Update on how Canada’s newest DCPD regime is doing

Alberta’s transition toward the Direct Compensation for Property Damage (DCPD) framework has been quite seamless for insurers and personal auto policyholders for the most part, says one industry expert, although some commercial vehicle operators who don’t want to pay for physical damage may have to make adjustments.

Under DCPD, drivers who are not at-fault for an auto accident will claim from their own insurer for damage to their vehicle and its contents, rather than claiming from the at-fault driver’s insurance.

“It doesn’t change the way the claims are handled and processed. Ultimately, the biggest change is who is paying the costs when there’s vehicle damage,” says Rob de Pruis, national director of consumer and industry relations at Insurance Bureau of Canada. De Pruis presented a DCPD update at the Insurance Broker Association of Alberta’s 2022 Convention.

Overall, there haven’t been any major challenges arising from the new framework, which was introduced in Alberta on Jan. 1, 2022, de Pruis reports. But there may be some “unintended consequences” for commercial vehicles.

“Many commercial fleets prior to DCPD would essentially be self-insuring the physical damage portion of their insurance, meaning [they wouldn’t purchase] the optional collision coverage,” de Pruis explains. “And if they were involved in a claim, they would just pay that claim themselves.

“Because DCPD is now mandatory, and forms part of the mandatory coverages, that’s now included in their premium, where[as] a fleet owner may not want to have physical damage coverage.”

There are  ways for commercial vehicles to get around that, de Pruis says.

“That fleet owner could just implement a high deductible for DCPD, meaning that the higher the deductible you choose, the less premium you will be paying,” he says. ”We’re really encouraging commercial vehicle owners to reach out to their insurance representative and have a conversation to understand what’s the best option for them and what things might be available.”

On the personal auto side, de Pruis says he hasn’t heard of any major consumer issues. Most will see very minimal changes to their premiums, he adds.

Under DCPD, the majority of drivers (73%) will likely see little to no change to their premiums. Eighteen per cent will see savings greater than 5%, while 9% will see increases of 5% or more.

Owners of less expensive vehicles that cost less to repair will typically pay less for their insurance. Conversely, owners of more expensive vehicles that cost more to repair may pay more.

De Pruis says this is widely considered a fairer process.

“Previous to this, the insurance industry was basing premiums on average claims costs. Some people with less expensive vehicles were essentially indirectly subsidizing some people with more expensive vehicles that would cost [more] to repair,” de Pruis says.

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One consumer benefit of DCPD is it gives vehicle owners the choice to work with their preferred insurer.

“They made a decision when they bought their insurance to have their insurance through a particular insurance provider,” de Pruis explains. “Prior to DCPD, a vehicle owner might have to be working with an insurance company that they don’t know, and they don’t have any type have a relationship with.” 

Alberta’s insurance companies are very supportive of the DCPD framework, says de Pruis.

“It also gives an insurance company the opportunity to show the value for the policy they are providing to their policyholder, because when there is a claim, this is really where insurance companies are tested on their customer service and their claims service,” he says.

“With everyone selling the exact same policy, where you differentiate yourself is on price or claim service, or some of the enhancements or endorsements that you make available are some of these value-added features. This is just another opportunity for insurance companies to show that value-add when a person is involved in a collision.

DCPD and similar programs have already been successfully implemented in eight other Canadian provinces. 

“Most of the insurance companies don’t only write auto insurance in Alberta. They’re also writing in other jurisdictions like Ontario and the Atlantic provinces, where they’ve had DCPD in existence for many, many years,” he says.

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