Are Alberta's rate caps fuelling an auto insurance crisis?

How to help clients manage rising premiums

Are Alberta's rate caps fuelling an auto insurance crisis?

Motor & Fleet

By Nicole Panteloucos

This month, the Alberta government’s cap on auto insurance rate increases is set to rise to 7.5%, a move that will offer some relief to the province’s strained market. The cap, initially introduced last November to limit rate hikes to 3.7%, was intended to make coverage more accessible and shield consumers from steep premium increases. However, it may have had the opposite effect.

These financial pressures have already led some insurers to scale back operations in Alberta. Last summer, both Aviva and Sonnet withdrew their auto insurance offerings in the province, citing rising claims costs and operational challenges.

The consequence of government intervention

The ongoing situation in California, where wildfires in the Palisades have created substantial challenges in the home insurance market, could serve as a warning for Alberta’s auto insurance landscape.

“At the moment, the Canadian cautionary tale is just how sideways Alberta has gone,” shared Adam Mitchell (pictured), CEO of Mitch Insurance. “Right now, the province is in a difficult situation when it comes to auto insurance.”

In California, government intervention through programs like the state’s FAIR Plan have prompted many home insurers to withdraw from high-wildfire-risk areas, reducing competition and leaving some homeowners either underinsured or without coverage. Alberta's auto insurance rate caps could create a comparable situation. By limiting insurers' ability to adjust premiums to reflect rising costs, these caps may drive insurers away, ultimately leaving drivers with fewer options.

Recovering from the auto theft surge

In addition to government caps, recent developments, such as Ontario’s sharp rise in auto theft - partly fueled by the expansion of organized crime - and growing concerns over illegal vehicles being shipped out through ports, have also had a major impact on the market.

"In 2019, the loss ratio for auto theft claims was 90%, meaning for every dollar collected, 90 cents was paid out in claims. Fast forward to 2023, and that number has skyrocketed to 190%, with insurers paying out $2 for every dollar brought in. This level of claims payout is simply not sustainable," said Mitchell.

According to the Insurance Bureau of Canada, in Ontario, auto theft claims costs increased by 524% between 2018 and 2023, surpassing $1 billion for the first time in 2023. With reports indicating a slight dip in auto theft during the first half 2024, Mitchell noted, “It's going to take a while for insurance companies to recover from what they went through.”

Telematics devices and privacy concerns

With premiums for commonly stolen vehicles rising by more than 25%, brokers may consider telematics solutions to reduce costs for clients with good driving habits. However, Mitchell cautioned that these devices - typically plugged into a vehicle’s port or embedded directly into the car - are often a grey area when it comes to data sharing and privacy concerns.

“If you get a ticket for speeding while driving, insurance companies can know about it for three years, after which regulations require them to remove that information from their system,” he said.

“My concern with telematics devices, however, is that the data could technically be stored indefinitely. They are good tools, but there should be more governance around their data,” added Mitchell.

Tips for helping clients manage auto insurance premiums

In addition to telematics devices, brokers can share these key tips with clients to help them better manage their auto insurance premiums:

  • Bundle policies: Combine auto with home or renters’ insurance for multi-policy discounts.
  • Maintain a clean driving record: Avoid accidents and violations to qualify for safe driving discounts.
  • Install anti-theft devices: Use car alarms or GPS tracking systems to reduce theft risk and premiums.
  • Limit mileage: Opt for pay-per-mile policies or low-mileage discounts if driving less frequently.
  • Choose a safer vehicle: Select cars with high safety ratings and advanced features for premium discounts.
  • Take defensive driving courses: Complete defensive driving courses to earn discounts and improve driving skills.

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