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It’s time to revisit no-fault insurance

Published November 2, 2012

In 1990, the Ontario government introduced the no-fault insurance system to replace the old tort system. No-fault insurance was meant to expedite the processing of claims, to combat fraud and to prevent injured parties from suing those who caused the accidents (except in rare circumstances).

The term “no-fault” implies that no single person is at fault when an accident occurs. But that’s not entirely true. It simply means that when an accident occurs, each party involved reports the accident to his/her own insurance company, regardless of who is at fault.

Under the no-fault system, an accident victim can still take legal action against the driver who causes an accident. This is known as a “tort” action, and in certain situations accident victims could sue for non-economic losses, in addition to any damages or benefits that their insurance provider paid out.

No-fault insurance has helped to reduce the administration costs and the number of lawsuits arising from auto accidents and made it easier for injured parties to receive prompt medical treatment and to be compensated for any loss as a result of an accident.

One of the intended goals of the no-fault system was to keep auto insurance costs down. Instead, insurance rates in Ontario have continued to rise. The Financial Services Commission of Ontario has reported that auto insurance premiums increased by 5.6 per cent in 2008, 8.8 per cent in 2009 and 6.2 per cent in 2010. According to the Fraser Institute (2011), Ontario has the highest auto insurance rates in Canada.

One of the reasons Ontarians pay higher auto insurance premiums is due to the systemic fraud within the system. Rehabilitation clinics, lawyers, repair shops, tow truck operators and accident victims who submit exaggerated claims are all complicit in driving costs up.

On the benefits side of things, the Insurance Bureau of Canada recently stated in a media release that benefits for accident victims in Ontario were among the most generous in Canada. A close inspection of the facts reveals that this simply is not true.

For accident victims who suffer minor injuries (60 per cent of all accident victims), rehabilitation benefits are capped at $3,500. To my knowledge, nowhere else in Canada is there a cap on minor injuries.

For moderate injuries, victims are entitled to $50,000 in medical rehabilitation benefits (prior to 2010, it was $100,000). That $100,000 coverage is still available to anyone who pays a premium.

For injuries deemed catastrophic (representing one per cent of accident victims), the cap for medical rehabilitation is $1 million. No other province provides a cap for catastrophic injuries, although some provinces allow for more than $1 million in coverage, if warranted.

One nagging issue that consumers and dealers have with the no-fault system is the inherent loss of value of vehicles involved in accidents and an inability to recoup those lost values.

With vehicles involved in an accident, insurance will cover the cost of the repairs, but not the cost of lost value to that vehicle. Dealers are obliged by law to disclose the accident status (if applicable) on all vehicles offered for sale.

While such disclosure and transparency are good for consumers, it still means that accident “status vehicles” command a lower price and neither consumers nor dealers are compensated for the dollar value difference.

Over the past 22 years, the no-fault insurance legislation has been modified several times in order to make the system work more efficiently and equitably for consumers, and there has been considerable debate about the real benefit for Ontarians.

I think now is a good time for the province and all interested parties to revisit this topic with a fresh perspective.

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