Minor Injury Guideline

Study guide: Exam 6C

The Minor Injury Guideline (MIG) is the regulatory cap and treatment protocol applied to soft-tissue automobile injuries — sprains, strains, whiplash, contusions — limiting the accident benefits payable and prescribing a standard course of treatment. It is the highest-volume, lowest-severity tier of the injury structure, and the most heavily litigated boundary in Canadian auto insurance.

• Why it exists. Minor injuries are numerous, hard to verify objectively, and were historically an open-ended treatment exposure. Capping them converts a diffuse severity problem into a fixed cost per claim and removes the incentive to extend treatment.
• The design. A defined list of injuries, a monetary cap (Ontario's has been \$3{,}500 for medical and rehabilitation), a pre-approved treatment framework so care starts without insurer approval, and an escape route for claimants with a pre-existing condition that would prevent recovery within the cap.
• The escape route is where the cost goes. Since falling outside the MIG multiplies the available limit, claimants and providers have a strong incentive to establish that the injury is not minor — through a pre-existing condition, a chronic pain diagnosis, or a psychological component. The observed result across reforms is that the proportion of claims held within the MIG erodes over time.
• Actuarial consequence. The MIG changes the claim severity distribution from continuous to nearly bimodal: a large mass at the cap and a separate, much heavier tail of claims that escaped it. Average severity is then a poor summary, and the reserving question becomes "what share escapes the cap, and is that share drifting?"
• The MIG is a guideline issued under regulation, so it can be revised administratively. That flexibility cuts both ways: it can be tightened after cost creep, and it can be widened under political pressure.

Cost Creep Out of the Cap An insurer's accident benefit claims by tier, as a percentage of claim count:

• Year 1: MIG 72\%, non-catastrophic 27\%, catastrophic 1\%
• Year 4: MIG 58\%, non-catastrophic 41\%, catastrophic 1\%

Average severity is \$3{,}400 within the MIG and \$48{,}000 outside it (non-catastrophic). Frequency is unchanged. What has happened to loss cost per claim?

Answer Excluding the catastrophic tier, compute the average over the MIG and non-catastrophic claims.

\begin{align*}
\text{Year 1} &= \frac{0.72(\$3{,}400) + 0.27(\$48{,}000)}{0.99} \\
&= \frac{\$2{,}448 + \$12{,}960}{0.99} \\
&= \$15{,}564
\end{align*}

\begin{align*}
\text{Year 4} &= \frac{0.58(\$3{,}400) + 0.41(\$48{,}000)}{0.99} \\
&= \frac{\$1{,}972 + \$19{,}680}{0.99} \\
&= \$21{,}871
\end{align*}

An increase of 41\% over three years — roughly 12\% per year — with no change in frequency and no change in either tier's severity. The entire trend is migration across the boundary.

This is the single most important diagnostic in Canadian accident benefits, and it has two consequences. First, a severity trend fitted to the combined data will attribute the increase to inflation and project it forward indefinitely, which is wrong: migration is bounded (it cannot exceed 100\% escaping) while inflation is not. Second, the correct pricing response is to model the tier mix as its own variable, because that is where the cost actually lives — and it is a variable a reform can move overnight in either direction.