AB.Auto

Reading: “Report on Fundamental Reform of the Alberta Automobile Insurance Compensation System,” pp. 14-42

Author: Alberta Automobile Insurance Advisory Committee for the Minister of Finance of the Government of Alberta

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Does Ontario have a pure no-fault auto insurance system? Click for Answer 

Study Tips

This reading is over 500 pages but you are only responsible for pages 14-42. The source text is wordy and repetitive and I think the roughly 30 pages can be condensed to just a few likely exam questions. A good Bloom's Taxonomy question might be a comparison to auto insurance in Ontario as discussed in Marshall.Benefits. We'll cover how to answer this below.

Estimated study time: 1 hour (not including subsequent review time)

BattleTable

No past exam questions are available for this reading.

reference	part (a)	part (b)	part (c)	part (d)

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In Plain English!

Executive Summary

In December 2019, the Alberta government appointed a committee to explore options for reforming Alberta's auto insurance system. They used an evidence-based approach and examined various auto insurance regulatory systems both in other Canadian provinces and other countries. The first page of the executive summary in the source text describes 7 goals. That looks like a good exam question so let's list them and figure out an easy way to remember them.

Question: identify the 7 goals of Alberta auto insurance reform

• private sector delivery model
• claims handling - effective & efficient
• medical benefits - make sure they are appropriate
• income replacement - easier access
• reduce costs
• stabilize rates - should be affordable for all Albertans
• sustainability - the needs of insureds, "traffic-injured" persons, and insurance providers need to be met

Alice's favourite memory tricks are mnemonics and silly stories. I'm going to make up a silly story for these goals. 😵 Note that the source text didn't use colours; I added those to group the goals into categories to make them easier to remember.

Canada has a mixture of public and private auto insurance systems across the provinces. Alberta is opting for a private model, with appropriate regulations of course! The blue goals in the list above relate to when you've had an accident. For all claimants, it would be nice if there were a good claims handling system, and for the "traffic-injured", it would be nice to have good medical care and easily accessible income replacement benefits. The green goals relate to all insureds, regardless of whether there has been an accident. All insureds pay premiums and I'm going take wild guess that insureds like lower premiums. 😃 Note also that auto insurance rates are rising faster than inflation so it's important to identify the cause (more on that below) and take steps to stabilize rates. Lastly, the system should be sustainable, of course. We don't want to create an unsustainable system that simply lurches from crisis to crisis.

Unfortunately, our Alice is often both an insured and a claimant. Click the link to see what happened to Alice's Lamborghini at last night's drag race. (Don't worry, nobody was hurt.) I doubt it matters what kind of auto insurance program the Alberta government comes up with – Alice's rates are very unlikely to stabilize!

The source text made kind of a strange statement but it seems like something that might be important to know:

The only true fundamental stakeholders in this arrangement, the traffic injured and motoring public, are not in it by complete freedom of choice.

The part I found strange is stating that the only "true" stakeholders are the traffic-injured and the motoring public. By implication, the service providers like insurance companies, the health care system, and the legal system are not considered true stakeholders. Make of that what you will.

Ok, we've covered the broad goals of the committee but let's take a step back and look at what the committee discovered about the state of auto insurance in Alberta.

Question: identify and briefly describe the findings of the Alberta auto insurance committee

• high premiums were caused by increasing bodily injury costs (specifically non-pecuniary awards for pain & suffering due to the tort system)
• no mechanisms existed to control these BI costs
• injury compensation was often either too high or too low
• health outcomes are worse under tort systems (and hybrid tort/no-fault systems)
• health outcomes improved when tort systems were eliminated and replaced with full no-fault models

Tort systems hindered outcomes because of delay, conflict, and the retention of dueling experts. Costs-savings seemed to be the primary goal instead of care & compensation, but the system ended up being costly and providing inferior care. Factoid to impress your friends: Manitoba & Quebec currently have a pure no-fault system.

This is not the first time Alberta has undertaken auto insurance reform. In particular, the following actions had already been taken within the past roughly 30 years:

• Minor Injury Regulation (MIR) - tort reform to restrict recovery of non-pecuniary general damage awards for soft tissue injuries
• Diagnostic and Treatment Protocol Regulation (DTPR) - to promote early access, appropriate diagnosis and effective treatment

Neither were as effective as had been hoped. This was due to design flaws in the MIR, and to lack of supervision and compliance for DTPR. Make sure to review the Morrow v Zhang (AB 2004) legal case on MIR. With all of this in mind, the committee has proposed reforms that it believes will meet its stated goals.

Question: identify the recommendations of the Alberta auto insurance committee [Hint: replace & introduce]

• replace existing hybrid tort/no-fault model with a pure no-fault care and compensation model
• introduce a "continuum of care model" to promote appropriate medical evaluation, assessment and treatment

The BIG advantage of a pure no-fault system is that benefits can be delivered without having to first prove who is at fault. Note that even though the government's goal is a private sector delivery model, the Government of Alberta will retain statutory and regulatory authority. The last significant item from the executive summary is how the new system will work in practice.

Question: describe how Alberta's new auto insurance is recommended to work

• create a Traffic Injury Regulator, including a Board and Tribunal to oversee the 4 arms of accident care & compensation: (See this forum post for a memory trick.)

[1] claims administration and support

[2] medical experts to evaluate injuries

[3] claims assessment panels for income replacement

[4] a reconstituted version of AIRB (Automobile Insurance Rate Board)

These 4 arms should be independent of both the government and insurance industry. Funding for these is mainly by auto insurers who write business in Alberta in proportion to their market share, with some contribution from the Alberta government. (The government's contribution is supposed to come from the savings this new system is supposed to generate. Famous last words!)

mini BattleQuiz 1

Summary of Conclusions and Recommendations

This section of the source text is long and detailed. It reiterates the main points from the executive summary but in much greater detail. I don't believe there is much testable material here. I didn't want to leave it out entirely however so here's a brief overview.

Conclusions

The "Conclusions" section has 89 numbered paragraphs related to the committee's conclusions.

Aside from the last section on possible legal challenges to Alberta's proposed auto insurance reform, all you need to do here is spend a few minutes reading over these notes. (If you really want to, you can refer back to the source text for more details but that will probably not help you on the exam. Maybe good bedtime reading if you're having trouble falling asleep?)

paragraphs 1-7: Automobile Insurance Reform

• This section gets more into the details of:

→ replace tort system with no-fault system

→ introduce a continuum of care model

paragraphs 8-22: Proposed Reform of the Alberta Automobile Insurance Compensation System

• This is yet more discussion of replace & introduce

paragraphs 23-41: Review of Health Outcomes Evidence

• Awards for pain & suffering are excessive and evidence from other jurisdictions indicates that elimination of such awards results in improved health outcomes for the traffic-injured.

paragraphs 42-44: Actuarial Evidence from Tort Accident Injury Compensation Systems

• Reiterates that tort systems are more costly and less effective than pure no-fault systems.

paragraphs 45-72: Public Consultations

• This section is very detailed and does not seem testable. The committee solicited input from the public regarding auto insurance reform and the results are described here.
• One interesting factoid is that because there are so many groups with vested interests, there will likely be no public consensus on reforms.

paragraphs 73-77: Proposed Reform of Health Care Model

• Briefly describes the continuum of care model, which encourages collaboration, innovation and continuing improvement among service providers based on evaluation of performance, health outcomes and research.

paragraphs 78-82: Proposed Reform of Auto Insurance Regulatory Regime

• Briefly describes the reform of Alberta's AIRB (Automobile Insurance Rate Board).

paragraphs 83-86: Actuarial Forecast of Impact of Proposed Reforms

• This section just says that if reforms are implemented (replace tort system with no-fault system, introduce a continuum of care model) then there should be a roughly 10% decrease in average auto premiums.

paragraphs 87-89: Legal Considerations

• Aha! I found what I think might be a good exam question from this section on legal considerations.

Question: If Alberta enacts the reforms outlined above, assess the likelihood of a successful legal challenge.

• A legal challenge will likely not be successful for the following reasons:

→ Manitoba and Quebec already have a pure no-fault system

→ such systems have been judged to be within the scope of provincial legislative authority

→ a challenge under Canada's Charter of Rights & Freedoms has no merit because all drivers are treated equally

→ in the Morrow v Zhang (AB 2004) legal case on MIR, the minor injury cap was upheld so a future Charter challenge would likely not succeed either

Recommendations

The "Recommendations" section has 37 numbered paragraphs related to the committee's conclusions.

paragraphs 1-6: Evidence-Informed Health Treatment for Traffic Injured

• Adopt a pure no-fault compensation system that with a continuum-of-care model that includes many things such rapid access to medical, evidence-based treatments, and reduced administrative burdens.

paragraphs 7-12: Establishment of an Independent Administrative Structure of Traffic Accident Regulation

• Establish a traffic injury regulator and Board & Tribunal with 4 arms as described earlier.

paragraphs 13-19: Health Outcomes Evidence

• Medical treatment should be incorporate evidence-based practices.

paragraphs 20-28: Program for Long-Term Care for Catastrophically Injured

• Long-term care providers should participate in developing a long-term care model for the severely injured. Insurers should also evaluate the viability of establishing a funding pool model to support a long-term care program.

paragraphs 29-30: Property Damage Product Reform

• Convert current property damage component of auto policies to a pure no-fault model called DCPD (Direct Compensation Property Damage).

paragraphs 31-32: Reforms to Address Risky Driving Behavior

• The GOA (Government of Alberta) should facilitate data collection of accident statistics and educational programs to deter risk driving. (Alice, are you listening? No more drag racing!)

paragraphs 33-37: Reform of the Regulatory Process

• There are many recommendations for reforming the regulatory process such as determining whether to retain the "prior approval" model or switch to "file and use". Mandatory use of winter tires between October and March is also briefly discussed.

Comparing Alberta and Ontario

Here are a few things I think would be good exam questions. They require you to consolidate information from multiple readings.

Question: identify 2 problems that Alberta and Ontario auto insurance have in common

• rising cost of auto insurance (largely bodily injury costs)
• inefficient delivery of medical care

Question: what has been identified as a primary cause of problems in AB & ON auto insurance

• both systems have a tort component which causes:

→ delays in medical care

→ diversion of resources to the legal system

Question: identify a similarity in recommendations to address these problems in AB & ON auto insurance

• greater focus on timely medical care

Question: identify a difference in recommendations to address these problems in AB & ON auto insurance

• in Alberta: convert to a pure no-fault system
• in Ontario: keep hybrid tort/no-fault system but fix structural flaws by appointing an arms-length regulator with powers to enact policies & procedures

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POP QUIZ ANSWERS

No. The auto insurance system in Ontario is a hybrid system. It includes both no-fault and tort components.