Auto insurance rates are about to go up in Alberta. We thought it might be helpful to provide you with information around the history and reasons behind rising automobile insurance rates. Continue reading to learn more about these changes.
How We Got Here
On September 1st of this year, the provincial government of Alberta allowed the province’s Auto Insurance Rate Cap to expire. As soon as the provincial cap on raising auto insurance rates expired, most insurance companies in the province applied to increase their rates, with some requests being in the range of a 10 to 20 percent increase.
The Auto Insurance Rate Cap was implemented in 2017 under Alberta’s previous NDP government. The Government placed the cap due to requests by insurance companies asking to increase premiums due to rapidly increasing claims costs.
The cap imposed by the government limited Alberta’s Insurance Rate Board (AIRB) by preventing them from approving any rate increase above the government’s 5 percent threshold. Due to claims costs continuing to increase since the cap was implemented, the relatively low premiums that insurance companies have been charging have not been enough, and the insurance companies have been unable to cover the costs of claims.
This has resulted in negative effects not just for the insurance industry, but also for their clients: Alberta’s drivers.
Claims costs have increased rapidly over the past five years, reaching a critical point in 2016. In that year, the cost of claims and other expenses began to exceed the premiums that many insurance companies were charging, meaning that those companies were left unable to pay for claims costs with the premiums they collected. In some cases, claims costs were 130 percent higher than the premiums charged by the insurance companies.
Companies began looking for ways to correct this imbalance by increasing premiums but ran up against the government’s imposed cap of 5 percent. As they were unable to raise their premiums enough to cover their increased costs, auto insurance was no longer profitable, requiring the insurance companies to take actions that would allow them to minimize their losses.
The Effects of the Rate Increase Cap
The imposed 5 percent rate cap had numerous effects on consumers. In addition to eliminating payment options and requiring consumers to pay the full price of the policy at its inception, which burdened them with high upfront costs, it also removed the consumer’s ability to purchase auto insurance products that were not required by law, such as collision insurance.
The cap also increased wait times for approval of new auto insurance policies, required people who already had insurance to re-submit applications in order for their coverage to continue, and cancelled previously existing broker contracts, effectively limiting customers’ renewal options.
This has created unrest for Insurance brokers and their clients, resulting in widespread frustration across the province.
Consultations Between Government and Industry
Claims have increased so rapidly over the past five years that it has become unsustainable for the industry. If claims costs continue to increase at their current pace, the insurance industry would have to raise their rates significantly every year to keep up with the increasing costs.
No one wants insurance rates to continue increasing perpetually, so representatives from the insurance industry are consulting with the government, and working together to find alternatives.
The insurance industry wants to focus on two areas in order to lower insurance premiums. The first is minor injury legislation, which covers the sort of pain and suffering that occur in incidences causing whiplash along with the accident benefits portion of the policy.
Where Insurance Prices Go From Here
The system as it has existed since 2017 doesn’t work for the insurance industry or its clients.
Consumers, the provincial government and the insurance industry don’t want to see rates increase significantly each year, and neither does the provincial government. Having a product that most people can’t afford is simply bad business.
Insurance industry groups will continue to work with the provincial government to find a solution that works for everyone: the insurance providers, the government, and, most importantly, the people they both serve.
Coverage is subject to policy wording, terms, conditions, and deductibles. Protection is limited to the perils, coverage, exclusions, and limits shown on the policy.