What happens in Alberta when auto insurers are not comfortable with their profitability

The Alberta auto insurance industry is still suffering “hangover” from a 5% cap on rate increases that was abolished more than a year ago, with many insurers not looking for new business, suggests the co-founder of LowestRates.ca.

Data released Tuesday by LowestRates.ca shows that the average Alberta auto insurance rate was 22.7% higher in the second quarter of 2020 than in the same period in 2019. Even motorists 45 and older are paying an average of nearly 20% more.

“Prices need to go up because insurance companies just don’t want new business in Alberta. They just aren’t profitable in Alberta,” LowestRates.ca CEO Justin Thouin said Wednesday in an interview. “It’s actually a hangover from the NDP government’s rate cap and this is going to be an issue until insurance companies can get comfortable with their profitability in Alberta.”

In Alberta, then-finance minister Joe Ceci ordered the Automobile Insurance Rate Board in 2017 not to approve rate increases of more than 5%. It remained in effect until the summer of 2019, a few months after the United Conservatives were elected to power, replacing the NDP.

The 22.7% figure was based on data from LowestRates.ca’s auto insurance quoter, which millions of Canadians use each year to compare rates. LowestRates.ca generates leads — for both brokers and direct writers — from consumers shopping for home and auto insurance.

In its Auto Insurance Price Index Report 2020, LowestRates.ca said Tuesday it found the average auto insurance rate dropped 3.7% in Ontario and increased 17.6% in Atlantic Canada.

That cap imposed in 2017 in Alberta applied across insurers’ auto books of business. Therefore, some clients would have seen rate increases of more than 5%.

The Alberta government did not want motorists to see significant rate increases while the government worked with industry to find a solution, a provincial civil servant told Canadian Underwriter in 2018, speaking on background. At the time, the civil servant said the government needed more data on what is driving auto insurers’ costs up.

“It’s a huge issue still,” Thouin said Wednesday of Alberta auto profitability. “The insurance system in Alberta needs to change. It needs to be an environment where companies want new business and want to insure new drivers and can be profitable.

Part of the reason for the 22.7% increase is many insurers want Alberta auto customers to pay annually upfront instead of monthly, Thouin told Canadian Underwriter. So in some cases, the client is saying, ‘Well I don’t want to pay upfront all at once,’ so they choose a higher rate with another insurer that lets them pay monthly.

“If Alberta auto companies can be more profitable, there will be more competition and better customer service and drivers won’t have trouble finding an insurance company that will let them pay monthly as opposed to annually,” said Thouin. “Competition will always breed better prices in the long run, but in the short run, prices need to go up because insurance companies just don’t want new business in Alberta.”

In its report released Sept. 22, LowestRates.ca broke down auto rate changes in Ontario, Alberta and Atlantic Canada by age group and gender.

In Alberta, LowestRates.ca’s quoting data showed average rate increases, year over year, were:

• 22.2% for men;
• 22.5% for women;
• 23.9% for the 18-24 age group;
• 28.7% for the 25-44 age group; and
• 19.9% for the 45-79 age group.

 

Feature image via iStock.com/dan_prat