Alberta’s auto insurance market might be headed down a similar path as California, where pricing and underwriting constraints led to a rash of carrier exits this year, Insurance Bureau of Canada (IBC) president Celyeste Power has cautioned.
Alberta is set to introduce a rate cap to ease high auto insurance premiums in the province, which will take effect in January 2024.
However, Power warned that the measure is only a band-aid for Alberta’s insurance affordability crisis.
“Rate caps and rate freezes don’t do anything to improve affordability; they can make it more difficult to find insurance,” she told Insurance Business. “Companies are putting in less capital, and there’s less competition, and we’ve already seen what that leads to in the market.
“My fear in Alberta is that we’re walking down a path that looks a lot like California, where they had a rate freeze in place for several years and replaced it with a rate cap once they started to see the impacts, and now many insurers are leaving that market. We’re really hoping not to see that in Alberta.”
Alberta’s finance minister, Nate Horner, announced the rate cap last month, which he called a “short-term measure” to keep auto insurance costs down for good drivers.
Good drivers are defined as those who have not been at fault in any accidents for the past six years, have not been convicted of any traffic infractions under the Criminal Code for the past four years, and have had no major traffic convictions or more than one minor traffic conviction in the last three years.
The rate cap is tied to the inflation rate and restricts the increase of premiums to no more than 3.7%. It replaces the rate freeze Alberta implemented in January 2023.
At the same time, the province has commissioned a third-party to explore long-term reforms for Alberta’s system.
Finding long-term solutions for Alberta will be one of the top priorities for the IBC next year, Power said.
“The best way to make auto insurance more affordable is to reform the system. We’ve put forward reform options for them to do that could take over $300 for each individual driver out of the system,” she said.
“In 2024, it’s going to be a top priority area for us to work with the government to get reforms in place to reduce costs and then let a healthy, competitive marketplace take over.”
Power was optimistic that once long-term solutions kick in, Alberta auto insurance rates can get to a more stable place.
However, she said reforms must account for the cost pressures carriers face in the market and lead to sustainable solutions that will benefit all stakeholders.
“From the consumer perspective, nobody wants to pay more for anything,” Power said. “The affordability crisis in Canada is very, very real, and inflation is hitting everyone hard.
“But we’re also seeing increases in industry. Labour costs are going up, and the cost of repairing vehicles is going up. The legal costs in the Alberta auto insurance system alone are up 30%. All those cost pressures are increasing, even with the rate cap. At some point, those cost pressures do need to make their way out.
“It’s understandable to want to protect the affordability for Albertans. However, I think there are better ways of doing it, and that includes reforming, giving people more choice in what they buy, and letting the very competitive market compete for that business.”
At least one auto insurance carrier has pulled out of Alberta this year due to the rate pause. The withdrawal affected 16,000 drivers.
In the wake of the announcement, several carriers have stepped up to assure Alberta drivers of their continued commitment to providing auto insurance in the province.
The Insurance Brokers Association of Alberta earlier warned of a potential domino effect of carrier pullouts if Alberta’s rate freeze was prolonged.
What are your thoughts on Alberta’s auto insurance market? What long-term reforms do you think are needed to make rates more affordable? Please share your comments below.
