Tort or No-Fault: Not an easy choice

Martin Beaudry
The Insurance Journal
October 10/2002

“The new tort coverage will be available January 1st, 2003 to meet the needs of those people in the province who want an alternative to no-fault insurance,” said Crown Investments Corporation Minister, Maynard Sonntag.

Tort coverage will provide benefits regardless of accident circumstances and allows the right to sue for pain and suffering, subject to a $5,000 deductible. As with no-fault insurance, benefits will be indexed annually to inflation. All Saskatchewan residents aged18 and over will be allowed to choose their coverage.

No-fault insurance will be the default coverage unless a person opts out and picks tort coverage instead. On introduction, both tort and no-fault will cost the same and there will be no fees for changing the auto injury insurance. Often the no-fault insurance option is cheaper given the reduced compensatory benefits.

The move comes following a 1995 switch by the province from tort to no-fault. According to a 2001 study by the University of Calgary in support of implementing no-fault insurance for Alberta, the result was a marked decrease in claims involving whiplash, as well as a sharp fall in median time to claim settlement for the whiplash claims.

According to a July 2001 missive from The Saskatchewan Party, another effect was that insurance premiums and deductibles rose 40% and administrative costs grew 25%. This despite a New Democratic Party provincial government claim at the time that no-fault would result in keeping Saskatchewan Government Insurance premiums low and stable.

Other provinces considering a switch from either system are having a hard time making the move. Anecdotal evidence presented by anti-no-fault coalitions and legal groups is daunting. Then, so is insurer evidence of an increasing abuse of the judiciary and health systems.

In 1991, the Insurance Bureau of Canada reported that during the first year following the implementation of no-fault coverage in Ontario, insurance industry profits increased by $750 million with no appreciable decrease in premiums.

The Ontario Motorist Protection Plan, in effect from 1990 to 1994, saw benefits to accident victims reduced on average by 47.7%. A second no-fault system, from 1994 to 1996, provided better benefits but resulted in premium increases of 11.8% the first year and 9.5% the second year.

For the Quebec no-fault system, one study concluded it led to an 11% increase in accidents resulting in property damage, a 26.3% increase in accidents resulting in personal injuries and a 6.8% increase in fatalities. Later, a more detailed study found the plan in its first decade led to a fatality increase o f 9.62%.

Manitoba anticipated annual savings of $50 million when it introduced no-fault in 1994. Instead, Manitobans got an increase in their insurance premiums of 6.1% in 1996. British Columbia recently rejected a proposal to change its system, a government-run plan based on tort.

In Quebec, two leading political parties ­the Quebec Liberal Party and the Parti Québécois ­have both hired noted lawyer and tort lobbyist Marc Bellemare. Mr. Bellemare will act as the insurance reform consultant for creating a strategy going into the elections.

Meanwhile in Newfoundland, Government Services and Lands Minister Walter Noel was quick to express concern when a law firm accused him of wanting to introduce no-fault. “While I believe a restricted compensation system could control insurance costs, I have not recommended the restricted compensation system, and have acknowledged the choice is difficult to make,” he said.

Bernard Richard is a member of a New Brunswick legislature committee studying auto insurance problems in that province. He says that during public hearings insurers frequently complained about the small size of the New Brunswick market and how difficult it was to make a profit .

Insurers are lobbying in Nova Scotia and New Brunswick for changes that will boost their profits. One suggestion is the introduction of no-fault system to prevent accident victims from suing for pain and suffering, relying instead on a set schedule of payments to be awarded to successful claimants.

The problem is that the committee heard too many complaints about the no-fault system to consider it for New Brunswick. “It hasn’t worked that well where they have it,” Mr. Richard said.

Seven companies raised rates in the province this summer, with hikes ranging from 7.4% to 36%. “The increases are way beyond what [the insurance companies] indicated to us to be their losses,” Mr. Richard said. “I think it feeds the public impression that the industry is gouging the consumer,” he added.

In their defence, insurers say premiums in the Atlantic Provinces rose because companies now pay out more in claims, especially for soft-tissue injuries. For every premium dollar collected in Atlantic Canada, the insurance industry pays out $1.22 in claims.

Martin Beaudry 

No-fault versus tort

The tort system gives consumers the right to seek financial indemnity through the courts. The high compensation amounts are strongly challenged by insurance companies, most of which are pushing for no-fault insurance systems.

The argument is insurers are trying to control costs by imposing limits on accident benefits through the application of a no-fault insurance regime. Auto accident victims have no access to the courts to collect damages for losses. Instead, benefits are determined by a set of predetermined rules put in place by the insurance industry and/or government.

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