Actuarial Notes

Report on Fundamental Reform of the Alberta Automobile Insurance Compensation System

By Automobile Insurance Advisory Committee · Government of Alberta · 2020

Study guide: Exam 6C

A September 2020 report to Alberta's Minister of Finance on fundamental reform of the province's automobile insurance compensation system. Its authors, the Automobile Insurance Advisory Committee appointed in December 2019 (Chris Daniel, chair; Shelley L. Miller, Q.C.; Dr. Larry Ohlhauser), were asked for recommendations built on a private sector delivery model, fair, accessible and affordable insurance, timely and appropriate outcomes when claims are made, and a viable and sustainable system. It concluded that the optimal and only solution for long-term price stability is to replace the hybrid tort/no-fault model with a pure no-fault care and compensation model.

On the syllabus

  • Exam 6C — objective A1; replaced by CFAI for Fall 2026 (the Fall 2025 content outline assigned pp. 14–42).

I Executive Summary

  • The committee found that since 1988 the cause of high premiums was ever-increasing bodily injury loss costs — specifically non-pecuniary general damage awards from the tort litigation process — and that health outcomes improved where tort systems were replaced with no-fault models.
  • Alberta's one reform since 1990, in 2003, restricted non-pecuniary awards for soft tissue injuries (the Minor Injury Regulation; see Minor Injury Guideline), enacted the Diagnostic and Treatment Protocol Regulation (DTPR) and a Grid; the committee found the first narrowed from its original intent and the DTPR short of its potential, and the reforms did not produce long-term sustainability, affordability or accessibility.
  • Jurisdictions that eliminated tort in favour of comprehensive care and income replacement saw stable premiums; those that rebalanced tort with no-fault benefits saw only temporary stability (Automobile Insurance Reform).
  • It recommends a pure no-fault model with a redesigned continuum of care, a long-term care program for the catastrophically injured funded by a pool, and a Traffic Injury Regulator — a Board and Tribunal over four arms, including medical and claims assessment panels and a reconstituted Automobile Insurance Rate Board.
  • The consulting actuary's report showed the committee's Model I would be expected to reduce premiums by 9.4% for the majority of consumers buying the full package of insurance.

II Summary of Conclusions and Recommendations

  • A. Conclusions
    • Automobile Insurance Reform
      • A. Analysis of Alternative Legislative Models
      • B. Analysis of Alberta Auto Insurance Reforms
    • Proposed Reform of the Alberta Automobile Insurance Compensation System
    • Review of Health Outcomes Evidence
    • Actuarial Evidence from Tort Accident Injury Compensation Systems
    • Public Consultations
      • A. Evidence of Public Consultations 2003
      • B. Results of 2020 Public Surveys
      • C. Submissions from Insurance Industry Service Providers
    • Property Damage Product Reform
    • Reforms to Address Risky Driving Behavior
    • Reform of the Regulatory Process
    • Reform of the Judgment Interest Act
    • Optional Insurance Products (UBI)
    • Legislation to mandate use of winter tires
    • Section B Benefits
    • The Tort/No-Fault Issue
    • Evidence-Informed Health Treatment for Traffic Injured
    • Reforms to the Assessment of Injury and Pecuniary Loss Process
    • Proposed Reform of Health Care Model
    • Proposed Reform of Auto Insurance Regulatory Regime
    • Actuarial Forecast of Impact of Proposed Reforms
    • Legal Considerations
  • B. Recommendations
    • Evidence-Informed Health Treatment for Traffic Injured
    • Reforms to the Assessment of Injury and Pecuniary Loss Process
    • Section B Benefits
    • Establishment of an Independent Administrative Structure of Traffic Accident Regulation
    • Health Outcomes Evidence
    • Program for Long-Term Care for Catastrophically Injured
    • Implementation of reforms requires collaboration of insurance and health service providers
    • Property Damage Product Reform
    • Reforms to Address Risky Driving Behavior
    • Reform of the Regulatory Process
    • Judgment Interest Act
    • Optional Property Insurance Products
    • User Based Insurance
    • Legislation to mandate use of winter tires
  • Reformed models that retain tort features result in continuing premium instability; in the New South Wales and Ontario reforms, tort "found areas for regrowth", and preserving any component of tort is inconsistent with the needs of traffic injured.
  • The principle of deterrence is no longer a convincing justification for tort in auto insurance: enforcement, penalties, education and higher premiums for reckless drivers achieve it more effectively.
  • Medical review panels under an administrative model should replace "duelling doctors" and the delays of tort litigation, and the original DTPR design should be extended to all other injuries.
  • The Judgment Interest Act should set the rate for non-pecuniary damages equal to that for pecuniary claims and suspend judgment interest on non-pecuniary damages for two years from the date of loss.
  • Pure no-fault regimes like Manitoba's and Québec's are within provincial legislative authority, and Morrow v. Zhang satisfied the committee that a Charter challenge would be untenable if reform is a balanced, interdependent package.

III Introduction

IV Automobile Insurance Reform

  • A. Chronological Review of Auto Insurance Reform and Analysis
  • B. Analysis of Auto Insurance Reform Studies and Legislative Alternative Models
  • C. Chronology of Alberta Auto Insurance Reform
  • D. Analysis Of Alberta Auto Insurance Reforms
  • E. Conclusions

V Legal Considerations

  • A. Statutory Framework
  • B. Challenges Under the Charter
  • C. Method Of Analysis
  • D. Conclusions

VI Review of Health Outcomes Evidence

  • A. Literature Review of Health Outcomes after Legislation Removing Compensation for Pain and Suffering
  • B. Expert Testimony in Recent Cases
  • C. Other Studies
  • D. New South Wales Introduction of No-Fault Long-Term Care for Catastrophically Injured – 2006-2007
  • E. Conclusions
  • F. Recommendations

VII Actuarial Evidence from Tort Accident Injury Compensation Systems

  • A. 1990 Report on Alberta Motor Vehicle Claims Survey (Cheng 1990)
  • B. 1998 New South Wales Ernst & Young Report
  • C. Motor Vehicle Insurance in British Columbia – at the Crossroads (KMPG Report 1996)
  • D. KPMG – 2003 Government of Alberta Implementation Team
  • E. Addie Closed Claims Study 2003
  • F. Testimony of Actuaries – Morrow Case 2008
  • G. Pinnacle Study 2017
  • H. Claims and Cost Study November 2019
  • I. Findings
  • J. Conclusions

VIII Consultations

  • A. Evidence of Public Consultations 2003
  • B. Findings from 2020 Public Survey
  • C. Submissions of Insurance Industry Service Providers
  • D. Conclusions
  • E. Recommendations

IX Proposed Reform of the Alberta Auto Insurance Compensation System

  • A. Additional Studies from Consulting Actuary
  • B. Health Outcomes for traffic injured Sub-optimal under the Current Model
  • C. Compensation of All Traffic Injured Sub-Optimal under Current Model
  • D. Failure of Auto Insurance Reform by Piecemeal Increments to Deliver Long-term Stability
  • E. The Tort Principle of Deterrence Does not Deliver Intended Goal
  • F. The Tort Principle of Quantifying Damages on an Individual Basis Subject to Increasing Costs and Delays
  • G. Lump Sum Payments for Pain and Suffering subject to misuse and abuse
  • H. Need to extend and expand principles of DTPR to all non-catastrophic traffic injured
  • I. The Tort model requires replacement by a Pure No-fault Model
  • J. Need for No-Fault Care and Compensation Model for All Catastrophically Injured
  • K. Delivery of goals listed in Mandate by Pure No-Fault Compensation Model
  • L. Administrative Traffic Accident Regulatory Structure to replace the Court Assessment of Extent of Injuries and Pecuniary Losses
  • M. Individual Assessment of Injuries and Treatment by review panel of medical and health experts within 2-3 years from the accident date
  • N. Defined Rehabilitation, Care or Impairment Benefits for most seriously injured
  • O. Individual Assessment of Economic Losses and Future Care Entitlements by review panel of financial, vocational and rehabilitation experts within 2-3 years from the accident date
  • P. Legal Challenges to Fundamental Auto Insurance Reform
  • Q. Reform will promote long term stability and sustainability
  • R. Further cost savings and improved competition will result from regulatory and property insurance reform processes
  • S. Reforms to benefit the traffic injured require trade-offs to also ensure affordability, accessibility and sustainability of fair premiums
  • T. Preservation of tort action outside insurance compensation model against motorists found guilty of criminal driving conduct causing bodily injury
  • U. Establishment of an Ombudsperson Office for Consideration of Additional Compensation in Exceptional or Extraordinary Cases
  • V. Conclusions
  • W. Recommendations

X Proposed Reform of Health Care Model

  • A. Pre-2004
  • B. DPTR Model
  • C. Reform
  • D. Conclusions
  • E. Recommendations

XI Proposed Reform of Auto Insurance Regulatory Regime

  • A. Making the Changes Necessary for Fundamental Alberta Auto Insurance Reform
  • B. The New Model and Processes
  • C. The Transitional Period
  • D. Traffic Injury Innovation
  • E. Alignment with other government agencies
  • F. Conclusions
  • G. Recommendations

XII Actuarial Forecast of Impact of Proposed Reforms on Premiums and Benefits

XIII Appendices

  • A. Appendix 1 – Sources
  • B. Appendix 2 – Public Submissions
  • C. Appendix 3 – Cheng Rating Graph April, 2020
  • D. Appendix 4 – Cheng Transaction Cost Report April 20, 2020

Related readings

  • Marshall — Fair Benefits Fairly Delivered, reviewed in §IV A
  • CFAI — the objective A1 reading that replaces it for Fall 2026

Sources