Two recent reports commissioned by the Alberta government have underscored a concerning reality: escalating legal expenses are fueling the surge in auto insurance premiums. Immediate action is imperative.
These findings echo a mounting body of evidence demonstrating the outsized influence of legal fees and litigation expenses on driver insurance costs. There is now a consensus that demands an open dialogue on strategies to bring relief to drivers.
To gauge public sentiment on this issue, the province initiated a public consultation, revealing that “the increasing cost of repairs, parts shortages, and rising auto thefts are all contributing to rising insurance rates across Canada. However, the primary driver of the increase in Alberta is the escalating costs of personal injury claims.”
The situation is dire. A recent report by MNP LLP highlighted a 31 percent surge in lawsuit-associated costs for insurance claims in Alberta in recent years. Legal expenses embedded within driver premiums in Alberta are three times higher than the national average, now constituting 20 percent of a driver’s premium.
Despite increased payments, policyholders are not receiving commensurate benefits. In Alberta, when an auto insurance claim is litigated, approximately 38 percent of the settlement is allocated to legal fees and litigation expenses—more than double the amount directed towards compensating the injured party for pain and suffering.
Urgent reform is warranted, reflecting the sentiment of a recent consumer poll where 73 percent of Alberta drivers expressed the need for government intervention to counter these trends.
Curbing legal costs holds the key to significant savings. Government analysis indicates that drivers could save hundreds annually with such measures. However, any reform must strike a balance between affordability and ensuring adequate care for collision victims.
In this climate, some lawmakers advocate for a state-run insurance monopoly akin to British Columbia’s model. While this could potentially reduce premiums in the long term, it would necessitate substantial ongoing subsidies, burdening taxpayers with billions of dollars irrespective of vehicle ownership.
Alternatively, Alberta’s insurers propose a solution that could save drivers up to $325 annually by offering more customizable coverage options. Drawing inspiration from New Jersey’s successful model, where similar reforms were implemented over two decades ago, this approach would grant drivers the flexibility to tailor coverage to their specific needs.
This suggested change strikes a middle ground between the current system and proponents of a no-fault model, preserving the right to sue for serious injuries while enabling substantial savings and expanded pre-approved treatment options for collision victims.
While systemic change will take time, immediate steps can be taken to swiftly reduce premiums. Proposed initiatives include eliminating the four-percent tax on insurance premiums and modernizing the province’s outdated grid system, which currently penalizes safe drivers to subsidize those with a history of at-fault collisions.
As household costs escalate, every effort should be made to make auto insurance more accessible. Insurers, unable to independently alter the current system, are eager to collaborate with the provincial government to enact vital reforms.
Addressing legal expenses offers a viable pathway to lowering rates without compromising the quality of care and benefits for collision victims. The road to enhanced affordability lies in empowering consumers with greater choice and control over their coverage.
Alberta’s insurers stand prepared to collaborate with the government to drive savings for drivers, demonstrating that consumer-centric competition breeds mutual benefits.
