Canadian Underwriter

What is costing Alberta auto insurers the most

June 13, 2019   by Jason Contant

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Third-party liability coverage continues to be the bane of Alberta auto insurers’ existence, the province’s Automobile Insurance Rate Board (AIRB) revealed in its 2018 annual report.

Provincial auto insurers collect 53% of every dollar for third-party liability coverage, but are paying 59% towards the costs of claims, AIRB said in its annual report, released Tuesday. “Insurance companies in Alberta are increasingly relying on additional coverages to offset the costs of mandatory coverages; this trend is a growing concern for the industry and the AIRB is continuously monitoring how this trend can influence the market.”

In Alberta, the minimum mandatory requirement for insurance is for $200,000 in third-party liability and accident benefits coverage. However, almost all vehicles (98%) are insured for at least $1 million in third-party liability. This provides coverage for drivers who damage property or cause bodily injury or death while driving.

According to the report, the cost per claim to insurance companies for third-party liability has increased an average of 7% each year between 2013 and 2017. During those same years, the average vehicle collision rate in Alberta decreased 1.4% each year.

In 2017, 59% of all claims paid out by insurance companies were for third-party liability claims, 19% were for collision claims, 15% were for comprehensive, 6% for accident benefits and 1% for other claims. Auto insurers collected over $3.3 billion in premiums and paid out over $2.7 billion in claims expenses in 2017.

Also that year, the then-minister of Alberta’s treasury board and finance department directed the AIRB not to approve increases for private passenger auto insurance greater than 5% for the period between Nov. 1, 2017 and Nov. 30, 2018. That rate limitation was confirmed again in November 2018 and will continue until Aug. 31, 2019.

The regulator reported a 25% increase in filing activity in 2018 due in part to the industry’s response to the current market and the 5% rate limitation.

“The inability for rates to keep up with costs has led to insurance companies further segmenting risks, which results in significant increases for some consumers,” AIRB chair Charlene Butler wrote in the report.

“The AIRB continues to be concerned for the impact the ongoing pressure on rates has on the sustainability of the insurance industry and on the premiums Albertans pay for automobile insurance,” she added. The main contributors to this rate pressure continue to be:

  • the number of claims falling outside of the minor injury cap (just over $5,000 in 2017 and 2018). The severity of bodily injury costs has also increased 54.2% between 2012 and 2017, with ultimate loss cost estimates increasing from $47,308 in 2012 to $72,963 in 2017. Reasons cited by insurers for this increase in claims costs include fewer claimants captured within the minor injury definition than in the past; an increase in the multiple injury types claimants report; and increased legal representation.
  • increased vehicle repair costs due to enhanced technology and automation available in today’s vehicles. Trends in claims frequency and severity are expected to continue
  • rising vehicle thefts in the province. “Insurance companies have indicated that in the last four years, they have seen a $200 increase per year in severity related to theft claims alone,” the report said.

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1 Comment » for What is costing Alberta auto insurers the most
  1. Justin says:

    That’s the problem with for-profit insurance companies – they aren’t sharing with the public just how much of the premiums they’ve collected gets dispersed to it’s shareholders. Even sitting in meetings with my former employer they omit this information even from it’s employees.

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