The Alberta government will limit auto insurance premium increases to the rate of inflation for motorists it deems “good drivers”.
It’s a distinction the opposition says is too narrow and could lead to price jumps for many Albertans.
Premier Danielle Smith announced the measure in the legislature on Wednesday, flanked by Finance Minister Nate Horner and Affordability and Utilities Minister Nathan Neudorf.
In a change of tone for the UCP government, Horner now says he’s open to a no-fault insurance system and the possibility of creating a public insurance Crown corporation, as in Saskatchewan and British Columbia.
The rate increase cap will be a short-term measure, Horner said, while actuarial consultant Oliver Wyman completes a $500,000 review and study of other jurisdictions. The consultant’s report is due to the government in the first quarter of 2024.
“That’s not sustainable either,” Horner said of the new premium cap, which comes into effect in January 2024. “Nothing in this package really addresses the costs associated with car insurance.”
The new review comes in the wake of a 2019 review, also conducted by a government-appointed UCP panel, which produced a 536-page report with 37 recommendations for insurance reform. Among them was the introduction of no-fault insurance.
Alberta drivers pay some of the highest insurance premiums in the country.
The future cap on rate increases for drivers would be tied to the Consumer Price Index, measured in September of the previous calendar year. This means that in 2024, drivers who stay with the same insurance company could not see their premiums increase by more than 3.7 per cent, according to the province.
A “bad” driver would not be protected from such rate increases, and that includes those who
- Had one or more at-fault accidents in the past six years.
- Had a criminal traffic conviction in the past four years, such as impaired driving.
- Had a serious traffic conviction in the past three years, such as distracted driving or speeding in a school zone.
- Had a minor traffic conviction in the past three years, such as failing to stop or following too closely.
The province estimates the majority of Alberta drivers would be considered good drivers under the new definitions, but did not have hard numbers.
However, the measures wouldn’t help new drivers or people who switch insurance companies.
The Alberta NDP slammed the measure, saying the definition of a “good driver” is too narrow. Opposition house leader Christina Gray said it could also punish consumers who switch insurance providers.
“If you got two traffic tickets in the last three years, buckle up – your rates are going to soar,” Gray said.
More power for regulator
The government is also giving the Automobile Insurance Rate Board (AIRB) new powers to demand insurance companies return some profits to drivers during “exceptionally profitable years.”
The AIRB would develop a policy on how to return any excess profits to consumers.
Regulations require insurance companies to limit their profits to six per cent of total premiums charged in Alberta.
Injury lawyer Nainesh Kotak, who practices in Ontario and Alberta, says the government should codify that limit into law. He says the AIRB should consider all of insurers’ profits when making this calculation, including investment income.
Insurers should be allowed a profit, he said, but to a limit, because auto insurance is mandatory to drive a vehicle.
Kotak said the AIRB should have firm rules on pulling back excess profits, rather than subjective discretion.
The province also plans to make permanent a requirement for companies to provide most customers with payment plans so they don’t have to fork over a chunk of cash once a year.
The future of insurance
Although Horner and his predecessor, Travis Toews, previously dismissed suggestions of a no-fault insurance system or a provincial Crown corporation offering auto insurance, Horner said he’s now keeping an open mind to both.
If these changes could help control the cost of premiums, they are worthy of consideration, Horner said.
These musings were met with pushback from both the insurance industry and lawyers who represent crash victims.
Grande Prairie lawyer Owen Lewis, chair of the Alberta Civil Trial Lawyers Association, said no-fault insurance may temporarily lower premiums. However, when injured people can’t sue the drivers who were responsible, limits on coverage can lead to reliance on public health and social service systems if the victim needs more rehabilitation or cannot work, he said.
Lawyer Kotak said in Ontario, the mixed system has led to hurdles for victims seeking compensation in court, denied coverage claims, and insurance premiums that are still too expensive.
Aaron Sutherland, vice-president of the Insurance Bureau of Canada, said introducing a public insurer could increase bureaucracy and decrease efficiency for people filing insurance claims.
The rate caps tried in Alberta and elsewhere do not control premium costs in the long term, he said.
Alberta requires insurance companies to sell “one-size-fits-all” policies that are too limiting, he said. If insurance sellers could offer more choices of coverage, customers could have more control over their premiums, he said.
