Finance Minister Graham Steele said Wednesday the cap for minor injuries will go from $2,500 to $7,500 under legislation introduced by the NDP.
The new limit will be indexed to inflation, making it the highest in Canada, and Steele argues an actuarial study shows it won't mean higher insurance rates.
"It is best of both worlds," he said. "We get a better insurance regime and we get it at no additional costs to Nova Scotians."
He said the actuarial study by Oliver Wyman Ltd. is proof that it won't be necessary for insurance companies to hike premiums to pay for the increased payouts.
"We are absolutely confident, absolutely confident, that these changes can be absorbed without an increase in automobile insurance premiums," Steele told a news conference.
To raise rates, he said the insurance companies will have to prove their costs have increased before the provincial regulator, the Nova Scotia Utility and Review Board.
The act will have a new definition, similar to the one in Alberta, which provides a more precise definition of minor injury as including "strains, sprains and whiplash-associated disorders." That will narrow the number of people making minor injury claims, but also allow a broader range of people to sue for higher damages.
The government is also planning to introduce further amendments that will allow consumers to buy "full-tort coverage," which allows them to buy insurance that covers the cost of injuries, whatever their nature.
Steele said the province plans a wider review of auto insurance prior to April 1, 2011.
The cap on minor injuries has been criticized by victims of car crashes since it was introduced in 2003 to help insurance companies reduce soaring premiums. Victims have argued in court cases that the limit was too low to compensate for the pain and suffering they went through from injuries suffered in crashes.
The Liberals chastised the NDP for failing to make the changes retroactive to 2003 for car crash victims.
Leo Glavine, the party's critic on the insurance issue, noted that while in opposition the New Democrats had frequently brought victims of crashes to the legislature to publicly criticize the system brought in by the previous Conservative government.
"I remember the mantra, 'We will fix a wrong.' That's not part of today's changed Insurance Act," said Glavine.
Steele said the actuarial report shows that applying the law retroactively would have cost $69 million - and caused a wider premium hike for all drivers.
Others critics questioned Steele's assurance that rates would remain steady.
"My concern is that the cost of insurance will go up for Nova Scotians," said Allan MacMaster, a Conservative.
He predicted more litigation under the amended act, driving up costs that the insurance companies will seek to recover, he said.
Bill Adams, vice-president Atlantic for the Insurance Bureau of Canada, said the industry can't predict yet what the impact of the changes will be on its rates.
"It will add costs to the auto insurance system. But what the effects will be for the premiums, we don't know at this time," he said.
The new system goes into effect immediately, but the insurance companies will only be required to process new claims starting July 1 to give them time to adjust their systems.