Alberta auto insurance: Making the case for consumer protection

In December 2019, the Alberta government appointed a panel to study Alberta’s auto insurance system. Various stakeholders, including the Insurance Bureau of Canada submitted proposals, with IBC endorsing a move to “a more no-fault system”.

In late 2020, the Alberta government made several reforms, including an amendment to the Minor Injury Regulation and Bill 41, which limited expert evidence and the amount of time for which prejudgment interest can be claimed. In January 2022, the Direct Compensation Model for Property Damage (DCPD) also came into effect. All were designed to enhance driver affordability.

Instead, the reforms resulted in savings for Alberta auto insurers. The minor injury amendment creates savings of $255 million annually; the changes to prejudgment interest and DCPD creates savings of $40 million annually and $120 per vehicle. The savings for limitation on expert evidence has yet to be determined.

These savings coincided with the pandemic and led to significant profits for insurance companies. Since 2020, the auto insurance industry in Alberta has experienced more than $2.9 billion in profits in excess of the legislated 7% benchmark. Despite this, nine months after the final piece of reform, IBC sought further changes, renaming its proposals “Enhancing Care & Expanding Choice.”   

In Alberta, mandatory auto insurance coverage is provided to occupants of a vehicle and pedestrians if bodily injury or death results from the use or operation of a vehicle. This accident benefit coverage is provided regardless of fault and includes medical payments ($50,000 limit) and total disability for up to 2 years.

In Alberta, consumers also have the right to bring a legal claim for injury if the accident was due to someone else’s fault. This is referred to as a tort claim, and recovery of damages requires proving another person was legally at fault.

The Alberta Government is now considering further changes to auto insurance, including IBC’s Enhancing Care & Expanding Choice proposals, based on New Jersey’s auto insurance system. 

While described by IBC as having stable rates, New Jersey is the 7th most expensive state for auto insurance, according to the Insurance Information Institute. Is this really the best model for Albertans?

Smoke and mirrors       

At their core, IBC’s proposals significantly limit the rights of consumers under accident benefits and in legal actions.    

This is done by distinguishing between “common collision injury” and “select serious injury.” Under IBC’s definition, a “serious injury” would be based on the American Medical Association’s guides and requires 60% whole-person impairment. This level of impairment is rarely seen in injury cases. For example, a person who suffered a T10 complete paraplegia with no function in both legs, neurogenic bowel with occasional incontinence, neurogenic bladder requiring multiple catheterizations per day, and impaired sexual function would not have this degree of whole-person impairment. This person would not fall within IBC’s proposed definition of serious injury aimed, firstly, at limiting medical/rehab benefits.

Under accident benefit coverage, a person with a “common collision injury” will be subject to sub-limits of care of $2500/$5,000 for medical/rehab over 3 to 6 months. No injured person will receive more than $5,000 for treatment unless the injury is more serious than common (as determined by a physician or nurse practitioner) and the insurer agrees with this opinion. These amounts are a small fraction of the current $50,000 limit.

If an injured person requires more treatment than these low amounts allow, such treatment falls on the healthcare system, paid for by all Albertans.

The proposals also limit income replacement/household benefits, making this coverage optional while at the same time excluding those eligible for optional benefits. Households without a vehicle owner and pedestrians (including cyclists) are only eligible for standard benefits.  

Under these proposals, 95% or more of those injured in a collision will be subject to sub-limits for their medical/rehab, their insurer will have the final say regarding what type of injury they suffered with no recourse to challenge this as settlements are prohibited except in limited circumstances.

The proposals also shift the responsibility for payment of non-pecuniary damages from the person at fault (tortfeasor) to consumers. In doing so, IBC inserts fault into the no-fault accident benefit coverage.  

Non-pecuniary damages are compensation for people injured due to the fault of another. In Canada, there is an upper limit on these damages and in Alberta, legislation limits these damages. Under IBC proposals, only people with “serious injuries” can sue for non-pecuniary damages. This would extinguish the right to this compensation for 95% or more of those injured in Alberta, including the person described earlier who suffers a T10 complete paraplegia. 

A consumer may be eligible to purchase the option to receive non-pecuniary damages from their insurer, but certain population segments are not eligible. If the option is available/purchased, payment of non-pecuniary damages would come from the consumer’s insurer after the fault is assessed. There are no mechanisms describing what happens if a consumer disagrees with their insurer’s assessment of their fault.

If payment is made and the person has a “serious injury,” they are entitled to sue for non-pecuniary damages with the payment deducted. The at-fault motorist, therefore, obtains the benefit/savings of the optional coverage paid for by the seriously injured victim for non-pecuniary damages. At-fault motorists also benefit from the elimination of non-pecuniary damages for the vast majority of accident victims.

This briefly describes what these proposals create for consumers and those injured in an accident. While IBC cloaks these changes as savings of insurance premiums, they fail to be transparent in detailing the significant impact it will have for those who are injured and have limited recourse to healthcare providers or to sue those at fault. 

Ultimately, these proposals will result in insurance companies realizing even higher profits at the expense of Albertans, injured or otherwise.