New report by MNP projects driver premiums could increase by 87.6 percent over next decade under province’s auto insurance rate cap
A new report from professional services firm MNP, commissioned by the Insurance Bureau of Canada (IBC), has found that the Alberta government’s auto insurance rate cap is negatively impacting drivers in the province, and the situation is only going to get worse unless the rate cap is removed and the government brings forward reforms to address the underlying cost pressures impacting coverage.
“The report is clear that despite the government’s intention, the rate cap has made the affordability of auto insurance worse, not better, for Alberta drivers. It must be removed immediately before it causes any further damage,” said Aaron Sutherland, Vice-President, Pacific and Western, Insurance Bureau of Canada (IBC). “Only meaningful action to address the cost pressures underlying auto insurance will improve affordability for drivers. Alberta’s insurers are keen to work with the government to take these actions.”
Albertans are increasingly facing challenges securing the coverage they need due to the rate cap, and as a result, are being forced to purchase new, often more expensive coverage from other carriers. In this environment, IBC commissioned MNP to assess the impact of the provincial government’s rate interventions on the province’s auto insurance system and the insurance premiums paid by drivers. MNP found that:
If the rate cap remains in place and no changes are made to the auto insurance system, claims cost pressures could increase driver premiums by 87.6% between 2023 and 2033.
With the “good driver” rate cap, there will be large differences in growth rates between those who are covered by the cap and those that are not. For “good drivers” average premiums are projected to increase by 43.8% between 2023 and 2033. Albertans who do not qualify as good drivers will likely see premiums increase by an average of 148.2% over the same period.
MNP found that the policy, while well intentioned, will create significant “negative consequences” for Alberta drivers, including the following:
Over the past 18 months, premiums have grown 12% under the rate freeze implemented in January 2023 and the rate cap implemented in January 2024. Worse, drivers that fall outside of the rate cap are seeing their premiums increase by 15% on average annually.
The rate cap is negatively impacting the cost of insurance for young drivers and new drivers in particular.
The cap is harming the competitive market, as drivers who switch insurers no longer qualify as good drivers and may face higher premiums. This policy has hurt consumer choice and reduced drivers’ ability to shop around for lower premiums.
Many Alberta drivers are falling outside the definition of a good driver for reasons unrelated to their driving record and may see significant increases in their premiums as a result. This includes those that move, add a child or spouse to their policy, purchase a new vehicle or change insurance companies.
“We’ve seen this time and time again: Rate caps simply don’t work and ultimately hurt drivers,” said Sutherland. “Premiums have continued to climb and the availability of coverage has diminished. No business can operate when the product they sell costs more than the price they are allowed to charge for it. It’s time that Alberta’s rate cap is removed.”
Alberta’s auto insurance system is facing significant cost pressures, all of which are growing well in excess of the government’s 3.7% rate cap. Over the past two years:
Legal costs have grown a projected 19%.
The cost of delivering care and recovery benefits to those injured in a collision is up about 27%.
The cost of new and used replacement vehicles has grown 27% and 9%, respectively.
The cost of auto theft is up 55%.
The Alberta government’s health levy on auto insurers is up a staggering 60%.
Alberta’s insurers have proposed reforms that will help address these costs and deliver immediate and long-term relief to drivers. These reforms will improve affordability while enhancing the care and benefits available to those injured in a collision. To learn more, visit www.betterwaytosave.ca.
