CANADA: Flawless auto insurance silences car accident victims and cuts benefits, expert says


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Sometimes a car accident is nobody’s fault. But flawless insurance systems are problematic, says Prof. Economics

This article, written by Christopher Bruce, University of Calgary, originally appeared on The Conversation and has been republished here with permission:

Several provinces in Canada have replaced traditional error-based auto insurance with a “no-fault” system, while others – notably Alberta and British Columbia – will soon be doing so.


What has not been clearly explained to drivers, however, is that a no-fault system severely limits their right to be heard in court while reducing the benefits that will be paid to most of them in the event of a car accident.

The right to have your grievances resolved by an impartial party originated in medieval England when the courts, which had mainly heard criminal cases, agreed to also settle disputes between ordinary citizens.

These disputes mostly related to complaints of violations, but there were also cases of personal injury, such as horses knocking down pedestrians or dogs biting neighbors.

Over the centuries, court rulings on these disputes have evolved into a precedent or common law. At the beginning of the 20th century, two principles dominated the law applicable to personal injury.

First, with a few exceptions, a defendant could only be held liable for a complainant’s damage if he had been negligent – that is, if he had committed a mistake. In that case, the suspect was obliged to compensate the injured party for his losses.

Second, the compensation amounted to returning the victim to the position he would have been in had the injury not occurred. For example, if the pedestrian hit by a horse missed a working week, the injury might have to pay compensation equal to a week’s lost wages.

Breaking the insurance

When the car was invented, it seemed logical to apply these principles to injuries from car accidents as well – drivers who were to blame had to offer compensation to the innocent victims of their bad driving.

But it soon became clear that many negligent drivers would not be able to pay the required compensation due to the serious damage that can occur in car accidents. As a result, legislators everywhere required drivers to have car insurance.

However, critics noted that this system did not help drivers who had made a mistake or accidents where no one was to blame, so there was no one to sue.

For example, recent statistics cited in Alberta’s Report on Fundamental Reform of Alberta Automobile Insurance indicate that about 33 percent of those injured in car accidents in Alberta do not receive compensation.

This has led to a call for no-fault insurance in Alberta, and also in BC, where the situation is similar. That means each party gets benefits from his or her own insurance company, regardless of whether they made a mistake. BC’s faultless system comes into effect on May 1.

However, no-fault proposals quickly run into reality: When drivers who make a mistake become eligible for benefits, the total number of eligible drivers increases dramatically, according to the Alberta report.

How can this increase in claims be compensated without increasing the average auto insurance premium? The flawless systems proposed in BC and Alberta offer two solutions.

Reduce benefits

First, they recommend reducing the benefits paid to each aggrieved party. For example, Alberta’s proposal would cut the average level of compensation by 30 percent.

In other words, in order to keep premiums stable, the higher benefits for defaulting drivers will be paid through lower payments to innocent victims.

Since victims are accustomed to receiving benefits that return them to their pre-accident position, they can be expected to respond to these decisions by appealing to the court. And it’s likely that common law courts are sympathetic to these appeals – after all, it was those courts that initially developed the rules for determining compensation.

The result? Compensation would rise to the previous level – and premiums should be adjusted accordingly.

The second recommendation of the proponents of no-fault insurance is therefore to limit the right of accident victims to appeal to the courts. Alberta’s proposal recommends that if aggrieved parties are dissatisfied, they should be required to appeal to a panel controlled by insurance companies, who will become judges and jury.

Insurers are going to save money?

British Columbia and Alberta both argue that insurers will be able to save the money they would have previously spent defending themselves in court. But the Alberta report suggests these savings are likely to be less than three percent of total insurance costs.

In short, to provide more benefits to negligent drivers, flawless systems reduce the benefits available to victims and deny them access to court when they feel their compensation has been unfair.

But if the goal is to provide benefits to negligent drivers, a much less radical change to the insurance scheme is readily available – encourage insurance companies to include provisions in their policies that do not offer debt to their own customers when they are found to be indebted to them. a car accident.

Economists like to say, “There is no such thing as a free lunch.” Most flawless systems are classic examples. At the same time, the cafe cuts back on your portion sizes, forbidding you to complain about it.The conversation

Christopher Bruce, Emeritus professor of economics, University of Calgary

This article has been republished from The conversation under a Creative Commons license. Read the original article.

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