Alberta’s Premium Question – How high can premiums go?

How high will auto premiums rise in Alberta? That hinges on the fate of the province’s minor injury regulation, according to the Insurance Bureau of Canada (IBC), which predicts hikes as low as 7% or as high as 40%, depending on its future.

The province’s Automobile Insurance Rate Board will hold hearings on the annual industry-wide adjustments in mid-June, and “it’s all about the cap,” IBC vice president Jim Rivait told CI June 2. The bureau will present two premium scenarios to the board: One—the 7% increase– represents a re-established $4,000 minor injury cap, which was struck down in 2008. The other—the 40% hike– acknowledges the increased claims and other costs that will accompany a cap-free system. The higher end of the bureau’s proposal is already raising eyebrows in Alberta, but “it would be irresponsible not to say what was needed to pay claims and stay solvent,” Rivait says.

If the current cap decision stands, insurers will see more than the individual cost of claims go up, he says. “The chance of a higher settlement will entice more people to file claims. “We’ll go back to the pre-reform days of injury lawyers.”

The rate board is scheduled to decide on an increase by the end of July. Last year, with an appeal pending on the cap, the board’s industry wide adjustment raised rates for basic coverage by 5%, a figure that reflected a -5% “experience adjustment” and a +10% “cap adjustment.” There is no agreement as to how much an eliminated will actually impact claims—in a recent actuarial analysis, consultants at Oliver Wyman estimate that bodily injury claims costs will increase by 45%.

Rivait notes that insurers aren’t the only ones to recognize just how much of a risk the current decision on caps represents. He points to OSFI’s request for cap-related insurer “stress tests” last year, noting “when you have federal regulators asking insurers to price appropriately, that’s serious business.”

Though the IBC’s higher premium recommendations  “aren’t consumer friendly,” Rivait acknowledges that they aren’t the only possibility. “I hope the minor injury regulation is restored and that we’re dealing with a product that’s priced affordably.”

Premiums aren’t the only thing in limbo. The rate board has suggested switching to individual, rather than industry-wide premium reviews, but that, too, is on hold, pending the cap decision.

This story was originally published by Canadian Insurance Top Broker.