Can Ontarians afford to lose the right to income replacement benefit in basic auto insurance policy?

This article was produced in partnership with Howie Sacks & Henry LLP

The debate surrounding Ontario’s no-fault insurance system has been raging for decades and is nothing new, but the proposed changes in this year’s provincial budget raise more red flags than usual, warns David Levy, partner at Howie Sacks & Henry LLP.

Framed as providing more affordable options that enable consumer choice, “what they propose is to essentially strip the basic insurance product of everything other than treatment and attendant care, with most other benefits becoming optional.”

Following the last major revisions (predominantly reductions to available benefits) in 2016, treatment and care benefits for serious injuries are capped at $65,000 or five years, whichever expires first, and at $1 million for catastrophic injuries, both significant reductions from earlier regimes. In addition, victims are currently eligible for an income replacement benefit (IRB) of 70% of their gross income, up to $400 a week, and people with catastrophic injuries are eligible for a housekeeping benefit of up to $100 a week.

“Without question, the most significant change proposed — at least for non-catastrophic cases — is to the weekly income replacement benefit,” Levy says. “It will be framed as an opportunity for Ontarians to craft an insurance product that makes sense for them, and to save money by eliminating unnecessary coverages, but the devil is in the details: it’s only cheaper if you secure a sensible product at a reduced cost, and with these proposed changes they’re not necessarily making insurance less expensive, they’re just making insurance less.”

Furthering the erosion of the product

Though the amount of the basic IRB has remained unchanged for almost three decades — “problematic in its own right,” Levy notes — the income replacement benefit at the very least provides some protection for those who cannot work following an accident, and because it wasn’t optional, people couldn’t make a short-sighted decision to save a few dollars by removing it. But if the proposed changes are enacted, the onus shifts to the individual to make sure they have the necessary coverage to meet their needs and those of their family.

As mentioned, the proposed changes will be spun as empowering consumers to craft their own insurance product, but this is predicated on people making an informed choice that provides sensible protection, even if a cheaper option is available that complies with the minimum legal requirement. With the cost of living higher than ever, people are likely to be tempted by short-term savings over long term protection, if they are even aware of the implications of their choices at the time. Levy points out that while there are scenarios where declining an optional IRB makes sense — for example, if someone has a disability policy through work, the receipt of which reduces the IRB to nothing or next to nothing (since the IRB is reduced by the amount received from the work policy). However, if history is any indication, the majority of people will decline additional coverage (because of the added cost) even if they are aware of the implications, Levy says.

“When I see accident victims in my practice, and ask if they have purchased optional accident benefits insurance — which has been available in various forms for many years — very few have and most tell me they were not even aware it was an option,” he adds. “But now, we will be entering entirely new territory and the implications are significant. For injured people for whom money is already tight, the modest IRB available now is a challenge; eliminating it entirely could be devastating.”

To make matters worse, historically, the promised savings that accompany these benefit reductions are small while year after year, insurance companies report massive profits. The net outcome will be a further erosion of the mandatory product that is supposed to protect Ontarians.

Levy warns that the implications of these proposed changes go far beyond lawyers who practise in this area, or lawyers in general, as the effect will be felt by all drivers across the province. As a result, Levy implores lawyers across all areas of practice to spread the word to family, friends and their networks in general, people who are less likely to be aware of the devilish details. “There are votes in being able to announce reduced premiums, but don’t be fooled by the headlines,” Levy warns. “There is a tremendous need for the population to be educated about something as important and universal as basic auto insurance coverage.”

Advocating tirelessly within the legislation

While victims who are not at fault for their accidents have the right to pursue amounts no longer available through accident benefits via a tort lawsuit, that money isn’t available in a timely manner. Levy routinely sees clients exhaust their accident benefits long before the conclusion of their tort case, leaving them with months or even years of cashflow issues.

Strategies for mitigating this problem (leaving aside the option of purchasing optional accident benefits coverage in these areas as well) include moving cases as quickly as possible to reduce that time gap and exploring ways to secure continuity of treatment in the meantime. In some cases, providers will work on a protected account basis and wait for the lawsuit to conclude before being paid. In other instances, money can be borrowed. But while the team at Howie Sacks & Henry advocate tirelessly for their clients, using all resources at their disposal to get the best possible results, if the government says the treatment/care limit is $65,000, no insurer will pay more.

“There is no magic wand to stretch funds further and no question that this only adds to the stress on families at an already difficult time,” Levy says, adding that this common scenario is antithetical to the very philosophy of a universal no-fault regime that is supposed to help accident victims cover the costs of rehabilitation.

If these new proposed reforms are enacted, an injured person who can’t work might not even have access to the modest IRB that currently exists, which might mean not being able to meet basic daily expenses. And this is why there is a real sense of alarm amongst people who have been working with accident victims for many years.

“We don’t know yet how it will play out, but the word needs to be spread — and quickly — about what the coverages are, what they mean in the event of an accident, and what people may be giving up for the sake of saving a few dollars.”