CU Poll: Ontario’s DCPD auto reform widely viewed as a flop

Ontario’s property and casualty insurance professionals have widely panned the provincial government’s latest move to make mandatory Direct Collision Physical Damage (DCPD) coverage optional to reduce premiums.

Canadian Underwriter conducted an online poll with more than 400 P&C professionals nationwide this week about their area’s efforts at auto reform. Of those, almost 250 were from Ontario. And they let CU know in no uncertain terms what they thought of Ontario’s latest DCPD reform.

“Government made a mandatory [auto] coverage optional just so they could say they offered people a choice to save money,” said one Ontario P&C insurance professional. “No self-respecting broker would ever recommend removing DCPD. There are too many risks to the insured.”

In a training session for brokers on the DCPD OPCF 49 endorsement, the Insurance Brokers Association of Ontario warns its broker members that clients waiving DCPD coverage “will NOT be able to recover compensation to repair their automobile, replace their automobile, be compensated for loss of use of the automobile or to have the automobile or its contents within the automobile repaired due to damage. Towing and storage costs would also not be covered.”

One of the theories behind the move was to allow drivers with older cars not worth repairing to opt out of DCPD coverage to save money on premiums.

Some in the survey observed this would not affect many drivers in Ontario. “A vain attempt to reduce claims costs by introducing a pointless DCPD removal option,” one insurance professional summed up the reform effort. “This might benefit maybe 1% of auto policy holders.”

Another Ontario P&C industry professional noted customers who are offered this option likely aren’t aware of the complexity of the province’s auto insurance product. And many suggested the government has not educated consumers on what they got from the mandatory DCPD coverage.

“Offering an option to DECLINE DCPD is ridiculous,” the person wrote. “The only effect this will have is to frustrate insureds further in the event of a loss, as 90% of auto clients still DO NOT understand the Ontario [hybrid] no fault system, even without this ridiculous option.”

And another industry professional noted the high physical damage claims costs for cars these days effectively offset any benefit by making DCPD coverage optional. One person said 99% of current consumers would want to receive coverage for damage to their cars because of the higher price of auto parts and repairs.

Or, as another put it: “I’m not sure if you can consider the introduction of the OPCF 49 an auto reform, but this idea is about nine years too late to the table. This would have made sense when a used vehicle was in fact worth $1,000 and the DCPD premium for a young male driver was the same.”

Related: How Ontario drivers have responded to DCPD opt-out option

DCPD opt-out is one part of several reforms implemented in the province over the past few years. Ontario’s government has also sought to reduce insurers’ claims costs by committing $18 million over three years to fight auto fraud, beefing up police resources dedicated to investigating auto theft cases specifically.

Another reform effort in 2016 capped insurance payouts for minor injuries at $3,500. It also offered consumers a basic auto benefits package, with an option to buy up higher accident benefits coverage levels beyond those offered in the basic package. For example, income replacement benefits of up to $400/week in the basic package could be increased to up to $600/week, $800/week or even $1,000/week by paying a higher premium.

CU survey respondents rated these latest auto reforms as generally ineffective, both for reducing insurers’ claims costs and for delivering value to the consumer.

Asked if Ontario’s reforms were effective at reducing insurers’ claims costs, about 69% of Ontario P&C professionals surveyed said they were either ineffective (39%) or very ineffective (30%).

Similarly, 63% of industry professionals found they were either ineffective (31%) or very ineffective (32%) at delivering better value to consumers.

When asked to pinpoint the true root of insurers’ highest claims costs, 49% identified auto physical damage claims costs (e.g., cost of parts, repairs, etc.) as the major culprit, while another 45% said accident benefits costs remained too high. Fraud, including auto theft, and liability costs were tied for third at 23%.

A few industry professionals thought the industry would be better off if the insurers dealt with the car damage, while the government looked after injured drivers’ health care needs.

“They should remove accident benefits and make them part of our health care system,” one P&C insurance professional suggested. “That would save insurers more money and be more effective.”

Feature image courtesy of Istock.com/StudioEasy