Insurer backs away from Alberta auto — could others follow suit?

Alberta’s auto insurance rate pause has caused one insurer to back away from the market, with others potentially following suit.

The insurer is said to have a market share of less than 0.5% of auto policies in Alberta, a source familiar with the matter told Canadian Underwriter, affecting about 16,000 clients.

Plus, there are as many as three insurers that intend to pull out, sources warned CU.

The rate pause was implemented by Alberta’s United Conservative Party earlier this year. 

Alberta’s Minister of Finance Nate Horner confirmed one company has withdrawn temporarily due to the rate pause, which prohibits insurers from raising rates until the end of 2023.  

“We listened to Albertans and provided temporary relief by pausing new rate approvals to private passenger vehicle insurance through to the end of 2023,” said a statement from Minister Horner to CU.

“One company has provided notice that they intend to withdraw from our market because our rate pause prevents them from increasing their rates. This pause is a temporary measure to give Albertans some breathing room and we recognize it is not sustainable in the long term.”

The ministry said it can’t name the company due to the provisions on confidentiality of insurer information in Alberta’s Insurance Act (Section 816). 

At the time of publishing, the ministry said it has not received notices of withdrawal from other auto insurance companies.

Impact on insurers and insureds 

Clients of the company that withdrew will be left in the lurch to find a new policy — an increasingly difficult process when the marketplace shrinks, experts explained. 

“This should be really disappointing news for Alberta drivers — and really concerning news,” Aaron Sutherland, vice president, Western & Pacific, Insurance Bureau of Canada told CU. “It means we have one less option to choose from in Alberta as it relates to our auto insurance needs. 

“We’re going to have a large number of customers who have to find coverage elsewhere, at a time when it’s increasingly difficult to do so,” he added. 

With fewer options, customers may find themselves challenged to come by an affordable price and the right level of coverage for their risks.  

“This is unfortunately showing that we’re trending in the wrong direction; we’re actually seeing carriers leave, when we should be doing all that we can to attract companies to this marketplace, to make sure people have as much choice, and as much competition as possible,” Sutherland said. “That’s how you make sure you’re getting the best price [and value] for your [auto insurance] dollar.” 

The impact is not only on consumers, however. The Insurance Brokers Association of Alberta (IBAA) warned in a press release that the insurers’ withdrawal could “cause a domino effect” in the industry unless the auto product is reformed. 

“The ongoing concern is that the withdrawal of one carrier puts additional pressure on the remaining insurers to pick up the slack to ensure [that] the drivers that are being cancelled have adequate coverage,” IBAA wrote.

For immediate relief, IBAA suggested the provincial government suspend the provincial tax on insurance premiums for personal auto insurance.

For long-term solutions, IBAA suggested changes to regulation. “We support changes to the insurance regulations to allow drivers to have more choice in how they purchase insurance, with options to choose a limited right to sue for minor injuries, while still maintaining the right to sue for major injury.

“We also feel strongly that premiums charged should be based on the risk, and that good drivers should not need to subsidize bad drivers. Along with this change, IBAA would like to see an immediate increase in pre-approved treatment provisions for injured motorists, with a ‘care not cash approach’ to minor injuries.” 

Other insurers have previously spoken out about the downsides of a rate pause. A Definity executive said in a previous earnings call they were committed to “not deploying capital” into a line of business in a rate freeze.

“Economical and Sonnet continue to operate in the Alberta auto insurance market,” Paul MacDonald, executive vice-president, personal insurance & digital channels, Definity told CU.

“We are disappointed to see that the government has chosen to pause rates as inflation continues to drive up the cost of repairs, replacement cars, and rentals. Albertans have seen the effects of rate pauses in the past and know that they do not work. We agree with Minister Horner that the rate pause is not a long-term solution. This decision will lead to less competition, fewer insurance options for Albertans, and eventually price volatility.”

 Related: After Alberta election, what’s next for auto insurance?

Feature image by iStock.com/CHENG FENG CHIANG