The Nova Scotia government is moving ahead with a controversial review of the cap on insurance awards for accident victims.

The law now states that people who suffer minor injuries in car accidents are restricted to damage awards no greater than $2,500.

The ruling NDP says the cap is not fair and released a discussion paper Friday that asked whether any changes should be retroactive.

This could mean that whatever replaces the cap would apply to people who've been in accidents since the cap system was imposed seven years ago.

The cap was introduced by the Progressive Conservative government of John Hamm, which promised voters during the 2003 election campaign that it would bring down insurance rates by 20 per cent. Premiums have fallen since then.

Removal of the cap would be a serious blow to the insurance industry, Bill Adams, vice-president Atlantic with the Insurance Bureau of Canada, said Friday.

"Effectively what you could do is … add in some significant costs to the insurance industry, and really, it's like a sucker punch," Adams said.

Finance Minister Graham Steele said he understands that the insurance industry is not pleased, but legislation to change the cap will be introduced this spring.

"Our message to the industry is this system is going to change," he said. "The government believes it is unfair and we are committed to a change.

"So, work with us on what it is that's going to replace the system rather than arguing about why it is we should keep a system that, in our view, is not working."

Steele acknowledged that making the legislation retroactive for seven years would be the toughest decision.

"We can fix the future — we can make things better for everybody who's hurt in the future," he said. "But we have seven years worth of injured people who believe the system is unfair.

"We don't know what the price would be for people to pay automobile insurance premiums to fix their problem, as well."

Adams said motorists will pay higher premiums if the government goes ahead and backdates payments seven years.

The cap review will take place over the next few months. The government is inviting people to submit ideas and opinions about the cap, including potential alternatives.

Last month, the Nova Scotia Court of Appeal ruled that the cap on damages for pain and suffering is not discriminatory.

The court dealt with two appeals simultaneously from three accident victims who challenged the 2003 legislation, claiming the law violated their equality rights under Section 15 of the Charter of Rights and Freedoms.