So what exactly is no-fault auto insurance?

No-fault insurance is a bit of a misnomer.

Contrary to popular belief, driving under a no-fault insurance system doesn’t mean that you can never be found at fault for a collision. Instead, it focuses on how your insurance company pays out your claim. 

Under a traditional auto insurance system, the at-fault driver’s insurance company is responsible for paying for the damage to both vehicles involved in the collision. 

But under a no-fault insurance system, that’s not the case.

How does a no-fault system work?

Under a no-fault auto insurance system, the parties involved in the collision each file and settle claims with their respective insurance companies, regardless of who was actually at fault for the accident. 

One of the most important terms in a no-fault system is Direct Compensation Property Damage, or DCPD.

According to information from the Insurance Institute of Canada, “Many people believe that DCPD is a no-fault system, but in fact this is a misunderstanding—DCPD is not no-fault. You can only claim against the DCPD section of the policy to the extent that you are not at fault.”

In other words, DCPD represents the part of your insurance policy that covers damage to your vehicle when you’re found not at fault for a collision. If you are found at-fault, then damage will only be covered if you have collision coverage or all-perils coverage. 

If you’re found at fault, you will still need to pay your collision deductible. But your insurance company won’t need to pay for the damages to the other driver’s vehicle.

Under a no-fault system, you’re entitled to receive full medical and rehabilitation benefits from your insurance company. You’re also entitled to income replacement and other benefits, depending on how serious your injuries are. This model eliminates financial compensation for pain and suffering. 

The perks of driving under a no-fault system are that your claim typically gets resolved faster, which means you receive compensation sooner — and you only have to worry about dealing with one insurance company: your own. In short, it simplifies the claims process.

Fault is still determined under a no-fault system, but it doesn’t affect the accident benefits you receive. It still could, however, raise your premiums.

Which provinces operate under no-fault insurance?

Currently there are five provinces operating under a no-fault insurance system:

• Ontario
• Nova Scotia
• New Brunswick
• Quebec
• Prince Edward Island

Come 2021, British Columbia will join that list, as it plans to move to a no-fault insurance system by then. The move will result in lower legal fees for the province’s public auto insurer, the Insurance Corporation of British Columbia (ICBC). Drivers will also see a one-time 20% decrease to their insurance premiums.

Saskatchewan drivers have the choice to opt out of the province’s no-fault insurance system and choose coverage under the tort system instead, which allows them to sue for pain and suffering, with a $5,000 deductible.