Alberta has a “take all comers” rule for auto insurance. This means that if a motorist applies for insurance, the broker must place it somewhere and a carrier cannot reject an insurance application. “So instead, that [carrier] will say [to the broker], ‘We will cancel the contract because the book of business is not of the quality we want,’” Hodgson said.
“It’s quite often the smaller brokerage that suffers because larger brokerages may have a lot more contracts, so they have a lot more places to place business. Everyone suffers, but it’s the small broker in the small town who is more vulnerable.”
In 2017, Alberta Finance Minister Joe Ceci ordered the Automobile Insurance Rate Board to not approve rate increases of more than 5%. At first, that restriction was in effect from Nov. 1, 2017 through Nov. 30, 2018. It was recently extended to August, 2019, when a provincial election is widely expected.
If you are an Alberta broker, some of your clients could see increases of more than 5%. This is because the rate cap applies across an insurer’s total book of business, not to individual policyholders, a government official, speaking on background, told Canadian Underwriter.
Therefore, some individual motorists may continue paying the same rate and others might pay less.
“The primary reason for everyone being up in arms about this is the fact that claims costs are rising substantially both due to bodily injury and the costs of repairing vehicles,” Hodgson said.
Restricting rate increases to 5% is “unsustainable” for insurers because some insurers are paying out $1.28 (on claims and expenses) for every dollar they earn in auto premiums, suggested Celyeste Power, vice president of the western region of the Insurance Bureau of Canada. “We are advocating pretty strongly for a removal of the rate cap by August 2019. We definitely don’t want to see it extended again.
For his part, Hodgson worries about smaller brokerages that employ about half a dozen people in rural areas or small communities. “They may only have three or four contracts [with carriers] altogether. If they lose one of the big ones, then the viability of that brokerage is in question now.”
Until 2017, AIRB restricted rate increases to a maximum of 10% a year. Ceci’s order dropped that ceiling to 5%. The intent was to ensure consumers do not face significant rate hikes while the government works with the industry to find a solution to the rising costs of auto insurance, the government official said.
“I have heard of substantial damage being done to a vehicle just because they got their mirror knocked off, because of all the sensors,” said Hodgson. “The $ 2,000 bumper that’s eight to nine years old now can cost up to $10,000 because of all the sensors and whatnot that are in bumpers right now.”