Opinion: It's time for Alberta to uncap auto insurance rates
Alberta’s auto insurance system is reaching a crisis point. Legal costs related to auto insurance claims are soaring — up 103 per cent over the past decade. The cost of vehicle theft is up 55 per cent in the past two years. The price for repairs and replacing damaged vehicles is growing at double digits. On top of this, the record-breaking hailstorm in Calgary on Aug. 5, has added $900 million in unexpected auto insurance claims. As these costs continue to grow, insurers have paid out more in claims and expenses than they earned in premiums — losing an average of 10 cents for every $1 of premium so far this year. At the risk of stating the obvious: This is not sustainable. No business can operate effectively when the product they sell costs more than the price they are allowed to charge. The provincial government oversees the auto insurance system. Unfortunately, the only actions taken by government to date has been to freeze rates in 2023, followed this year by the “good driver” rate cap. Neither of these actions have had the desired effect. With enormous pressure on premiums, the rate cap has forced auto insurers to leave the market. Others have restricted the coverages they provide in order to remain viable. These actions are forcing drivers to purchase new, often more expensive, coverage from other carriers. It’s a key reason why rates have grown 12 per cent over the past two years, despite government’s rate interventions. What about good drivers? Unfortunately, the rate cap forces insurers to charge the best drivers more, in order to subsidize those whose rates are capped, but should otherwise be increasing. This is not how the competitive insurance market should work. Rates have increased and coverage options have been reduced. Even Finance Minister Nate Horner has acknowledged the rate cap is “making it worse” for the driving public. Credit ratings agency Morningstar DBRS recently predicted that more insurers would likely exit the province’s auto market because of the rate cap. There’s no mystery as to why this is happening. Albertans need the provincial government to take real action — now. The rate cap must be removed urgently so that competition can return to the market and drivers can have the choice they deserve. The best way to support good drivers would be to end Alberta’s Grid framework, which caps rates for high-risk drivers and forces those with clean driving records to pay a subsidy as a result. This alone adds over $65 to each good driver’s premium. With all the focus on “good drivers,” it’s absurd that this provincial policy hasn’t already been rescinded. Clearly, the province must also reform the system to address the growing cost pressures and improve affordability over the long term. The province has committed to outlining its next steps for reform this fall, and the urgency of this work cannot be overstated. Everyone agrees that drivers deserve more affordable insurance, but it’s the provincial government that defines the coverage and product that is sold. Reforming the system is in the hands of our elected officials, and any changes will take time. New provincial legislation is likely to be required and that work needs to begin today to ensure drivers see savings as quickly as possible. Despite its intention, the provincial rate cap is making the affordability of auto insurance worse, not better, and must be removed before it causes any further damage. Only meaningful action to address the cost pressures underlying auto insurance will create a stable and competitive marketplace that offers more choice and improved affordability for drivers. Alberta’s insurers are keen to work with the government to make that a reality. Aaron Sutherland is vice-president, Pacific and Western, at Insurance Bureau of Canada. Bookmark our website and support our journalism: Don’t miss the news you need to know — add EdmontonJournal.com and EdmontonSun.com to your bookmarks and sign up for our newsletters here.