November 19, 2003

Alberta consumers to benefit from sweeping auto insurance reforms introduced by Alberta government

Fair premiums for good drivers, fair compensation for injured persons highlight reform legislation that will save Alberta drivers $250 million in premiums

Edmonton… Young drivers with good driving records, senior citizens, and other Albertans paying unfair insurance rates will benefit from a comprehensive package of auto insurance reforms to be introduced in the Alberta Legislature by the Government of Alberta.

The reform package, announced by Finance Minister Patricia Nelson and Rob Renner, MLA for Medicine Hat and co-chair of the government’s Automobile Insurance Reform Implementation Team, is expected to save $250 million within the auto insurance system. Those savings will be passed on to Albertans through lower premiums.

“Once these reforms are in place, Albertans can be confident that they are paying fair auto insurance rates, and that what they’re paying is in line with rates in other provinces,” Nelson said. “Our sole goal in this work has been to focus on the consumer, and the reform package reflects that commitment.”

“Our government will soon introduce a bill that will make these reforms the law of the land. Assuming that bill passes in the Legislature, regulations will be developed to fill in the details of the legislated framework. We hope to have the final program in place by spring of next year,” said Nelson.

“This is a great day for people who drive in this province and who have been hit by unjustifiable insurance increases,” said Renner. “Under our plan, premium rates will go down for those people, while the costs of insurance for those primarily responsible for soaring costs – bad drivers – will go up.”

A compensation limit of $4,000 will be introduced, but only on minor sprains and strains, as defined by medical experts and only for pain and suffering. “In order to achieve the planned savings for consumers without shifting the burden of cost to other good drivers, there must be savings on the expenses side,” Renner said. “No one disputes that people need to be fairly compensated when injured. Our package increases benefits for medical and rehabilitation services from $10,000 to $50,000, and accident victims, regardless of the severity of their injury, can be compensated for economic losses such as lost wages or home care costs.”

Highlights of Reform Package

The legislation would provide a framework to address both premiums and benefits. The new system would establish a benchmark system that:

• requires insurers to provide coverage to all comers;
• varies premiums only for geographic location (variations between Edmonton and Calgary drivers would be eliminated over three years at which time the two cities will merge into one territory), vehicle use and personal driving history; and
• has government set maximum allowable premiums for mandatory coverage until a new independent body is established.

The maximum entry level premium would apply to mandatory third party liability coverage only. “Insurance companies will be subject to a “file and use” system on collision and comprehensive coverage,” said Rob Renner. “The government will monitor those submissions and take appropriate action if an insurer unnecessarily inflates the cost of their optional coverage.”

On the benefits side, the proposed legislation would:

• increase accident benefits for medical and rehabilitation costs from $10,000 to $50,000;
• eliminate double recovery of compensation;
• base lost income on net wages; and
• limit compensation for pain and suffering only, for minor injuries.

The reform process will continue once legislation is approved. Dr. Larry Ohlhauser, past Registrar of the Alberta College of Physicians and Surgeons will continue to lead a consultation with organizations representing injured people, insurers, the legal community and health care providers on refining a definition of minor injuries and establishing treatment protocols to ensure accident victims receive prompt treatment for their injuries. Once the definition for minor injuries is approved, another actuarial analysis will be conducted to finalize the new rate structure.

Additional information on the proposed legislation is available at www.autoinsurance.gov.ab.ca.

Backgrounder:
Grid standardizes discounts and surcharges based on driver experience
November 19, 2003

Under proposed changes to Alberta’s auto insurance system, the government would establish maximum benchmark entry level premiums that would be determined based on vehicle use and the level of third-party liability selected by the vehicle owner. Good drivers who do not cause collisions would see lower premiums through discounts; drivers who cause collisions, receive tickets under the Traffic Safety Act or who commit traffic-related Criminal Code offences would pay surcharges. This grid shows the percentage discounts for safe driving and percentage increases for at-fault claims. For each year without an at-fault claim, drivers would move one level down the grid. After six claims-free years, premiums reach the maximum discount of 65 per cent. Each at-fault claim moves the premium four levels up the grid. After 10 years without an at-fault claim, vehicle owners that do submit a claim are cushioned. Vehicle owners would move up four levels, and retain their 65 per cent discount. However, the next at-fault claim would move the driver further up the grid, increasing the premium. Surcharges would also be applied for demerit points and traffic-related criminal code convictions. For example: New drivers with no experience start at the Benchmark Entry Level. If a driver in that first year were to have three collisions, the driver would move 12 steps up the grid, paying a 130% surcharge on the benchmark premium. Each year without an at-fault claim, the driver would move one level down the grid, paying a lower surcharge each year. After six further years without an at-fault claim, the driver would automatically revert to the 0 percent benchmark, after which the driver could begin to earn discounts.

Backgrounder
Proposed Auto Insurance Reform Framework
November 19, 2003

The government will move towards a reasonable entry-level premium that would provide incentives for safe drivers while motorists with traffic violations and at-fault accidents would pay more.

Premiums

• There would be a benchmark entry level premium, determined by vehicle use, third party liability coverage level and geographic territory. Age, sex and marital status will no longer be factors in setting premiums.
• The current Edmonton and Calgary territories would be combined into a single large-cities territory over a three-year phase in period.
• The benchmark premium would be comparable to premiums for similar coverage in other western provinces.
• A premium grid would provide percentage discounts to claims-free motorists, and add predetermined percentage surcharges to motorists with chargeable claims.
• A chargeable claim is an at-fault collision or third party liability claim.
• Each claim free year lowers the premium by moving the insured down the grid, to a maximum 65 per cent discount after six years.
• Drivers with traffic violations would be assessed additional surcharges after the first two demerit points they receive.
• Drivers with traffic-related criminal code convictions would be assessed a further surcharge.
• The maximum benchmark premium would initially be set by government.
• Insurance companies would file their rates for optional coverage with the government, allowing the rates to be monitored.

Coverage

Vehicle owners must continue to carry minimum $200,000 third-party liability coverage.

• Drivers can select third-party liability coverage of $200,000, $500,000, $1,000,000, or $2,000,000. Maximum premiums to be set by government.
• This coverage protects the vehicle owner and driver for property damage and bodily injuries for which they are legally responsible.

Vehicle owners will continue to carry Section B (Accident Benefits) insurance, which provides coverage regardless of fault to occupants of a vehicle who are injured in a collision; maximum premiums to be set by government. Section B Benefits will no longer be a separate charge on your insurance policy. Under the new system, Section B Benefits will be included in the benchmark premium.

• Section B benefits would remain unchanged except the amount of benefits available for medical and rehabilitation services to injured parties would be increased from $10,000 to $50,000.

Accident Benefits coverage also includes:

• income replacement; and
• death benefits.

Victims of collisions caused by another driver will continue to be able to seek further compensation from the wrongdoer.

Optional coverage remains available for motorists who wish to supplement their basic insurance with collision, comprehensive, or other coverage.

Treatment and Injury Management

• Best practice guidelines would ensure injured victims receive the proper and prompt diagnosis and treatment for their injuries without having to wait for a court settlement.
• Pre-approved treatment protocols would be developed to help health care practitioners provide appropriate and consistent treatment.
• Individuals who are treated according to these protocols would not require prior approval from the insurance company.

Compensation

• Injured victims would continue to be able to recover economic costs – such as income replacement, business and farm income replacement, medical costs, home care costs, personal care costs, and all other actual out-of-pocket costs – from wrongdoers, and would continue to have full access to the court system.
• Injured victims with serious injuries would have full access to general damages (such as pain and suffering compensation).
• Persons with minor injuries would have access to general damages for pain and suffering up to $4,000. However they would still be able to recover damages for lost income, future income, medical and rehabilitation and any other out-of-pocket expenses.
• The tort system would still be available to victims of minor injuries.
• The definition of what constitutes a minor injury would be developed in consultations with organizations representing injured people, consumers, health care providers (physicians, specialists, chiropractors, occupational therapists, physical therapists, massage therapists), insurers and lawyers.

Consumer Protection

• In the case of disputes over whether an injury should be considered serious, an independent medical assessment would provide non-binding decisions.
• Binding decisions can be pursued through the courts.
• Consumers with other concerns about their insurance companies’ practices can contact the Alberta Insurance Council.

Other Initiatives

• We will be working with Alberta Government Services to establish a linkage between auto insurance, vehicle registration and license plates. This will help to ensure that drivers cannot cancel their insurance after they have obtained their license plates.
• We will be working with Alberta Government Services and Alberta Transportation to develop a linkage between auto insurance and drivers licenses. This will help to ensure that insurers and law enforcement officials have access to up-to-date, real time information on whether an individual operating a vehicle has a valid drivers license and automobile insurance.
• Alberta Justice has also been asked to consult with the Law Society of Alberta regarding possible restrictions on advertising by injury lawyers, regulating contingency fees and permitting individuals with minor sprains or strains who have settled a tort to reopen that action in the event that their injury is re-diagnosed as more serious. Alberta Justice will also look at other initiatives such as waiving Schedule C court costs, streamlining estate claims and mandatory mediation.
• Alberta Finance will work with Alberta Transportation to enhance traffic safety initiatives.
• The following recommendations made by the Alberta Civil Trial Lawyers Association will be implemented as part of the changes:
  • Claims protocol – ensuring the timely exchange of information between plaintiff’s counsel and insurers;
  • Advance payment to victim – injured parties will be able to obtain advance payment on their future settlement;
  • Structured settlements – allow applications to the court allowing structured settlements to be imposed on a portion of claim proceeds;
  • Require disclosure of policy coverage limits;

Consultation and Public Communication

• There will be further consultation with stakeholders as the regulations are developed that will support the new system.

- 30 -

For media inquiries, please contact:

Jerry Bellikka Director of Communications Alberta Finance (780) 427-5364
Dial 310-0000 for toll free access outside of Edmonton.