Facility Association makes provisions for Alberta, Nova Scotia cap claims

Alberta’s Grid Risk-Sharing pool is reporting Cdn$171.1 million in total claims incurred but not reported (IBNR) as of Oct. 31, 2008, including a provision of about Cdn$81.5 million for claims liability related to Alberta’s court’s cap decision.
Alberta’s Non-Grid Risk-Sharing Pool has reported a total of Cdn$44.1 million in IBNR claims as of Oct. 31, 2008, including a provision for cap-related claims of about Cdn$19.8 million.
Alberta’s Court of the Queen’s Bench earlier this year struck down the province’s Cdn$4,000 auto insurance cap, saying it was unconstitutional because it discriminated against whiplash injury claimants.
Facility Association, established to make legally required automobile insurance available by means of residual market mechanisms and risk-sharing pools, prepares monthly, provincial operational reports showing claims liability figures.
As a result of the Alberta decision, the operational reports now include provisions for IBNR claims liability related to court’s decision. This is being done for other provinces where legal challenges to auto insurance caps have been initiated.
In Nova Scotia, for example, where the constitutionality of auto insurance caps have recently been challenged, Facilities Association is reporting total IBNR claims of Cdn$5.7 million, including a provision of Cdn$2.4 million for cap-related claims.
In a bulletin, Facility Association says its provisions for cap claims assume “a 50% chance that the February 2008 decision [in Alberta] will be upheld upon appeal.”
This assumption has nothing to do with the Facility Association’s opinion as to the merits of the case; rather, it is a function of the uncertainty between the cap being restored upon appeal (in which case there is a 0% chance the cap provisions would be factored in) or the cap is ultimately rejected on appeal (in which case, there is a 100% chance the cap provisions would be factored in).  
FA also states in its assumptions that if the Alberta decision is upheld, there is a 25% chance that the effect of the decision (i.e. elimination of the cap) would apply to claims closed prior to February 2008.