Alberta axes 5% cap on auto rate hikes

The 5% ceiling on Alberta auto rate increases is history, but that does not mean the sky is the limit.

“Allowing [the 5%] limitation to expire is necessary to ensure a sustainable industry that can best serve the needs of Albertans,” a spokesperson for the provincial government told Canadian Underwriter Tuesday.

In 2017, the Alberta government told the province’s Automobile Insurance Rate Board (AIRB) to not approve rate increases of more than 5%. Insurers in the province must get AIRB’s blessing to increase private passenger clients’ auto insurance rates.

“Now the determination of rate increases is essentially back with AIRB, where it belongs,” said George Hodgson, CEO of the Insurance Brokers Association of Alberta, in an interview. “The government did not make a major announcement. They pretty much allowed it to die.”

The original 5% ceiling came in an order in 2017 from Joe Ceci, then the New Democratic Party’s minister of finance. The NDP was replaced by the United Conservatives, as governing party, after the Apr. 16 election.

The AIRB “is best positioned to evaluate the health of the insurance market and we respect their expertise and experience in the field,” the government spokesperson told Canadian Underwriter Tuesday. “To be clear, companies still must go through the Rate Board to justify increases.”

The rationale for the 5% cap was that the government needed more data on what is driving auto insurers’ costs up, a civil servant told Canadian Underwriter in 2018, speaking on background. The cap applied across insurers’ auto books of business, so some clients would have seen rate increases of more than 5%. The intent of the cap was that consumers would not see a significant increase while the government was working with industry to find a solution, the civil servant said last year.

“Insurance companies are facing the challenge of an unsustainable market and Albertans are paying the price,” a government spokesperson told Canadian Underwriter Tuesday. “We are committed to making life better for Albertans and this band-aid solution imposed by the previous government has only made the problem worse.”

Insurers have been facing in increase in bodily injury and  auto repair costs, Hodgson said Tuesday. “Companies were not able to take rate commensurate with the increased claims costs,” he said. “I am not sure whether they will be able to catch up completely this year, but I am sure that they will be able to get a little bit of a rate increase and get premiums that are commensurate with costs.”

Insurance Bureau of Canada described the situation as “dire” for Alberta auto insurers during IBC’s annual general meeting this past April. “For every premium dollar, insurers pay out up to $1.29 in claims and operating costs,” Forgeron said of Alberta auto at the time.

For brokers last year, the 5% cap resulted in many clients not being able to get things like monthly payment plans and non-mandatory coverage, said Hodgson. “Overall, it is reasonably good news for the consumer and the industry,” he said Tuesday of the elimination of the 5% rate increase cap.