Jun 12, 2015
What effect does the change in interest rates have on overdue statutory Accident Benefits?
Historically, insurance companies have had to pay 1-2% compounded interest per month for any and all benefits that were overdue.
From June 1, 1990 to August 31, 2010, the insurance company was obligated to pay 2% on all overdue benefits if it was determined by an arbitrator or a Court that the insurance company had an obligation to pay these amounts.
On September 1, 2010, the Ontario legislature reduced that interest rate to 1% compounded monthly.
As of January 1, 2015, the Ontario government has yet again reduced the insurance rate to 1.3% annually.
One need ask themselves, is that such a big deal?
An analysis of what the insurance company would have to pay if they wrongfully withheld benefits is as follows. If you were owed $5,000.00 in income replacement benefits and the insurance company withheld it for 5 years at 2% per month, the insurance company would have to pay interest of $11,544.62. This, to the naked eye, would like an outrageous interest amount for an insurance company to have to pay. However, one should remember that the injured person, who was working his/her entire life and has been paid nothing for 5 years, possibly losing their house, their lifelong possessions, and potentially their family in the meantime. Is that really a high price for the insurance company to pay?
For the same $5,000.00 owing from the insurance company after September 1, 2010, an insurance company would only have to pay $4,376.38 in interest.
Now, for the changes in 2015 and how if effects the injured victim.
Using the same $5,000.00 figure, with the interest rate is reduced to 1.3% annually; the insurance company would only have to pay $325.00 in interest for benefits owed over that 5 year period.
As you can see, the interest rate the insurance company is required to pay for overdue benefits has dramatically decreased from the inception of the legislation. It is our opinion that there is now little to no incentive for an insurance company to pay legitimate claims for past benefits in a timely fashion. An accident can dramatically change your life in a catastrophically negative manner and the insurance company would only have to pay $325.00 for your loss wages.
Ultimately, an injured motor vehicle accident victim has 3 options available to them while these benefits are not being paid.
The first is borrowing the money from a family member or friend.
The second is to have personal savings to allow you to survive without borrowing money.
The third is borrowing money from lending institutions at exorbitant interest rates. Most main stream banks will not lend persons money if they are receiving no benefits, disabled or unemployed. Therefore, an injured person would have to go to a higher risk form of lending institutions. These institutions charge in excess of 27% per year compounded for you to borrow money from them. Even if you win in Court or arbitration for these back benefits and you borrowed that money at the time of termination from your insurance company, you would not have enough money to repay back these lending institutions when you receive your settlement. In fact, from your settlement for these specific benefits, you would receive less than what you owe.
Is it worth it? The insurance companies are banking that you will do the cost analysis and recognize that it is not worth the fight. This means that the insurance companies would win and you are left without the necessary benefits that you paid for under your insurance policy. Is that fair? My opinion is no.