What soaring litigation is doing to Alberta auto premiums

Insurers and regulators are waving the flag that legal costs are the biggest factor driving up auto insurance premiums for Albertans. 

That’s the focus of a newly launched campaign by Insurance Bureau of Canada (IBC), which finds lawsuits and legal fees associated with insurance claims account for 20% of drivers’ premiums for mandatory auto coverage (roughly $200 annually).  

And this accounts for a 31% increase in Alberta since 2018, an MNP report, commissioned by IBC, found. That equals over $1.2 billion worth of premium that drivers paid between 2018 and 2022. 

Alberta’s tort jurisdiction (i.e., court model) lets injured parties sue for pain and suffering from a minor injury, up to its cap of about $6,000. 

“Litigation rates in Alberta are up dramatically in recent years,” says Aaron Sutherland, vice president of IBC’s Western and Pacific regions. 

Payouts for legal settlements following collisions have grown rapidly and are now three times higher in Alberta than anywhere else in Canada, according to IBC’s research. 

“What we’re seeing all too often is an increase in frivolous lawsuits being brought forward by members of the trial bar,” Sutherland recently told Canadian Underwriter. “Now we’re seeing just dramatic increases on the price impact that’s having in the Alberta marketplace.” 

During a ‘Talk with Regulators’ session at the Insurance Brokers Association of Alberta Convention 2024 in Banff, panellists discussed whether courts “need to be reined in” after an attendee posed the question during a Q&A portion. 

“Auto insurance accidents shouldn’t be a lotto ticket for somebody,” said Laurie Balfour, executive director at Alberta’s Automobile Insurance Rate Board, “but you should get the care and the treatment that you need in order to make yourself better.” 

David Sorenson, deputy superintendent of insurance for the Government of Alberta added, “The key to it is reducing the amount of [fight for the dollar] as opposed to the care.

“[The court model] is highly inefficient…because you collect $1 and 20% of that goes to legal wrangling. That’s 20% that’s not available to pay for care.” 

Which is why the provincial government is looking at a care model, said Balfour. “The larger cost is unfortunately…given to the lawyers.” 

Balfour was referring to an Oliver Wyman report, commissioned by the Alberta government, to examine options for an insurance system that could reduce premiums for Alberta drivers.

Though the methodology of the report has been contested by insurers, it found British Columbia’s publicly delivered care model was one of two that could save drivers the most in premium. It also found legal costs are a key inflator of auto insurance premiums in Alberta. 

Alberta’s government is undergoing industry consultation and has said no decisions have been made about how it intends to move forward with reform. 

IBC has proposed its own reform solution that it says could reduce drivers’ premiums by an average of $325. 

 

Feature image by iStock.com/Daniel Tadevosyan