Alberta latest rate cap is underway: but what’s next for reform?

As Canada’s auto insurers await direction from the Alberta government on the province’s long-term reform solutions for auto insurance, industry advocates have suggested short-term options to the auto product. 

The Alberta government announced last fall it would be retaining the auto rate cap for “good drivers” into 2024, along with further regulatory intervention and premium payment plans. The new iteration of the rate cap has been in effect since Jan. 1, 2024.  

In its announcement, the government outlined it had commissioned an external consultant to produce a draft report to analyze long-term reform options.  

The draft was expected by the end of 2023. Yet, multiple industry sources tell Canadian Underwriter the draft report has not yet been received as the consultant needed more time.  CU reached out to the external consultant for comment but did not hear back within its publishing window.  

Savannah Johannsen, spokesperson and press secretary to Alberta’s Ministry of Treasury Board and Finance, said the government expects a final report within the first quarter of 2024. 

“We are considering all recommendations from Albertans and insurance experts,” Johannsen said. “The insurance models of other jurisdictions — both within Canada and abroad are also being analyzed. The results of the analysis will help inform the government’s decision in implementing sustainable, long-term solutions to address auto insurance affordability in Alberta.”  

Meanwhile, Insurance Bureau of Canada, an association representing Canada’s home, auto and business insurers, says auto insurance affordability in the province must be urgently addressed. 

“Premier Smith has been quite clear of her intention to introduce significant reforms to Alberta’s auto insurance market, and that’s a good thing, but it’s likely a multi-year process,” said Aaron Sutherland, vice president of IBC’s Western and Pacific regions. “We’re…encouraging government to move urgently on those longer-term reforms they’re exploring.” 

With that, IBC and The Canadian Federation of Independent Business (CFIB) last week called on the Alberta government to axe two taxes charged on every auto insurance policy as part of the 2024 provincial budget. 

Combined, removing these taxes would return approximately $100 annually to drivers on their policy, IBC said.  

One of the taxes is the Insurance Premium Tax (IPT), which amounts to a 4% charge to auto policies. IBC says this amount has grown by 28% since 2018, resulting in over $1 billion in increased costs to Alberta’s drivers 

The second is a levy on auto insurance, which is meant to recover health care costs. However, IBC says this will generate $86.8 million this year for the province.  

“Now the industry will need time to adjust their systems to account for that,” Sutherland said of the tax removal. “This isn’t something that’s overnight, but it is certainly near-term and can be done much more quickly than some of the longer-term product reform options government is considering.” 

These savings are on top of the $200 IBC outlined in its long-term reform proposal, Enhancing Care & Expanding Choice, from Spring 2023. 

The P&C industry has strongly warned that an auto insurance rate cap will put financial strain on auto insurers, who are contending with cost pressures from inflation and vehicle damage costs, bodily injury cost pressures, as well as increasing incidents of theft. 

At the time of publication, no further insurers have withdrawn from the Alberta auto market.  

“Since the good driver price protection was instituted, we have not received notices of withdrawal from any auto insurance companies,” Johannsen said. “Insurance providers are required to give notice to the Superintendent of Insurance if they plan to either fully or partially withdraw their auto insurance business.” 

Feature image by iStock.com/Jinda Noipho