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Insurance
Myths
MYTH # 1:
No-fault insurance eliminates
responsibility and fosters bad driving.
FACT: No-fault
insurance is a system in which drivers receive compensation
and benefits from their own insurance company when they
are injured in accidents, regardless of fault. It is
designed to reduce the delays of an adversarial legal
(or "tort") system and provide treatment and
benefits to injured victims as quickly as possible.
All provinces in Canada have some form of no-fault accident
benefits that are paid to all accident victims. The
difference is the degree to which tort (the right to
sue) or no-fault (access to accident benefits) is emphasized.
For example, in Alberta the model is a maximum tort,
minimum no-fault system. Drivers injured in accidents
receive only modest accident benefits unless they are
able to sue an at-fault party to recover damages for
economic loss or pain and suffering. In Quebec, the
opposite is true. Quebec has a pure no-fault system
that eliminates the right to sue, but provides substantial
accident benefits. Ontario has a "hybrid"
system, which blends no-fault and tort.
No-fault insurance does not mean that drivers are never
at fault in accidents. There are still fault-based rules
of the road, which are enforced by police. If you are
at-fault in an accident, your insurance premiums will
be affected and, depending on the nature of the accident,
you may be charged with an offence. These offences are
governed by either provincial legislation, such as the
Highway Traffic Act, or federal legislation, such as
the Criminal Code of Canada.
There is no evidence that no-fault insurance leads to
increased accidents or fatalities/injuries. While some
argue that a tort system provides a deterrent against
poor driving behaviour, there is no correlation between
the type of insurance system and the road safety record
of the jurisdiction. Ontario, Quebec, Saskatchewan and
Manitoba all have either pure or hybrid no-fault insurance
systems. Ontario has one of the best road safety records
in North America. British Columbia, Alberta and the
Atlantic Canada provinces have tort-based systems. BC
has consistently had one of the highest incidences of
highway injuries and fatalities of any province in Canada.
MYTH # 2: No-fault insurance treats injured victims
unfairly.
FACT:
There are tradeoffs in any system of auto insurance
among rates, claims costs, the right to sue and access
to medical treatment. There are also strengths and weaknesses
in any auto insurance model. In no-fault insurance systems,
the objective is to provide money and treatment to injured
victims as quickly as possible. Once an injury is diagnosed,
victims receive benefits and treatment paid for by their
insurance company.
No-fault insurance usually places restrictions on an
individual's right to sue. In several no-fault provinces,
drivers injured in accidents by an at-fault party can
only sue in specific circumstances, typically involving
serious injury. This restriction is balanced with quick
access to medical treatments and benefits.
A study of Quebec's pure no-fault system found that
the first income benefit cheque was issued, on average,
22 days after a claim was made. Compare that to a tort
system, where the victim may not receive settlement
for 3-5 years. Another study in Ontario showed that
compensation under no-fault insurance for serious or
"catastrophic" injuries was similar to that
under a tort-based system, once legal fees were factored
in.
MYTH
# 3: Tort allows victims to fully recover their losses.
FACT: While increasing
legal settlements, particularly for minor injuries,
are common in tort-based provinces, there are many hidden
costs for consumers. The first is legal costs, especially
lawyers' contingency fees. A study in Manitoba (the
"Kopstein Report"), conducted before the province
adopted no-fault insurance in 1994, determined that
35-40 per cent of victim settlements went directly to
legal firms in the form of fees. A 1995 KPMG report
in British Columbia calculated total legal costs under
the province's tort-based insurance system at more than
$220 million. That figure is much higher today. Similarly,
the KPMG report noted that up to 33 per cent of claimant
pay-outs go to law firms. None of this money goes to
the treatment of accident victims. In several tort-based
auto insurance provinces, such as Alberta, law firms
are not required to disclose what they earn in contingency
fees from representing auto accident victims. This is
despite the fact that auto insurance is one of the most
highly regulated industries in Canada.
A hidden cost is the likelihood of delays in medical
treatment. In tort-based provinces, injured victims
quickly use up the modest accident benefits available
for treatment and rehabilitation. Waiting years for
legal settlements means that injuries can worsen.
Another cost of the tort model is to the legal system
itself. Lengthy court cases pitting drivers against
drivers consume a great deal of public resources. In
BC, a study determined that auto insurance cases represented
35 per cent of the civil proceedings in the province's
Supreme Court.
MYTH # 4:
Insurance companies are the only ones who pay for the
high or excessive legal settlements.
FACT:
Consumers pay for auto insurance to protect them
from future claims. Insurance companies collect premiums
and use these funds to pay for claims. Any money left
over after operating costs is what insurers earn. If
claims costs increase beyond these reserve funds, insurers
increase rates to keep pace.
High legal settlements come directly from this fund,
or in other words, directly from the pockets of each
and every policyholder. Recently, pain and suffering
awards for minor injuries, such as sore necks or backs,
have exceeded $20,000 in many tort-based provinces.
This may benefit a few claimants, but it costs the majority
of ratepayers in the form of increased premiums.
MYTH # 5: No-fault
insurance will increase your premiums.
FACT:
Insurance premiums are a reflection of a number
of different driver characteristics, including age,
gender, and geographic area, to name a few. Insurance
companies use these factors to determine the appropriate
premium, supported by actuarial data. Insurance rates
are also affected by the individual level of coverage
and deductibles. There is no conclusive proof that insurance
rates are less expensive in a tort-based system. Similarly,
there is no evidence that no-fault insurance is more
costly to consumers. Comparisons among different provinces
and cities across Canada are often misleading. These
"apple and orange" comparisons usually do
not take into account factors such as where a driver
lives, levels of coverage, age, genders and the type
of insurance system in place in a particular location.
MYTH
# 6: Most provinces that have experimented with no-fault
insurance have repealed it and reintroduced tort-based
systems.
FACT: In Canada,
Quebec, Saskatchewan and Manitoba have the "purest"
no-fault auto insurance systems. Quebec's no-fault system
was introduced in 1978, with Manitoba following in 1994
and Saskatchewan in 1995. Ontario introduced no-fault
insurance in 1990, which has since become a "hybrid"
system that blends no-fault insurance with the legal
right to sue in certain circumstances. All of these
provinces have retained strong, no-fault characteristics
in their insurance systems.
MYTH
# 7: It's difficult to get paid for a claim.
FACT: In fact, home,
auto and business insurers wrote cheques for more than
$20 billion in 2004 to help Canadians get the care they
need, replace lost income, and repair cars and other
property.
MYTH
# 8: My premiums are being held in an account until
I file a claim.
FACT:
Insurance companies place premiums collected
from policyholders in very safe investments, including
government bonds. Income generated by these investments
partially offsets the cost of paying claims, keeping
premiums lower than they would otherwise need to be.
MYTH
# 9: You'll always get less than you ask for so inflate
your claim.
FACT: Filing an
insurance claim is not the beginning of a negotiation.
Insurers may scrutinize receipts and details to ensure
that everyone is getting value and appropriate service.
But inflating the cost of a claim is fraud and insurance
fraud is a crime.
MYTH
# 10: Insurance companies keep changing the rules
on what's covered.
FACT: Car insurance
is highly regulated by provincial governments, who set
out minimum coverage levels across Canada. Governments
also keep tabs on how much insurance companies charge
for their products. Insurance companies can change neither
the basic coverage nor premiums without government approval.
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