New government commits to auto insurance reform

Alberta’s new UCP government has tasked its minister of finance, Nate Horner, to come up with options for auto insurance reform.

Alberta Premier Danielle Smith sent a mandate letter to Horner dated July 13 instructing Horner to lead a review with “the minister of affordability and utilities and [industry] stakeholders to…develop short and long-term recommendations to make automobile and property insurance more affordable for Albertans.”

Horner has told CBC News in an interview that introducing a new no-fault system in the province would be the last item on his priority list for auto insurance reform. Such a system, a variant of which B.C. introduced in May 2021, expands accident benefits while at the same time limiting a driver’s right to sue for compensation for injuries sustained in auto accidents.

“You’re basically giving up your ability to sue,” Horner told CBC in an interview Thursday. “If you’re hurt in a way that will impact your life, for the rest of your life, is it worth it for you to have a little cheaper insurance now and not have that right on the other end, if you’re hurt in a major way?”

Before Alberta’s provincial election in May 2023, the governing UCP party implemented a temporary cap on auto insurance rate hikes for the duration of 2023. The cap is due to be lifted on Dec. 31, 2023.

This move caused some private auto insurers to note publicly the negative long-term effect of such a cap. For example, an Alberta auto insurer may consider deploying capital elsewhere – effectively meaning they would take their auto insurance business out of the province.

In a position paper released in late March 2023, Insurance Bureau of Canada — which opposes the rate cap —noted that, without reform, the average annual Alberta auto insurance premium would likely reach $1,707 in 2023.

IBC’s paper lists three proposals that the association says could knock that total down to $1,529.

Chief among them is to allow drivers an option to pay lower premiums if they agree to waive the ability to sue for financial compensation for minor injuries.

The province’s legislation defines minor injuries as damage due to tissue, ligaments, muscles or tendons that do not cause long-term problems with work, leisure or other regular activities. Currently, under legislation, Albertans who sue for minor injuries sustained in a vehicle collision are limited to $5,488 in financial compensation.

Related: How theft and Alberta’s rate pause affected Definity’s auto portfolio

Under IBC’s proposal, minor injuries suffered in a collision would be eligible for twice the amount of pre-approved treatment drivers receive today. Drivers’ premiums would drop if they chose to waive their right to sue for minor injuries instead.

“If an injury is serious, everyone would continue to have legal recourse after an accident, just like today,” IBC notes in its proposal.

A second pillar in the IBC’s report is to make it easier for insurers not to accept drivers who have been found to have engaged in auto insurance fraud.

“Except in specific, limited instances, insurers are legally required to offer insurance to any driver with a valid license — even when there is clear evidence of fraud,” the IBC report observes. “That doesn’t make sense.”

The third pillar of IBC’s proposal is to modernize Alberta’s auto insurance regulatory regime.

This would include reforming the provincial grid framework, which was created to ensure new drivers had access to affordable premiums.

One unintended effect of the grid is that it ends up capping rates for “many experienced drivers with a history of accidents and infractions,” IBC says. “As a result, the grid forces good drivers to pay more to subsidize premiums for bad drivers.

“In 2021 alone, it is estimated that the grid cost drivers $65 on average [to] subsidize bad drivers and those at higher risk….Instead, Alberta should remove the grid and introduce mandatory discounts for new drivers (similar to what is done in other jurisdictions)….”

IBC also wants Alberta to expand its file-and-use system. Under this process, auto insurers file for rate changes and receive an answer from the regulator within 30 business days of the filing. Speeding up the process allows auto insurers to offer more affordable premiums to drivers because they can adjust rates quickly based on claims trends.

“Alberta has begun the transition towards file-and-use, but progress has been slow,” IBC notes. “Instead, Alberta should fully adopt a file-and-use rating system like other jurisdictions that have seen an improvement in driver premiums.”

Finally, IBC suggests the Alberta government reform the civil justice system to make the process faster. For example, by changing the required timing for disclosures by claimants.

Feature image courtesy of iStock.com/AndreyPopov