Statutory Accident Benefits

Study guide: Exam 6C

Statutory Accident Benefits (SABs, or "accident benefits" / Section B coverage) are the first-party, no-fault benefits every Canadian auto policy must provide to an injured insured regardless of fault: medical and rehabilitation expense, attendant care, income replacement, and death and funeral benefits. The amounts and eligibility rules are set by regulation, not by the insurer, and change with each reform.

• The standard benefit heads:
  • Medical and rehabilitation — treatment, assistive devices, and rehabilitation, subject to a limit that varies by injury category (minor injury, non-catastrophic, catastrophic).
  • Attendant care — for those who cannot care for themselves; the largest driver of cost in severe claims.
  • Income replacement — a percentage of pre-accident gross income up to a weekly cap, after an elimination period.
  • Non-earner, caregiver, housekeeping benefits, and death and funeral benefits.
• Injury tiers drive the cost. A tiered limit structure means the reserving question on a serious file is often not "how much treatment?" but "which tier?" — which is why the Catastrophic Impairment definition is litigated so heavily and why a definitional change is a large reserve event.
• SABs are long-tailed: attendant care and medical benefits on a catastrophic claim can run for the claimant's lifetime, so the liability behaves like a structured annuity and is sensitive to discount rate, mortality and care-cost inflation. See IFRS 17 Discount Rates.
• Optional increased limits are available in most provinces; take-up is low, which is itself a consumer-information issue regulators track.
• SABs interact with tort: benefits received are generally deducted from a tort award for the same head of damage (Collateral Benefits), so the two systems are coordinated rather than cumulative.
• Disputes are resolved through a provincially prescribed process — in Ontario, the Licence Appeal Tribunal rather than the courts — and the cost and speed of that process is itself a reform target.

Reserving a Tiered Accident Benefit Claim A claimant has been designated non-catastrophic, with a medical/rehabilitation limit of \$65{,}000 and an attendant care limit of \$36{,}000. Paid to date: \$41{,}000 medical, \$22{,}000 attendant care. Counsel has applied for a catastrophic designation, which would raise the combined limit to \$1{,}000{,}000. The actuary assesses a 30\% probability the application succeeds.

How should the case be reserved?

Answer The reserve is a probability-weighted estimate over two very different outcomes, not a point estimate of "current treatment plan."

If the designation fails, the exposure is bounded by the remaining limits:

\begin{align*}
\text{Remaining} &= (\$65{,}000 - \$41{,}000) + (\$36{,}000 - \$22{,}000) \\
&= \$24{,}000 + \$14{,}000 \\
&= \$38{,}000
\end{align*}

If it succeeds, the limit ceases to bind and the claim becomes a lifetime care exposure — plausibly several hundred thousand dollars on a present-value basis. Take \$600{,}000 as the assessed amount.

\begin{align*}
\text{Reserve} &= 0.70(\$38{,}000) + 0.30(\$600{,}000) \\
&= \$26{,}600 + \$180{,}000 \\
&= \$206{,}600
\end{align*}

Two observations that matter more than the arithmetic:

• The reserve is five times the bounded outcome, driven entirely by the tail. Reserving such a file at its current limit is the single most common source of adverse development in accident benefits.
• This distribution is severely skewed, so the risk adjustment on a book of such claims should be larger than a symmetric-error assumption would suggest.