Changes to Alberta’s Auto Insurance System

In 2004, the Alberta government introduced a number of changes to the auto insurance system. The goal of the changes was to make auto insurance more affordable, in particular for young drivers with clean records. The real effect of these changes is not yet completely known. Auto insurance premiums are lower than they were before the changes, but a number of factors have helped to bring prices down.

Where do the savings come from?

After years of poor performance during which insurance companies in Canada were struggling to break even, particularly on auto insurance, the industry rebounded in 2003 and 2004 with much better financial results. When businesses are able to make a healthy return by selling auto insurance, this generates competition and lower prices as companies fight for customers. This financial turnaround is at least partly responsible for lower auto insurance premiums in Alberta.

Government changes to the way claims are paid have also contributed by reducing the amount of money paid out.

Getting Better Sooner

Most injuries related to car collisions are relatively minor. If not diagnosed and treated properly, however, minor injuries can linger for a long time, causing accident victims to miss work, and possibly continue treatment that is not working. Both of these situations cost the insurance system money; insurance companies both pay for the extra treatment and reimburse the victim for lost wages.

In the past, minor injuries were diagnosed and treated in a variety of ways, some more effective than others. Now, based on years of medical research, there are new standards for diagnosing and treating minor injuries. These standards make it possible for all Albertans who have suffered minor injuries in a car collision to be cared for using methods that have been proven to work in the past. Following the standard also means that prior approval from the insurance company is not required to begin treatment. Accident victims win because they receive proven treatment earlier and get back to their normal lives sooner. All Albertans win because their premiums no longer have to pay for ineffective treatments and excessive time off for accident victims.

Reducing Amounts Awarded for Minor Claims

A $4,504 cap on court awards for pain and suffering also helps to reduce claims costs without reducing the amount of money available to help victims get back on their feet. This cap applies only to injuries deemed minor by an objective third party and, even then, it doesn’t apply to income replacement or rehabilitation costs. Recently, the Court of Appeal of Alberta issued its decision that confirmed the validity of the cap and dismissed the argument that the cap is discriminatory. Personal injury lawyers have until September 2009 to decide whether to seek leave to appeal to the Supreme Court of Canada.

In the past, minor injuries like strains and sprains could often lead to pain and suffering awards of $20,000, even $50,000. Although this may have been a great comfort to the victims, it was costing everyone in the form of higher premiums.

Who gets the savings, and how much?

From a consumer perspective, the most significant change to auto insurance would appear to be the adoption of a premium grid that sets maximum premiums, based on a person’s driving record, for the mandatory portion of their auto insurance. Insurers are allowed to charge less than the price set by the grid, but not more. A new rule is also now in place that does not allow insurers to refuse anyone basic coverage. Together, these changes help to determine how the savings in the system (described above) are distributed.

An unfortunate effect of the new rules is that by capping the amount insurers can charge and insisting that high-risk drivers are insured together with everyone else, bad drivers are now paying much less than they should. Good drivers, on the other hand, are paying quite a bit more than they should. Fortunately, savings in the system have made it possible for everyone’s premiums to go down at least a bit, but the fact is, good drivers are not getting their fair share. The insurance industry will continue working with the government to adjust the grid so that good drivers are not being unduly penalized.

^Back to top