Legal costs to blame for high auto insurance in Alberta: Insurance Bureau of Canada

For many years, Alberta has been among the priciest provinces in Canada when it comes to car insurance rates. This has continued to worsen over the last five years and a new report suggests that legal costs are largely to blame.

The Insurance Bureau of Canada (IBC) commissioned a study by consulting firm MNP, which has found legal costs alone account for 20 per cent of the premiums drivers pay. This amounts to approximately $1.2 billion between 2018 and 2022, and legal costs have ballooned 31 per cent over that span.

While legal costs are becoming a growing problem across the country, it is becoming a more significantly unique issue in Alberta.

"Albertans typically sue after an accident four times more than other Canadians. And it's putting a real pressure on the system," said IBC vice-president Aaron Sutherland.

To make matters worse for people seeking compensation after a collision, going to court may negate most of the possible returns.

"If you do sue, you end up paying out twice as much in legal fees versus how much you're getting in a cash settlement for a pain and suffering award. That doesn't make any sense," said Sutherland.

IBC is pushing for better solutions, in order to improve competition and lower the rates for drivers.

Insurance rate freeze in effect

For most of 2023, insurance rates have been frozen by the provincial government in response to these higher rates. Finance Minister Nate Horner is continuing with a review of insurance rates, which was launched by his predecessor, Travis Toews.

In July, Horner was directed by Premier Danielle Smith to find ways to make auto and home insurance more affordable.

In an interview with CBC News after taking over the finance portfolio, Horner would not divulge details on what is on the table, but did resist calls for no-fault insurance which removes the ability for claimants to sue.

"If you're hurt in a way that will impact your life, for the rest of your life, is it worth it for you to have a little cheaper insurance now and not have that right on the other end, if you're hurt in a major way?"

The insurance rate freeze is due to expire on Dec.31. A statement from Horneron Tuesday said options are still being explored, and there is some relief after insurance companies were told to offer payment plan options rather than requiring customers to pay premiums fully upfront.

"We have received the IBC proposal and are reviewing the potential risks, benefits, and impacts as part of our work to make auto insurance more affordable. We will have more to say on long-term solutions in the coming months," he added.

Sutherland agreed with the assessment on no-fault insurance, which has been adopted in British Columbia. Instead, he said there should be more options available so drivers can pick and choose based on what fits their budget.

"Move away from this one-size-fits-all auto insurance policy where everyone has to buy the same auto insurance regardless of their personal circumstances," he said. "If we moved away from that, give people a little more choice and control over what it is they're buying, they can see significant savings. We think it's a choice drivers deserve and it's really the best way we can push down the price of coverage."