The Insurance Bureau of Canada (IBC) has highlighted the long-term strained of Alberta’s auto insurance rate freeze on the market.
In a new blog post, Hanna Beydoun, policy manager at IBC, said that Alberta’s recent implementation of a 3.7% cap on auto insurance rates, coupled with a prior freeze on rate filings in early 2023, is bringing significant challenges. While intended to provide short-term affordability, the price controls have led to a reduction in market competition, increased premiums for some, and are driving some insurers out of Alberta.
In Alberta, the rate cap limits the amount insurers can raise premiums, while a rate freeze blocks any rate increases for specific periods, even as claims costs rise.
According to Alberta’s Automobile Insurance Rate Board (AIRB) and the Office of the Alberta Superintendent of Insurance, these restrictions are straining insurers financially, forcing some to reassess their market presence. Since these measures were introduced, IBC noted that three insurers have already exited the Alberta market, citing unsustainable operating conditions.
For drivers, the effects of these interventions have been mixed. IBC cited MNP, a consulting firm, as reporting that premiums have risen by 12% on average over the past 18 months under the cap and freeze, while drivers not covered by the cap are facing annual premium hikes of up to 15%.
“When insurers are forced to lose money, they will look to deploy capital to other lines of business or in other jurisdictions with less interventionist governments. These actions impact the level of competition for auto insurance, which typically serves as the equalizer between supply and price,” Beydoun wrote.
“In a competitive market, the goal of insurers is to increase the number of consumers they can add to their book of business. The price of an auto insurance product is simple – premiums are set based on expected claims costs plus a profit margin for the company. The level of profit an insurer can earn through providing auto insurance to consumers is also mandated by the government.
“Alberta drivers are now at risk of facing higher premiums when current rate interventions are inevitably lifted, as insurers will need to recover losses incurred during the cap and freeze periods.”
To address affordability and stability in Alberta’s auto insurance market, Beydoun suggested a focus on market-driven reforms rather than price controls. By shifting away from rate caps, the province could promote a competitive insurance environment that reflects real risk factors and encourages market participation.
Reforms could also incentivize safe driving, with premiums adjusted to reflect individual driving records, while higher premiums would be imposed on drivers with infractions or risky behavior.
Alberta’s auto insurers have put forward a series of reforms aimed at controlling costs while ensuring that drivers receive adequate protection and benefits. More information is available at betterwaytosave.ca.
