Implementing Auto Insurance Reforms: Mid-Term Policy Changes and Optional Benefits

Policyholder requests to move to new standard policy before next renewal

After the government's auto insurance reforms take effect June 1, 2016, some policyholders may wish to take advantage of the new options before their renewal date. Insurers are expected to allow policyholders to move to the new standard automobile policy coverage before the regular renewal date if they wish to do so. 

There are two methods for achieving this: cancel the policy and re-issue; or use the revised OPCF 25A, expected to be released in early 2016, to modify the terms of their policy. Insurers can use one or both methods.  

In these situations, insurers and their intermediaries are expected to adhere to these key principles:

• The insurer must act in the best interest of the policyholder.
• There must be full disclosure to the policyholder about the impact of the move on coverages and new applicable rates.

Option 1: Cancel and re-issue

If a policyholder cancels his or her existing automobile insurance policy on or after
June 1, 2016 but prior to the scheduled expiry date, and renews with the same insurer, the insurer will pro-rate, not short rate, the policy. All renewal discounts, accident forgiveness rules, etc. will continue to be applied. Consistent with some insurers' existing practices, the policyholder could also be re-rated to include any other changes in circumstances such as accidents, convictions, etc. that may have occurred since the last renewal.

Option 2: Use the OPCF 25A Alteration Form

An existing policy can be amended without termination or expiration, if agreed to in writing by the named insured and the insurer.

The OPCF 25A Alteration form is currently being amended to reflect the new standard automobile insurance policy and optional coverages available under the SABS, and will enable policyholders and insurers to exercise this option, if desired.

To amend a policy to the new standard levels, insurers should obtain a completed OPCF 25A signed by the policyholder. Under this option the policyholder would continue to be classified as before, but the new coverage rates filed in connection with the auto reforms would apply to all coverages for the unexpired portion of the policy period.

Mid-term changes requested by policyholder unrelated to product reforms

There may be other changes to the policy mid-term, for example if a policyholder substitutes a vehicle, or wishes to change coverages (e.g., increase collision deductible) that are unrelated to the auto reforms. In this case the coverages would continue at the same levels as previously written, unless the policyholder requests otherwise.

If an additional vehicle is added to the policy, the coverages would continue at the same levels as previously written unless the policyholder requests otherwise, and would be the same for all vehicles written on the policy. 

Although the final decision is made by the policyholder, the insurer or intermediary shall at the time of the mid-term change also inform the policyholder of the availability of the new standard coverage options, along with advice as appropriate to enable the policyholder to make an informed decision as to whether to continue with or change any one or more of his or her existing coverages. As noted above, the decision is for the policyholder and not the insurer or intermediary to make. 

Insurers are otherwise expected to continue to use their existing processes for handling mid-term change requests.
 

Optional Accident Benefits

 
Policyholders should be receiving appropriate information from intermediaries and insurance companies in order to make informed choices when purchasing optional accident benefits. Negative optioning is not permitted. (Bulletin No.G-09/00 on Negative Option Marketing/Billing).

Optional accident benefits cannot be applied automatically on new or renewal business without a policyholder's instructions. There are two exceptions to this direction:

1. 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 per week or the additional $1 million medical, rehabilitation and attendant care benefit for all injuries, these options can be applied to the policy on renewal.

2. 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.

Treatment of the New Catastrophic Impairment Optional Benefit

The $1 million medical, rehabilitation and attendant care benefit for catastrophic impairment is a new type of optional benefit that did not previously exist.

Given there is no existing comparable optional benefit, the change in benefit level is significant, and there is a potential impact on premiums, insurers and intermediaries must receive specific instructions from the policyholder before adding this new optional benefit to the policy.

Optional Benefit Levels

There have been a number of inquiries about the maximum medical, rehabilitation and attendant care benefit levels where optional benefits are purchased. The new standard $65,000 and the new optional $130,000 medical, rehabilitation and attendant care benefits are discrete benefit levels for non-catastrophic injuries. They cannot be added to the $1 million standard benefit if there is a catastrophic impairment. 

The $1 million optional medical, rehabilitation and attendant care benefit for all injuries and the new $1 million optional catastrophic impairment benefit can be added. If either of these two options is purchased, the total eligible benefit amount for a catastrophic impairment would be $2 million. If both of these options are purchased, the total eligible benefit amount for a catastrophic impairment would be $3 million. 

These amounts are illustrated in the recently released Certificate of Insurance (Bulletin A-08/15 - Revised Certificate of Automobile Insurance Form and Data Elements –September 18, 2015).

Comprehensive Deductible

Questions have also arisen with respect to the amendment of the new standard deductible to $500 from $300 for comprehensive coverage. This increase will apply for any contracts that are issued or those renewed on or after June 1, 2016. This applies to new business or in cases where the deductible is currently set at $300 or an amount lower than the new $500 standard. Section 14.1 (1) 3 of Regulation 664 also provides flexibility to set a deductible for a different amount, either lower or higher, if agreed to and set out in the contract.

 

 
Brian Mills
Chief Executive Officer and
Superintendent of Financial Services

 

December 24, 2015