Debate rages on about whether the Alberta government should radically change our auto insurance to what’s known as a no-fault system. A no-fault system is pushed hard by insurance companies because it would allow them unprecedented control over how insurance operates in Alberta. Under this system, there would be no more recourse for consumers to challenge insurers in court – whatever the insurance company decides about someone’s injury resulting from a car accident would be final. This would save insurers money as they could low-ball consumers with impunity. The biggest promise from insurers is that they would use these newfound savings to lower premiums for consumers.
But is that true?
Experience in other provinces says clearly NO. No-fault insurance doesn’t reduce premiums; it leads to higher costs, fewer protections for consumers, and no accountability for bad drivers or insurance companies.
No-fault insurance is common with government-run insurance programs like those in BC and Saskatchewan. In government-run systems, no-fault insurance can lead to lower premiums. This is because the government can pass on any savings directly to consumers. It’s not looking to make a profit after all.
But in private insurance markets, savings are taken as new profit for insurers. This is why Ontarians who have private, no-fault insurance pay more for auto insurance than anyone in Canada.
The Ontario no-fault experience
Ontario has had private, no-fault auto insurance since 1990. In 2015, a group of academics from Wilfred Laurier University, the University of Calgary, and Cornell University did a comprehensive review of the Ontario system.
They concluded that the promise of reduced premiums never materialized. Here’s a passage from this study:
“When it was first enacted – in Ontario and elsewhere – no-fault automobile insurance was widely viewed as a way to combat the high costs of automobile injury claims. However, private market no-fault systems today are consistently among the highest-cost auto insurance jurisdictions.”
The authors also found that costs for consumers continued to climb under this system even as roads became safer! See here from the same study:
“Unfortunately, despite regular efforts to change and improve the no-fault product over time, it has not proven to be the solution that policy makers were seeking. Although Ontario roads are among the safest in North America and the number of fatalities and serious injuries from car crashes have been falling over time, average insurance premiums in Ontario have continued to climb.”
The Ontario example shows the Alberta government would be wise to not buy the snake oil that insurance companies are selling and find a solution that will actually reduces premiums for consumers.
Image by Scott Webb