The Alberta auto insurance market is in flux as both Sonnet Insurance and Aviva Direct Insurance have opted to leave the province (Sonnet auto only and Aviva Direct entirely). This sudden change in the market has left many with questions. Why did these companies leave Alberta? Is Alberta car Insurance bad business? What does this mean for policyholders with these insurance companies? Today, we seek to provide answers to some of these questions.
Sonnet Insurance
Sonnet Insurance is a "digital-first" insurance company sold by the major insurance provider Economical Insurance. As a digital insurance provider, they provide a different experience than other insurance brokerages. All Sonnet insurance is sold online by asking the standard home/auto insurance application questions in an online form. This can be a very convenient option for consumers, especially if you’re just looking for a quick price.
According to the Alberta Auto Insurance Rate Board, Sonnet had approximately $79.1 million in auto insurance premiums for 2022.
Sonnet Halts Auto Insurance Sales in Alberta
On June 13, 2024, Sonnet Insurance announced they will be phasing out auto insurance operations in Alberta. Sonnet indicated they would be withdrawing their auto insurance products from the province by December 13, 2024. Sonnet stated that there was a limited opportunity to grow profitably in the current insurance environment in Alberta. Property and pet insurance policies will still be available for purchase with Sonnet.
Aviva Direct Insurance
Aviva Direct Insurance is a division of Aviva Canada that sells home and auto insurance policies directly to consumers. On July 3, 2024, Aviva Direct Insurance announced that they would be phasing out their home and auto business in Alberta in early January 2025.
Aviva Direct Insurance indicated they will be withdrawing from the province “as the current environment in Alberta does not foster growth.” Aviva states that the cost of claims has exceeded premiums collected in Alberta for many years. The money they earn from insurance premiums pales in comparison to the amount they payout in claims. Particularly from high litigation costs driving up auto insurance premiums for Albertans. Aviva has indicated that their products will still be available for purchase from brokers and partners.
Where Can Aviva Direct and Sonnet Insurance Customers Go for Insurance?
If you're an Aviva Direct or Sonnet Insurance client and you're happy with your insurance product, Armour Insurance can help. We partner with Economical Insurance (the backend of Sonnet) and Aviva Canada and we can help maintain the coverage you have with your provider.
Talk to an Armour broker today for help making the transition.
Why Are Sonnet and Aviva Direct Insurance Leaving Alberta?
The common thread between the two companies leaving Alberta, specifically for auto insurance, is the insurance environment in Alberta. What do they mean by “the insurance environment doesn’t foster growth”?
It is first important to understand that the Alberta auto insurance environment is unique, and there are a few reasons it is unique to the rest of Canada. Alberta is a privately run insurance market which makes it different than British Columbia, Saskatchewan, and Manitoba which run a single government auto insurance provider. Alberta's insurance market is most comparable to that of Ontario, another major private insurance market. While Alberta and Ontario have fairly similar operations, there are three areas that make Alberta a uniquely challenging insurance market.
- The different ways personal injuries are defined and settled
- Albertans are more likely to sue in the event of an accident
- Alberta has an Auto Insurance Rate Board (AAIRB)
How Does Alberta Handle Personal Injury Lawsuits?
Depending on where you live in Canada, you will likely have a wildly different experience if you're injured in a car accident. There are two main systems that exist for compensating someone hurt in a car accident:
- No-fault system
- Tort system
The no-fault system, like the one's run in British Columbia, Manitoba, and Quebec, means that your insurance company pays for all injuries that you sustained in an accident, regardless of whoever was at fault.
A tort-based system, like the ones in Atlantic Canada, allows the injured person to sue the at-fault party in court for damages.
In Alberta and Ontario, they use a sort of hybrid of the two models. If you and/or passengers are hurt in an automobile accident, your insurance company is meant to be responsible for paying the damages. However, you are still able to sue the at-fault driver for damages.
Where the biggest difference between Alberta and Ontario accident laws differentiate is how they define injuries incurred in a car accident. Ontario has three tiers of injuries, minor injury, non-catastrophic injury, and catastrophic injury. Alberta only has two tiers of injuries, minor injuries and serious impairments.
In Alberta, if you have sustained a strain and/or sprain during a car accident, that is considered a minor injury. Any injury above and beyond that, whether it be a broken toe, whiplash, cracked tooth, or some other injury beyond a strain or sprain, is then considered a serious impairment. If you're in an accident where you are deemed to have a serious impairment, you can then seek two different types of damages, general damages and special damages.
General damages are to account for damage to the person. Pain and suffering, mental anguish, and emotional distress would all fall under general damages. Special damages are economic losses from a car accident. Medical costs (beyond healthcare), lost wages, property damage, and other costs fall under special damages.
Where Alberta has differed from other Canadian provinces is in the special damages. Alberta has considerably higher payouts for special damages than that of other Canadian provinces. This has led to more expensive insurance claims, and it has contributed to higher auto insurance premiums in Alberta. This not only affects the insurance industry but also has a direct impact on consumers. There is a broader discussion about the need for personal injury law reforms to stabilize insurance costs in Alberta. For reference, nearly 20% of all auto insurance premiums in Alberta go to legal fees.
Albertans Are 4 Times More Likely to Sue After a Car Accident
Albertans sue after an accident considerably more than other Canadians. According to the vice-president of the Insurance Bureau of Canada, Albertans sue four times more than other Canadians after a car accident. This could be due to multiple factors including:
- Cultural differences
- Market/external pressures to file a lawsuit after an accident
- The current special damages allowed in Alberta
The Alberta Auto Insurance Rate Board
The AAIRB is a regulatory body that is unique to Alberta. They are an independent agency that delivers rate regulation to car insurance companies. If the insurance companies in Alberta want to increase their auto insurance rates, they must apply for a rate increase from the AAIRB.
In a perfectly balanced system, insurance companies would simply apply for rate increases to account for the increased claims cost to become profitable once again. However, in 2023 the Alberta government announced a 12 month auto insurance rate freeze which meant that no company could increase their prices over that period (provided there was no change to the driver risk profile). Then, in late 2023, the Alberta government announced that insurance providers could not increase auto insurance premiums by more than the consumer price index which resulted in about a 4.5% increase for “safe drivers”.
How Has This Impacted the Auto Insurance Environment?
When your province has loose rules for damages awarded on personal injury lawsuits, you end up with claims that are considerably more expensive for the insuring company. When the people in that very same province sue at a rate of four times the rest of Canada, you end up with considerably more claims. The cherry on top is the government that has prohibited the AAIRB from meaningful rate increases for 2 years.
All of these factors have combined to make the Alberta auto insurance market a challenging and largely unprofitable market. More claims, that are more expensive, and no real way to offset losses, has led to companies like Sonnet and Aviva Direct pulling out of the province.
Will Alberta Implement Government Auto Insurance?
At the time of publication, it is uncertain where the government stands on auto insurance. Representatives from both the UCP and NDP have expressed interest in implementing government auto insurance. In June 2024, the Alberta government released a survey to gather public feedback on auto insurance in Alberta. The results of the survey have yet to be released.
Until the issues regarding personal injury law are rectified, the same issues of affordability will impact the insurance provider. In a private insurance system, it is up to the market to create a competitive, viable, and profitable product offering. If private industry fails to do that, they will not grow or they will lose money. If the onus is on the government to provide auto insurance, if they become unprofitable, the taxpayer will be the one left picking up the tab. For reference, SGI (Saskatchewan Government Insurance) posted a net loss of over $100 million in the first 9 months of 2023. Those losses are now the responsibility of the Saskatchewan taxpayers.
Conclusion
Ultimately, if the auto insurance industry could charge lower premiums and remain profitable they would. Unfortunately, the Alberta government has put many insurers in a situation where they are unable to make a profit with the current premiums along with limiting auto insurance rate increases. Sonnet and Aviva Direct found themselves with ballooning losses and no real opportunity to become profitable again.
If Alberta lawmakers make changes to personal injury settlements, that will have a substantial impact on the Alberta insurance market. Our insurance market thrives best when we have strong competition, fair premiums, and reasonable claims payouts.