Alberta auto premiums soar despite 2023 rate cap

Auto insurance premiums in Alberta increased by 5.24% in 2023, despite a government pause on rate filings, Insurance Bureau of Canada says.

“We’ve seen this time and time again: Rate caps simply don’t work,” comments Aaron Sutherland, vice president of IBC’s pacific and western regions. “They don’t improve affordability for drivers and only serve to push problems down the road.

“Urgent action is needed to address the cost pressures underlying premiums to improve affordability for drivers, and it’s imperative that this work begin now.”

A 2024 actuarial study commissioned by the government shows Alberta drivers would pay an average annual auto insurance premium of $2,050 after July 1, 2024, if no auto reforms were undertaken.

In support of its critique of Alberta’s cap on rate increases last year, Canada’s association of P&C insurers cited new data from the General Insurance Statistical Agency (GISA), a statistical agency created and overseen by provincial insurance regulators. It shows auto insurance rates increased even though the Alberta government had ‘paused’ insurer filings for auto rate increases last year.

This is due to a number of factors, IBC says.

The implementation of rates approved by the government’s Automobile Insurance Rate Board prior to the rate pause;
The rate cap forced some insurers to leave the market or restrict the coverages they provide in order to remain viable. Their customers were forced to find new, often more expensive, coverage elsewhere; and,
New drivers, as well as those who moved, changed vehicles, or added a spouse or dependent to their policy, may have seen rate increases last year, which contributed to the overall increase in rates.

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Rate cap du jour in 2024

So far, this year’s new 3.7% cap on rate increases for ‘good drivers’ is doing nothing to reduce auto insurers’ claims costs, thus putting even more pressure on auto insurers to raise their rates, Canada’s auto insurers say.

As of Jan. 1, 2024, the Alberta government ended its rate pause and replaced it with a ‘good driver’ rate cap as a short-term solution.

Under the new cap, the province’s auto insurers can’t charge more than a 3.7% rate increase for good drivers. The government defines a good driver 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
more than one minor traffic conviction in the last three years.

Alberta says the ‘good driver’ cap applies to about 80% of the province’s drivers. It also says the percentage is in line with the 3.7% inflationary increase to the Consumer Price Index Inflation (CPI) in the province. (Insurers say their auto accident claims inflation rates, at more than 11%, are not pegged to the CPI, but are rather a result of auto repair cost increases, auto theft claims, and ongoing supply chain interruptions that started during the pandemic.)

Alberta is currently conducting public consultations on a longer-term solution, which could be a form of no-fault auto regime, per recent public comments made by Alberta Premier Danielle Smith.

“You absolutely can bring rates down if you go no-fault,” Smith said of the model adopted in neighbouring provinces, where, after an accident, each driver’s insurer pays for their medical expenses and claims costs, regardless of who is at fault.

“The way no-fault works is that you get a schedule of payments. It’s, ‘If this happens to you, then you get this compensation.’ And you give a schedule of payments and you have very, very limited number of injuries that allow you to go to court,” she said on the Your Province radio show.

“On the other hand, there are people who have been injured who want the ability to sue,” Smith said. “So that’s what we’re consulting on right now. Do people want us to do that?”

That ability to sue for minor injuries is what’s causing Alberta auto insurers headaches.

Auto insurers have been advocating for the provincial government to reign in escalating claims costs, including those associated with legal challenges for minor injuries. They say these legal costs are a major driver behind higher auto insurance premiums.

“In recent years, bodily injury costs following accidents (which includes legal costs and fees) have risen dramatically in Alberta and are now among the highest in Canada,” IBC says in its report on Alberta auto insurance, Enhancing Care and Expanding Choice.

“In 2012, the average bodily injury claim following an accident was $45,462. That amount increased 79% by 2022 to $81,140. This increase in bodily injury claims costs is one of the single largest pressures on insurance premiums in Alberta and is only expected to grow in the years ahead.”