Will Alberta move to a pure no-fault auto insurance system?

An Alberta auto insurance advisory committee has recommended the province move to a pure no-fault system delivered by private insurers, a change that the Insurance Bureau of Canada (IBC) does not feel would be in the best interest of drivers.

One of the recommendations of the advisory committee’s report was the move to a pure no-fault system, “but the changes the government made were actually just updates to the current system, which is more just a hybrid between tort and a no-fault system,” IBC told Canadian Underwriter last week.

The report recommendations were announced when the government introduced Bill 41, the Insurance (Enhancing Driver Affordability and Care) Amendment Act, Oct. 29. The bill passed second reading Nov. 18.

The government introduced a “direct compensation for property damage” framework into the system, which is in every other private auto sector jurisdiction across the country, Celyeste Power, vice president of IBC’s Western region, said in an interview last week. This is a first-payer system (not a no-fault system) for physical vehicle damage.

“Customers won’t notice any negative changes other than if they are in an accident, instead of having to sue or go through the other driver’s insurer to pay for the damage to their car, they can now get that through their insurer,” Power explained. “It really just moves the claims process for the customer.”

Other proposed changes under the bill and through new Orders in Council, among others, expand the number of injuries under the minor injury regulation and limit the number of expert witnesses that could be used in motor vehicle accident injury claims.

Canadian Underwriter asked how the bill and related orders compare to the 5% rate cap in place in Alberta before (the previous NDP government ordered an annual rate cap of 5% for auto insurers in 2017, which remained in effect until the summer of 2019. The United Conservative Party came to power that year, and did not renew the cap in August 2019).

“The rate cap was like putting a very small Band-Aid on a big, gaping wound,” Power said. “It did a little to stop the bleeding, but it did nothing to make the problem better. It didn’t address any of the root causes in the system that were leading to increased claims costs.

“The 5% rate cap had a pretty devastating impact on a number of fronts, so we’re happy that not be renewed,” Power added. “It was hard on customers; it was making it more difficult to insurers. What it does really is push the problem down the road for people to pay for later, and that’s exactly what we saw.”

From a customer perspective, the cap led to fewer options and choices in the marketplace, Power said. “For example, I have a leased vehicle and I was trying to find comprehensive insurance. But given that’s not mandatory, I wasn’t able to find it in the marketplace.”

Related: Will changes to Alberta auto reduce insurers’ claims costs?

Overall, it’s clear the government wanted to make sure that affordability in auto insurance was a priority, “so we’re pleased they took a step with this bill,” Power said. “We’d like to see them go a little bit further around adding some more choice into the system for customers, but we think it is certainly a step in the right direction.”

The government is currently reviewing the advisory committee report and consulting on long-term changes.

“We continue to look for ways to improve the auto insurance system for Alberta’s three million drivers, and look forward to working with government and other stakeholders on future changes that could continue to drive affordability and increase choice,” Power said.

She noted that auto insurance is always political. “One way to remove that political heat from auto insurance is to give customers more choice; be able to choose if they want the ability to sue for pain and suffering,” Power said. “Or if they want to buy up in benefits so they get more, or maybe they already get benefits like lost wages through their workplace and maybe they don’t want to buy that piece.

“Right now, the mandated product doesn’t give customers a lot of choice,” she said. “I think it would remove a bit of the politicization around auto insurance, but also mostly would have been great for customers. Customers are going through a lot. There’s really tricky, difficult economic times ahead, so to be able to pick and choose what works for you and your budget and needs, I think would have been great to see in this bill.”

 

Feature image by iStock.com/Lisa Marie