Auto insurance caught in a political cross-fire

Alberta’s insurance industry saw a claims ratio of 77% for auto in 2020. While this is an improvement from 2016’s claims ratio of 87%, it still poses challenges for the industry, one industry rep notes.  

Despite signs the province’s auto insurers are actually losing money, the industry nevertheless is “caught in the middle” of political crossfire amid allegations by the province’s opposition NDP that the industry is “fleecing” consumers, says an industry association’s western representative.  

The newly released Alberta Superintendent of Insurance’s Annual Report finds auto premiums written amounted to $5.8 billion in 2020 and $4.4 billion in total direct claims. 

“When I look at the claims ratio, it has improved since 2016, though it is still challenging,” says Aaron Sutherland, vice president for Insurance Bureau of Canada’s Pacific region. “At 77%, when you factor in expense costs and other pieces — and the Superintendent Report points this out — you would expect a combined ratio for auto at about 103, which is certainly concerning from a profitability standpoint.”  

With a 77% claims ratio, and P&C insurers national expense ratio of 26%, Alberta’s auto insurers faced an estimated combined ratio of 103%. This amounts to an underwriting loss, according to the report and OSFI figures.  

The improvement in Alberta’s auto loss ratio may be credited to several things, including the elimination of the 5% cap on auto insurance rate increases, which expired in 2019, Sutherland suggests. “The decline from 87% to 77% between 2016 and 2020, that could be pandemic, but also just the removal of the rate cap,” he says.  

Alberta’s property insurers saw a claims ratio of 72% in 2020 — a large jump from the previous year, with the next highest claims ratio at 52% in 2018.  

“In 2020, we saw significantly challenging hailstorms around Calgary,” says Sutherland. “$1.3 billion in hail losses in 2020 from one event alone, so I think you see that reflected in the claims ratio.”  

2016 saw the largest claims ratio in recent years at 176%, which Sutherland attributes to the Fort McMurray wildfires. “When you think about the impact of changing climate and severe weather events we’re having, it touches down first and foremost in Alberta. It’s almost a disaster capital of Canada,” he says.  

Recent political discourse in the province has revolved around criticism of auto insurers, with Alberta’s NDP saying insurance companies made $1.3 billion in profits during 2020. “They’re fleecing Alberta drivers,” said NDP energy critic Kathleen Ganley in a weekend news conference.  

But Sutherland notes the NDP’s statement is not an accurate representation of what’s going on.  

“The folks making those suggestions [about the industry’s profit] are choosing to ignore what is actually within the report,” Sutherland says. “The report says there was a combined ratio of 103%. That shows that insurers are losing three cents on the dollar, in a sense, for every dollar of premium written.” 

“Insurers have operating expenses, they have taxes, they have other pieces that go into that premium pie and, when you factor those in, it shows a very different picture,” he adds.  

Feature image by RobertCrum