Open and Shut: The case against no-fault auto insurance

The Alberta government is on the cusp of changing automobile insurance in the province. If the government is following its stated core principles (affordability, stability, simplicity, care-focused, and accountability), a no-fault insurance system is not the one to implement.

Earlier this year, I wrote about the need for consumer protections, particularly when insurance models move towards a more no-fault system.

First, a brief refresher on the current system. In Alberta, mandatory auto insurance coverage is provided to vehicle occupants and pedestrians if bodily injury or death results from the use or operation of a vehicle. This accident benefit coverage is available regardless of fault and includes medical payments ($50,000 limit) and total disability for up to two years.

Consumers also have the right to bring a legal claim for injury if the accident was someone else’s fault. This is called a tort claim and recovery of damages requires proving another person was legally at fault.

The Alberta government released two reports this year. The first, the Oliver Wyman report, was a feasibility study of long-term reforms. It looked at no-fault insurance systems in Canada and Australia and the proposal of the Insurance Bureau of Canada (IBC) called “Enhancing Care and Expanding Choice.” The Wyman report is limited to an analysis of the cost of average premiums. It does not address benefits, i.e., what consumers receive in exchange for premiums paid.

The second report, prepared by the Nous Group, is an economic impact assessment of seven alternative automobile insurance models, including public/private delivery of a “care model” of insurance and the IBC model. The report does not provide any recommendations regarding the benefits or viability of these models.

Its description of a “care model” is intentional but misleading to consumers. A care model is a no-fault insurance system. For Albertans, a no-fault insurance system would eliminate rights and the ability to challenge insurers’ decisions through an impartial court process. If you are injured or a family member suffers fatal injuries, you cannot bring a legal claim against the person responsible for the accident.

Despite these reports' limitations, the Alberta government has ample evidence to demonstrate the negative implications of no-fault insurance systems.

Lessons learned: British Columbia, Ontario, and New Jersey

British Columbia implemented a no-fault insurance system in 2021. Under the Insurance (Vehicle) Act, no person has the right to bring an action for bodily injury caused by a vehicle arising from an accident. Instead, under the Enhanced Accident Benefits Regulation, benefits are paid in a system similar to workers' compensation.

There has been considerable news coverage in British Columbia of individuals injured in vehicle accidents who feel left behind when they discover there is no accountability, limits of coverage are revealed, and they are left paying out of pocket for treatment due to set fee schedules. Treatment providers are subject to fee schedules, which leave the injured responsible for making up the shortfall. There is no ability to recoup these costs against the person who caused the accident. This impairs the ability of medical professionals to properly treat injured individuals, who may not be able to afford the care needed to recover from their injuries.

The family of Annie Kong, who died in August 2022 when she was hit by a vehicle, said that B.C.’s no-fault legislation “means that there is no accountability.” The driver crashed into a wedding, killing two people and injuring others. Kong's family feel a modest fine and inability to bring a legal claim against the person responsible are unjust.

This coverage shows consumers are increasingly frustrated and dissatisfied with a system that limits personal responsibility, places limits on treatment and eliminates rights.

The no-fault insurance system in British Columbia also faces a constitutional challenge brought by Tim Schober, a cyclist who suffered a spinal cord injury when he was hit by a vehicle while cycling in Victoria in 2021. The challenge asserts the system violates Charter rights. Schober’s care has been reduced because the no-fault model does not provide an adequate amount of money for his caregiver.

In 2015, Professors Mary Kelly, Kleffner and Tennyson studied Ontario’s auto insurance reforms. No-fault insurance was considered, particularly its impact on affordability. The authors concluded:

“When it was first enacted — in Ontario and elsewhere — no-fault automobile insurance was widely viewed as a way to combat the high costs of automobile injury claims. However, private market no-fault systems today are consistently among the highest-cost auto insurance jurisdictions. Reducing use of the liability system to compensate injury claims has not lowered insurance costs in the way that was envisioned by its designers.”

New Jersey’s system has also been discussed as Alberta considers changes. It's one of twelve states with no-fault insurance. In April 2024, it was reported that auto insurers in New Jersey were seeking significant premium increases, with 20 companies granted double-digit bumps.

In addition to changing the existing system, the Alberta government is considering implementing a private no-fault system and an optional no-fault system. The latter has not been defined in any meaningful way, so references to choice-based, mixed systems, or optional systems should be viewed with caution.

The study from Ontario and the New Jersey experience shows no-fault systems do not lead to more affordable or stable systems. The core principles of affordability and stability have not been achieved.The reports did not address benefits for various injury types for Alberta consumers. How can the government assure Albertans that a new system will be focused on care when benefits, benefit levels, duration, and limits are not known or disclosed?

If the Alberta government genuinely wants to be consistent with its core principles, collaborating with stakeholders on changes to the existing system is the only viable option. Any other option will be detrimental to Albertans.