Now that Alberta’s cap is gone, what next?

Giving Alberta’s auto insurance regulator discretion in allowing rate increases of over 5% is good news for the industry, but more needs to be done to address claims costs, the Insurance Bureau of Canada warns.

In 2017, the province’s regulator was specifically instructed by Joe Ceci, then the NDP finance minister, to not approve rate increases of more than 5%. The order was renewed but expired at the end of August. “The cap was unsustainable,” said Celyeste Power, vice president of the western region for IBC, in an interview Tuesday. “It was forcing insurers to have to take other actions to try to minimize their losses.”

For example, some were cancelling broker contracts and it became harder to find non-mandatory coverage.

The United Conservative party was elected to power this past April. The new government did not abolish the cap immediately; rather, it let the cap legislation expire without renewing it.

“It’s good news that it’s off, but now I think the real work starts to looking at good public policy to start addressing the underlying problems with the system and fixing them,” said Power.

Asked Tuesday whether additional measures are needed to help address claims costs, Power said yes. “Unfortunately we have seen claims costs increase significantly over the past few years.”

Some Alberta auto insurers are paying $1.30 in claims costs for every dollar they take in in premiums.

Five years ago, industry watchers noticed that some motor vehicle accident injuries that insurers considered minor were not in fact deemed by the courts as minor. Alberta has a ceiling of about $5,000 for pain and suffering awards for “minor” injuries. The province’s regulator published last year a document clarifying that some temporomandibular joint injuries and some psychological injuries do in fact fall within the minor injury regulation, but insurers’ claims costs continued to rise nonetheless.

Legal costs are a major factor driving claims costs, Power noted Tuesday.

Insurers still have to ask the Alberta Insurance Rate Board for permission before raising rates. “They have the expertise they need to make these decisions” Power said Tuesday.

The industry will have to wait and see what rate increases the AIRB will actually allow and whether the insurance companies will be happy with that, said George Hodgson, CEO of the Insurance Brokers Association of Alberta, in an interview Tuesday.

The 5% cap applied across insurers’ books of business, so some individual clients saw bigger rate increases. But the fact that insurers had to sell at a loss had an impact brokers and clients.

“Payment plans were more difficult to find and we also saw upwards of 100 broker contracts cancelled,” Power said Tuesday.

The thinking behind the 5% cap was that the government needed more data on what is driving auto insurers’ costs up and the government of the day wanted to protect consumers from a significant increase while the government worked with industry to find a solution, a civil servant told Canadian Underwriter on background in 2018.