Alberta rate cap will spark steep premium hikes: IBC report

Unless changes are made to Alberta’s auto insurance system, including the removal of the rate cap, pressures from claims costs will have provincial drivers facing premium increases of 87.6% between 2023 and 2033.

So says a new report from MNP, a professional services firm, that was commissioned by Insurance Bureau of Canada (IBC).

“Despite the government’s intention, the rate cap has made the affordability of auto insurance worse, not better, for Alberta drivers. It must be removed immediately before it causes any further damage,” says Aaron Sutherland, IBC’s vice president, Pacific and Western. “Only meaningful action to address the cost pressures underlying auto insurance will improve affordability for drivers.”

IBC commissioned MNP to assess impacts of the province’s rate interventions on the Alberta auto insurance system and the insurance premiums paid by drivers.

In addition to the near-90% projected premium jump, the report says the province’s ‘good driver’ rate cap will result in “large differences in growth rates between those who are covered by the cap and those that are not.”

Plus, it projects premiums for those deemed ‘good drivers’ by the province will rise by 43.8% between 2023 and 2033, while Albertans who don’t qualify as ‘good drivers’ may see premium hikes averaging of 148.2% over that same period.

Under the January 2024 cap, the province’s auto insurers can’t charge more than a 3.7% rate increase for ‘good drivers,’ which are defined as anyone who hasn’t had an at-fault accident in the past six years; a Criminal Code traffic conviction in the last four years; a major traffic conviction in the last three years; or more than one minor traffic conviction in the last three years.

Other issues

MNP finds Alberta’s rate cap creates other negatives, including:

In the past 18 months, premiums grew 12% under the rate freeze implemented in January 2023 and the rate cap implemented in January 2024. And drivers falling outside the rate cap are seeing premiums rise by an average 15% annually.
Young drivers and new drivers in particular are seeing negative impacts on their insurance costs.
The cap harms the competitive market as drivers who switch insurers no longer qualify as ‘good drivers’ and may face higher premiums. This policy has reduced drivers’ ability to shop for lower premiums.
Many fall outside the ‘good driver’ definition for reasons unrelated to their driving records – including those who move, add a child or spouse to their policy, buy a new vehicle or change insurance companies.

“We’ve seen this time and time again: Rate caps simply don’t work and ultimately hurt drivers,” says Sutherland. “Premiums have continued to climb and the availability of coverage has diminished. No business can operate when the product they sell costs more than the price they are allowed to charge for it. It’s time that Alberta’s rate cap is removed.”

Indeed, ‘turbulence’ in Alberta’s market has been alluded to by insurers who have opted to exit the auto coverage business in the province without directly mentioning the cap.

MNP’s report cites other cost pressures on the Alberta auto insurance system that exceed the 3.7% rate cap. In the past two years, MNP says, legal costs in the province have risen a projected 19%, and costs to deliver care and recovery benefits to people injured in collisions are up approximately 27%. Further, the Alberta government’s health levy on auto insurers is posting a sharp 60% increase.

What’s more, costs for new and used replacement vehicles have climbed 27% and 9%, respectively, and costs related to auto theft have risen 55%.

Feature image by iStock/krisanapong detraphiphat