Canadian Underwriter

Alberta’s new government: What next for the auto rate cap?

April 22, 2019   by David Gambrill

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As the newly-elected United Conservative Party (UCP) prepares to take power in Alberta, it remains an open question what the victory will mean for the province’s auto insurance companies and brokers.

In his electoral victory speech, UCP Leader Jason Kenney proclaimed that “Alberta is open for business,” alluding to the “lowest taxes in Canada,” and “a government that will cut its red tape burden by at least one third.”

Premier-Designate Jason Kenney addresses the media the day his after his election victory in Edmonton on Wednesday April 17, 2019. THE CANADIAN PRESS/Jason Franson

But how all of this will play out in the insurance sector remains a mystery.

None of the UCP’s nine major campaign promises refer to the auto insurance file, instead making pledges on issues such as taxes, the environment, energy, education, health care, employment, crime and infrastructure. But certainly, the province’s insurers and brokers have made it known to all that auto insurance in the province is a live issue.

The day after the election, Insurance Bureau of Canada (IBC) congratulated the new government and put auto insurance first thing on the agenda.

“Alberta consumers are facing significant issues with auto insurance,” IBC said in a statement congratulating the new government. “Local brokers and agents are also feeling the impacts of the issues in the system and this is affecting communities across the province.”

In a short statement today, the Insurance Brokers Association of Alberta (IBAA) said it is “looking forward to working with the new government to continue to make property and casualty insurance accessible and affordable in Alberta.”

The profitability of Alberta’s auto insurance business is of prime concern to the P&C industry. Alberta’s previous NDP government issued an order in December 2017 capping cumulative auto rate hikes at no more than 5%. The government cited concerns about the effect of hefty auto insurance rate increases on Albertans.

However, the cap meant insurers could not raise rates to keep pace with escalating auto claims costs. Alberta’s superintendent of insurance last year completed a request for proposal that would see an independent contractor conduct a claims costs study using information collected from the P&C industry. The Claims and Costs Study is expected to be completed by the end of December 2019.

During the province’s 2019 election, held on Apr. 16, the province’s insurance brokers initiated a letter campaign to let political candidates know about the issues arising from the 5% cap on rate hikes – including the negative impact of the cap on consumers.

“Access to auto insurance in Alberta is in crisis,” says a generic letter template provided for brokers to fill out and send to their electoral candidates. The template is posted on the IBAA website. “The government’s current 5% cap on premium increases for auto insurance premiums means that insurance carriers are unable to cover increasing claims costs both for physical damage and for escalating injury claims.”

The letter goes on to cite four different ways the cap is affecting consumers:

  • “Clients are electing not to insure their vehicles — they cannot afford to pay 100% of the premium up front as carriers withdraw payment plans.”
  • “With companies withdrawing from the auto market and brokers scrambling for alternate markets, the consumer is left with fewer insurance options.”
  • “Long-term clients are being asked to re-apply to their existing carrier via new applications.”
  • “Good drivers are subsidizing poor drivers to make up the shortfall in rates.”

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4 Comments » for Alberta’s new government: What next for the auto rate cap?
  1. Calv Lim says:

    Like I said in one of the post earlier, Alberta government should subsidize it’s auto insurance with taxpayer’s money to avoid non insured motorist from hit and run. We have seen cases of such surged as more as more people cannot afford auto insurance now. The current system is designed to encourage competition but when introduced the cap of 5%, no insurer is keen to go with it anymore. They just want out.
    To fix the broken system is to subsidize the differences of what private insurer offered and provincial average claim ratio using tax money, or to remove the cap entirely. (i.e. The current grid system works, so why bother messing with another cap.)

  2. Peter Hope says:

    The IBC and IBAA represent private industry. IBC’s primary concern is to their member companies – not consumers. It would be nice if the author could find a source that represents the public interest. Removing the cap will cause a massive pile up of rate applications at AIRB and rates will go up making insurance more expensive. How would removing the cap help Albertans? It’s in place for a reason. Insurers need to manage their claims cost by treating customers fairly so they don’t have to find a lawyer to sue for a fair settlement. Its their own fault and consumers shouldn’t have to cover it. If anything, further regulation is required to solve this problem, not less. Stop using IBC as a “source” – they are lobbyists. Sadly, the UCP will likely cater to the private interest and not stand up for consumers – hopefully their new Minister of Finance has a backbone.

  3. RZ says:

    As long as we continue to force an overregulated market. One which restricts insurance companies to such a degree that the entire industry in Alberta (or any other province for that matter) is not profitable. Then they/we will never see a reduction in premium. Whether it is the government or the companies providing the insurance.

    Subsidizing failure, does not stop the failure. It simply prolongs it. Let insurance companies decide what they want to use as measures of risk, as they are the only ones truly competent enough to do so.

  4. Dt says:

    the police in the province is not doing enough to control reckless drivers and it spills over on insurance costs

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