Other Regulatory Changes Affecting Automobile Insurance The following regulation changes are the result of the announcements made in the 2015 Ontario Budget with respect to the new dispute resolution system at the Ministry of the Attorney General’s Licence Appeal Tribunal (LAT). They include amendments to R.R.O. 1990, Reg. 664 (Automobile Insurance), O.Reg. 34/10 (Statutory Accident Benefits Schedule – effective June 1, 2016), O.Reg. 403/96 (Statutory Accident Benefits Schedule – Accidents on or After November 1, 1996) and O.Reg. 776/93 “(Statutory Accident Benefits Schedule – Accidents After December 31, 1993 and Before November 1, 1996). The amendments are briefly summarized below: R.R.O. 1990, Reg. 664 (Automobile Insurance) This regulation has been amended to provide for the wind down of the dispute system at FSCO, effective April 1, 2016, and includes the following changes. Applications for mediation, neutral evaluation, and the appointment of an

arbitrator for arbitration will not be accepted by FSCO after March 31, 2016. A mediation, arbitration, court proceeding, appeal, variation or revocation that was commenced before April 1, 2016 may be continued at FSCO after that date. If a mediation commenced on or before March 31, 2016 fails, a court proceeding may not be commenced on or after April 1, 2016 but an application may be made to the LAT. Applications to the Director of Arbitrations for appeals, variation or revocation may only be made where the application for the appointment of an arbitrator was received by FSCO on or before March 31, 2016. The Office of the Director of Arbitrations will be continued, as will his power to amend the rules of practice and procedure for FSCO proceedings.

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Statutory Accident Benefits Schedule (O.Reg. 34/10, O.Reg. 403/96 and O.Reg. 776/93) Also effective April 1, 2016, provisions in the Statutory Accident Benefits Schedule that apply to the dispute resolution process at FSCO will continue to apply to: all applications that were received by FSCO on or before March 31, 2016 but are

not finally determined before that date, appeals, variations, and revocations of these matters.

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FOR MORE INFORMATION RIBO will continue to update its website with new developments. (www.ribo.com) The Financial Services Commission of Ontario (“FSCO”) will be updating their

website with timely information to the reforms, including new forms. (www.fsco.gov.on.ca)

The Insurance Bureau of Canada (“IBC”), representing 90% of the property and

casualty (P&C) insurance market in Canada, is also a valuable resource for insurer-related information. (www.ibc.ca)

Also check with your individual insurers for information specific to their auto products. The Insurance Institute of Canada (“IIC”) offers a variety of industry courses,

including some specific to these reforms. (www.insuranceinstitute.ca) The Insurance Brokers Association of Ontario (“IBAO”) will continue to offer its

members information, courses and assistance. Check their website (www.ibao.org) for the latest updates.