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Alberta auto cap leading to broker-carrier contract cancellations


January 14, 2019   by Greg Meckbach


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Alberta’s ceiling on auto rate increases is causing some brokers to lose their contracts with carriers.

In Alberta, as a general rule carriers may not hike rates by more than 5% across their book of business.

“It has resulted in quite a few cancellations” by carriers of their broker contracts, said George Hodgson, CEO of the Insurance Brokers Association of Alberta, in a recent interview.

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.”


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10 Comments » for Alberta auto cap leading to broker-carrier contract cancellations
  1. David Yuen says:

    Public insurance is the best insurance company.

  2. Thom. C.J. Young says:

    There is not a brokerage in Alberta, large or small, that isn’t dealing with the threat of eminent cancellation by one of their insurer partners while at the same time dealing with severe restrictions on the writing of new auto insurance business.

    Many large brokers are dealing with insurer cancellation of large books of business in their offices affecting thousands of clients. Working to rewrite these in a new market is especially difficult with the severe auto underwriting restrictions imposed on new to them business by all auto insurers. Restricting convenience to the clients as a deterrent is a new underwriting tool, so things like payment plans on policies are not being offered by the insurance companies so the client will choose some other company. The logic in this is clear, if you’re losing money on every dollar of auto premium you write, not writing auto insurance saves you money!

    The public is starting to take notice and complaints are escalating. Consumers being impacted by the broker cancellations are calling the regulator about the disruption to their relationship with the insurer. The broker gets the blame here but the circumstances the customer finds themselves in is out of their control.

    Actuarial indications are that underwriting losses are between 9 and 20% due to the capping of rate increases at 5% for 3 annual policy terms. At best to stay even the insurers need 4 more percent than allowed but some need 15 more than allowed. The rate increases will not be popular with consumers. The regulator needs to act or the gap in rate adequacy will only continue to increase and the problem of availability of coverage that is already difficult will get worse.

    Discussions about leaving the Alberta Auto insurance market have taken place at the board level of some of Canada’s largest insurers. Some might even leave altogether if this problem isn’t fixed soon.

    The quickest way to make a healthy market unhealthy is to meddle in the free market determination of the cost of the products sold. It never ends well and the fix never works as well as just letting it look after itself. Why this is so hard to see remains a great mystery to many of us.

  3. Reece says:

    For-profit insurer’s are playing games again. This is exactly why public insurance is the way to go.

  4. Terry says:

    Reece and David

    The 15% to 30% increases that ICBC are implementing across the board and the burden that those losses are placing on the public purse show that this problem is here whether or not the insurance carrier is public or private….

    • Reece says:

      30%+ increases in the private sector insurance in BC for optional. I’m an insider. The private insurer cherry picks it’s risks and yet despite them having the best risks they still had to raise rates more than 30% over the past 2 years. Now imagine when private insurance companies controlled the market and were forced to take on the higher risk drivers? The private insurer I worked for until recently also raised rates for making Comprehensive claims, poor credit score, Telemetrics. Their client retention is falling to abysmal depths. I predict they will be pulling out of BC very soon.

  5. Caleb Makesymchuk says:

    So if we compare to some of our other provinces. ICBC has a massive debt due to rate inadequacies. Additionally, if the insurance companies have not left the Ontario auto market (albeit the largest market), I do not expect them to leave Alberta any time soon. The loss of contracts as George notes affects the 2 market small town brokerages the most. As Thom notes, the issue with large brokerages having to move large books of business is difficult, especially with the atrophy of the book of business as others will not take that business. Lastly, if a broker is doing effective front line underwriting in addition to maintaining due diligence to underwriting rules, the rates the companies set out for the risk should compensate the amount of risk associated with that driver(s). The fact that claims costs are on the rise is real and companies need to account for this trend, hence the increase of rate cap to the previous 10% would benefit our companies no doubt. But fixing the problem would require a series of well placed dominos in the strategy to ultimately achieve the compounding effect to affect change in the current system.

  6. Jackie says:

    I agree with Thom….well said! It is not “small brokerages in small towns” that are suffering or more vulnerable. It is every brokerage in Alberta regardless of size or city. All brokerages are vulnerable at this time as there is no guarantee that you would be safe from a contract being cancelled. Unfortunately there is a loss of business for every brokerage, every direct writer, and combined with this very difficult situations for consumers. These cancelled contracts are not just affecting personal auto insurance.

  7. TBA says:

    Whoa, Whoa, Whoa
    ICBC has debt, not because of rate deficiencies, it is because the BC Liberals (formerly Socreds) cyphoned any profits out of ICBC to balance their budget over the last 12 to 15 years.
    I have mentioned over and over again, to please deal with factual information.
    ICBC ran extremely well until the BC Liberals figured where they can steal funds to keep campaign promises. I am a life time BCer and Broker and know first hand.
    As for 30% increases in BC, please reference your material and why not let us know where your from? Unless you live, breathe, eat in the province you are making comments about, don’t comment about the specific province unless you provide facts.
    FULL DISCLOSURE, BECAUSE I DON’T WANT THE UPCOMING FEDERAL ELECTION TO BE HARMED BY BC LIBERALS. BC LIBERALS ARE NOT THE SAME AS FEDERAL LIBERALS, BC LIBERALS AS FAR RIGHT WING AS YOU CAN GET.

  8. UnderwriterA says:

    They got cancelled because they wrapped horse **** with candy coating and put on books. If you’ve seen the amount of misrepresentations brokers did “on behalf” of their clients.

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