Roughly 20 per cent of mandatory premiums in Alberta go to support litigation costs

A new and extensive report by MNP LLP, compiled for the Insurance Bureau of Canada (IBC) shows that legal fees and other costs associated with lawsuits following collisions are having a significant impact on auto insurance premiums in Alberta.

“MNP found that Alberta’s auto insurance market faces the same challenges from inflation and supply chain disruptions as other jurisdictions across Canada. However, litigation costs stand out as a major cost pressure that is contributing to the premiums drivers pay in Alberta,” the IBC writes in a statement about the report’s publication.

Entitled System Cost and Auto Insurance Premiums, the report shows legal costs account for roughly 20 per cent of premiums for mandatory coverage. “This is equivalent to nearly $200 for each policy annually. Over $1.2-billion off the premiums drivers pay went to legal costs associated with claims between 2018 and 2022.” 

They add that legal costs in Alberta’s auto insurance system have grown by 31 per cent since 2018.

“Albera does not need to move to a full no-fault model like other jurisdictions – where drivers lose the right to sue – to address the legal costs facing our auto insurance system, but something has to be done to mitigate the impact these legal costs are having on the premiums drivers pay,” says Aaron Sutherland, vice president, pacific and western with IBC.

The report’s findings include that claims frequencies have been stable or declining across Canada, while claims severity is increasing. Vehicle costs are increasing due to the complexity of repairs. The frequency of legal representation for bodily injury claims is also increasing. The cost of litigation rose from $213-million in 2018 to $279.7-million in 2022, a 31 per cent increase, they say.

“Between 2018 and 2020, the share of claims costs that are paid to claimants has fallen while the share of claim costs that goes to litigation expenses has risen. Over the period, drivers paid an average of between $160 and $197 annually as part of their premiums to cover the costs associated with litigation. This is equivalent to between seven per cent and 10 per cent of total premiums and approximately 20 per cent of premiums for mandatory coverages.”