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Alberta Auto Insurance Rates Jumped Just Before COVID-19 Hit. Here’s Why.

Premiums have increased as much as 30% since late 2019. Insurers say they’re catching up with rising claims, but experts blame systemic costs like “adversarial courtroom conflict."

June 4, 2021
4 mins
A man and woman look worried at the computer

Call it bad timing, but auto insurance providers in Alberta were playing catchup on rates last year just as the coronavirus pandemic was leading many Albertans to drive less.

Starting in late 2019 and continuing through 2020, the cost of car insurance increased “dramatically” throughout Alberta, according to a recent report from the provincial regulator responsible for approving car insurance prices. The Automobile Insurance Rate Board (AIRB) approved rate increases for 95% of insurers in the Alberta market in the fall of 2019 and “shortly afterwards, the pandemic caused a steep decline in driving,” the AIRB says.

The government agency blames “previous rate limitations in the province [that] put pressure on insurers with inadequate rate levels which has led to large fluctuations in premiums.” In 2017, Alberta’s then-NDP government imposed a 5% cap on annual auto insurance rate increases.

As of April 2019, auto insurers in Alberta claimed to have fallen so far behind rising claims that the industry was paying out $1.29 in claims and operating costs for every dollar it received in premiums. The AIRB report also notes Alberta has the highest rate of automotive theft in the country, with 29% of Canada-wide car theft occurring in the province (which, for context, is home to roughly 10% of Canada’s population).

In August of 2019, Alberta’s current UCP government eliminated the 5% cap and AIRB shows the regulator has approved 27 requests to raise premiums for basic passenger vehicle coverage by as much as 30% since then. Whether or not the insurance industry needed such steep rates hikes to remain sustainable is a matter of some debate.

According to a 2019 sector review, Alberta auto insurers collected a total of $5.43 billion in premiums that year, while paying out roughly $4.28 billion in claims. While that billion-dollar difference does not account for important items such as operating expenses or broker commissions – and AIRB data shows insurers paid out 105% of premiums in 2019 - it has nonetheless maintained incentive for reform.

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Most recently, a panel led by AIRB consumer representative Chris Daniel recommended a complete overhaul of Alberta’s auto insurance regime. The panel concluded in October 2020 that a no-fault model would better serve the province.

“A fundamentally reformed automobile insurance system requires a significant cultural shift in the attitude and expectation from current practices, participants and providers,” Daniel told a news conference at the time.

The Daniel panel said the rise in insurance costs was tied to higher injury claims being paid out under a system “characterized by adversarial courtroom conflict, fault-finding, delays and duelling experts.”

No-fault models instead utilize arm’s-length adjudication and set benefits to deliver faster care and compensation, the panel said, adding their proposal “will reduce insurance costs for the majority of consumers in the range of 10% and in the long-term will delivery stability in auto insurance pricing.”

With files from Thompson’s World Insurance News. Used with permission.

Jameson Berkow

Jameson Berkow is the Managing Editor of RATESDOTCA, responsible for ensuring our content stays focused on helping Canadians make better money decisions. An experienced reporter, editor and broadcaster, Jameson has held senior roles with the Financial Post, BNN Bloomberg and The Globe and Mail. Read more about Jameson on his LinkedIn profile.

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