In Calgary, and throughout Alberta, auto insurance has always been archetypal example of risk management. It has also been a bone of contention among consumers, lawyers and insurance companies.
In Alberta, the risk management that is auto insurance, and the sticking point, is headed for a major change. The province is moving to a “Care First” (no-fault) system from the current tort model, starting January 1, 2027.
Although designed to reduce car insurance premium costs, a recent MNP report suggested the new system could actually add to annual premiums for some drivers. The legal community cautions that limiting the right to sue may negatively impact car accident victims.
Of course, the are complex details and differences between at-fault/liability insurance.
“Alberta’s current system is primarily fault-based,” explains Kevin Lea, director, Digital Product Distribution with Calgary’s Axis Insurance. “If another driver causes an accident that injures you, you can sue their insurance company for full compensation, including pain and suffering, lost wages and future costs.
“This process often involves lengthy court cases and legal expenses. Under Care First, your insurer pays enhanced benefits for medical care, income replacement and other supports, no matter who was at fault. In exchange, the right to sue for most injury claims is removed, with disputes handled by a new tribunal instead of courts.”
He adds that injured Calgarians will get access to the money and care they need immediately, not months and years later.
Insurance insiders admit the transition may not be smooth sailing. In fact, a dragged-out stand-off is already brewing.
The province underscores that the no-fault focus will be recovery, not litigation. Although the way injuries are handled will change, coverage for physical damage to the vehicle remains the same as it is now. Insurance companies welcome no-fault, mostly because they contend it will lower premiums for drivers and reduce legal costs for insurers.
The Insurance Bureau of Canada (IBC) enthusiastically points out that the care and benefits for people injured in car collisions will be significantly more efficient, drive down legal costs insurers and lower premiums for drivers.
“The care and benefits that are provided to those injured in collisions are going to increase. They’re going to be the richest in the country,” explains Aaron Sutherland, IBC’s vice-president for Western Canada and Pacific. “That’s a win for drivers and anyone injured in collisions, and we’re keen to work with the government to see this new system come to fruition.”
Lawyers beg to differ, with cautions and warnings that Alberta’s new no-fault system will take away a crucial recourse option for drivers and put too much power in the hands of insurers. According to lawyers who specialize in auto insurance cases, private no-fault insurance is likely the most expensive way of dealing with accident claims and they suggest that Alberta’s no-fault/Care First plan will keep bad drivers on the road at the expense of good drivers.
While the province readies for the new Care First system, lawyers also warn that the no-fault cons will outweigh the pros and contend that consumers will pay the same premiums but get less protection if they are the victim of a negligent driver.
Despite the alleged upsides and downsides, car insurance has been a long-term Alberta issue, and the 2027 change won’t be as sudden as some may think. In the past three years, the province has introduced various reforms to reduce the cost of automobile insurance.
Regardless, premiums have climbed steadily, and Alberta premiums now average approximately $1,835 per driver – the second highest in Canada, after Ontario.
A recent report released by MNP showed that in the current at-fault Alberta system, legal costs for litigated claims vastly exceed (sometimes more than double) the amount provided in a cash payment for pain and suffering for those injured in collisions. The report detailed that approximately 38 per cent of a settlement disappears in legal costs charged by the claimant’s lawyers, while on average, just 15 per cent goes to the claimant for pain and suffering.
The auto insurance sector suggests that Alberta’s at-fault system has created an environment of dramatic increases in injury claims and premium costs, due to high litigation, and cite stats and trends that larger settlements and longer claims durations are often as high as 20 per cent of the policy premium.
The Insurance Brokers Association of Alberta (IBAA) explains that Alberta’s focus will shift from determining fault to ensuring injured people receive timely medical care, rehabilitation and income support. Instead of suing another driver, Albertans will access benefits directly through their own insurer. This approach aims to expedite the process and focus on care and recovery, thereby eliminating unnecessary costs from the system.
Calgary’s Kevin Lea points out, “Insurance companies will gain from much lower litigation costs and simpler claims processing, which will result in the ability to offer lower premiums to policyholders. The main challenge is higher benefit payouts to everyone involved in accidents, including at-fault drivers. For Calgary consumers, the positives include faster medical treatment and income support without waiting for lawsuits.
“There is still rate inadequacy in the system from years of capped rates and ever-increasing care costs, so it will be a balancing act for insurers to try and price Care First fairly and correctly.”
He adds that it is also important for industry and government to be aware that “with increased benefits comes an increased risk of fraud, so diligence will always be required.”
Sutherland doesn’t pull punches. “Let’s face it! Alberta’s current at-fault system makes Alberta’s car insurance dragged out, complicated and expensive. The proliferation of lawyers, litigation and many frivolous lawsuits are key reasons why we have some of the most expensive premiums in the country.”
He points out that there are more 600 Alberta lawyers who specialize in auto accidents and take 30 to 40 per cent of a claim. “No doubt about it. Change of this magnitude is difficult, and there is predictably strong pushback from lawyers. After all, they make their living from lawsuits after collisions.”
The auto insurance sector and the government emphasize the key focus of Care First, no-fault insurance.
“The care and benefits that are provided to those injured in collisions are going to increase. They’re going to be the richest in the country,” Sutherland explains. “It will definitely be a win for drivers, and anyone injured in collisions. Under no-fault, people injured in collisions will receive faster and better care to help them recover, with the most generous auto insurance benefits in the country,” and he notes that drivers may purchase extra coverage for more extensive protection.
The Care First impact on Alberta driver premiums and the impact on businesses with fleet insurance, are important.
“The government projects that Care First will help reduce premiums by cutting the significant costs tied to lawsuits,” adds Calgary’s Kevin Lea. “While early estimates mentioned up to $400 in annual savings per driver, actual reductions will depend on how the system performs.
“Also, the coverage and costs for businesses with fleets will benefit from fewer injury-related lawsuits, reducing legal defense costs and liability risk. At-fault incidents will still impact future premiums, so companies should continue focusing on driver safety and risk management,” he says.
Auto insurance will continue to be risk management.
With much experience, Lea points out, “Premiums will continue to be driven by risk factors, including driving record and experience, catastrophe exposure (like weather) and vehicle value.”