May 27, 2004

New auto insurance system unveiled

Government's new reforms move forward - ready for implementation

Highlights of Insurance Reform Package:

• Lower rates for good drivers whose circumstances remain unchanged
• Reasonable premiums for new drivers, young drivers and seniors
• Savings of five to 75 per cent to consumers on mandatory liability coverage resulting in overall savings of 20 per cent throughout the system
• A new, world-class diagnostic and treatment process to get injured victims healthy faster
• Increase accident benefits for medical and rehabilitation costs from $10,000 to $50,000
• Continued access to the courts for compensation for injuries
• Dispute resolution mechanism for people who disagree with the calculation of their premium

Edmonton... The government’s new automobile insurance system delivers fair premiums for drivers, effective treatment and fair compensation for injured victims, and encourages drivers to be responsible for their own driving habits. The government’s Standing Policy Committee on Economic Development and Finance has recommended a series of reforms that will be implemented this September. In addition, SPC recommended that a special MLA committee be struck to ensure a smooth transition. This panel will also be responsible for reporting back to the Minister of Finance in September 2006 on the reforms and whether any changes are required.

“These sweeping reforms are truly a ‘made-in-Alberta’ solution,” said Finance Minister Patricia Nelson. “Albertans told us changes had to be made to the insurance system. We have developed a system that provides drivers with access to fair, affordable insurance that includes the private sector to ensure Albertans benefit from a competitive market.”

Premiums
Part of the package will see good drivers across the province get a minimum five per cent reduction in their automobile insurance rates. Inexperienced drivers and those with recent at-fault claims will pay rates capped by a new grid, which will come into effect this September. The grid rates for inexperienced motorists are significantly lower than current market rates for inexperienced drivers, more than 75 per cent lower in some cases.

The government mandated minimum five per cent reduction will apply to the approximately 80 per cent of drivers who pay premiums lower than those on the grid. “All of the reforms will save Alberta drivers approximately $200 million annually, and $300 million by September 2005,” said Nelson. “I want consumers to see real benefits in their pocketbooks from these reforms.”

The current freeze will continue through the summer of 2005, and those with good driving records will benefit by a further five per cent premium reduction in September 2004. Policyholders who pay monthly will see their premiums reduced from the September date forward, and policyholders who paid up front will receive refunds. By mid-2005, drivers whose circumstances haven’t changed will have seen no increase in their premiums from October 2003, and all will see reductions of at least five per cent.

Changes have also been made to a more fair, consistent and transparent method of setting premiums for occasional drivers. Occasional drivers will see lower premiums as they will only pay a maximum of 25 per cent of the grid rate.

The Fair Practices Regulation will continue to prohibit discrimination on the basis of age, gender or marital status and Bill 53 established an ‘all comers rule’. This rule ensures that an insurance company must provide insurance to anyone who applies – or it must find another company that will write the policy.

To avoid customer confusion and to promote transparency, the industry will use standardized invoicing so drivers can clearly see what they’re paying for and make more accurate comparisons when shopping for a new policy. Insurance companies will also use plain language to explain the rating criteria used to set rates for specific customers.

Another recommendation being made by SPC would allow SGI in Saskatchewan and ICBC in British Columbia to sell auto insurance in Alberta.

Diagnostic and Treatment Process
A world-class treatment process has also been developed that is designed to get injured victims the right treatments quickly. “Medical evidence shows the prompt diagnosis and treatment of minor injuries is crucial to a full recovery,” said Dr. Larry Ohlhauser. “When practitioners apply treatment protocols such as these correctly, about 90 per cent of injured people recover within 12 weeks. The other 10 per cent may require further treatment, which will be available, or their injuries may not be minor – in which case the cap would not affect them.” New reforms also increase benefits for medical and rehabilitation compensation from $10,000 to $50,000. Accident victims will also be compensated for such economic losses as lost wages.

Minor Injuries
All people injured in vehicle accidents will continue to have full access to the courts. The automobile insurance reforms puts a limit of $4,000 that applies only to a pain and suffering award for a designated minor injury – that is pain and suffering due to a strain, sprain or minor whiplash.

“The limit does not prevent someone from going to court if they dispute the seriousness of their injury,” said Rob Renner, Medicine Hat MLA and co-chair of the Automobile Insurance Reform Implementation Team. “The definition is the result of consultations with the medical community, the insurance industry, injury lawyers and injury advocacy groups to develop this definition. Alberta is the only province to cap such a small part of minor injuries. Almost all other provinces have lower dollar limits on their caps and tighter restrictions on the injuries capped.”

Auto Insurance Rate Board
After the transitional first year under the new system, a newly established Automobile Insurance Rate Board (AIRB) will regulate rates. The board will also monitor collision and comprehensive rates. “The AIRB will have a stronger mandate and greater authority than in the past and will include representatives from the legal community, insurance industry, government, and consumer advocacy groups,” stated Nelson. “The board will not simply approve or deny rate hikes. It will regulate and control premium increases or decreases that insurance companies must follow.”

Dispute Resolution
Once the new insurance system is in place, it will also feature a process to effectively and efficiently handle customer complaints and concerns. A three level process will be created as follows:

1. Customers will first take their concerns to their insurance companies.
2. If the situation cannot be resolved at the initial level, an ombudsman will hear both sides and offer recommendations.
3. If the parties remain at an impasse, a final review is completed and a decision is brought forward by an independent committee or individual designated by the Minister.

Cabinet will review the SPC recommendations on June 21.

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For media inquiries, please contact:

Jerry Bellikka Director of Communications Alberta Finance (780) 427-5364 (780) 718-5699 (cell)
Dial 310-0000 for toll free access outside of Edmonton.