When the New Alberta Government allowed the Auto Insurance Rate Cap to expire on September 1 of 2019 almost every insurance company in Alberta applied for rate increases. Some requests are in the 10-20% range. We will find out this Friday (September 27th) what kind of increases have been approved and what to expect in the coming months.
The 5% cap was created, back in 2017, in response to multiple requests from insurance companies to increase their auto rates due to rapidly increasing claims costs. It effectively limited the the AIRB (Alberta Insurance Rate Board) to not be able to approve rate increases above 5%. Since then, insurance companies in Alberta have not been able to cover claims costs with the premiums they are taking in and we have seen significant adverse affects on auto insurance clients and the industry as a whole.
Why Auto Insurance Rates Are Rising
Insurance companies have been experiencing rapidly increasing claims costs over the last 5 years. In 2016 claims and expense costs began exceeding the premium that many companies were taking in. Some companies were paying out as much as 130% of collected premiums. To cover this gap, the companies sought to increase premiums, but they were blocked by the 5% rate cap. Auto insurance was no longer profitable and the companies took action to help minimize these losses.
How the Rate Cap Affected Consumers
Elimination of payment options and requiring full payment at policy inception.
Unavailability of auto insurance products that are not required by law (collision).
Increased wait times to approve new auto policies.
Requiring current clients to resubmit applications for continuation of coverage.
Cancellation of broker contracts which limited the renewal options for their customers.
This created havoc in the world of the insurance broker and for many auto insurance customers in Alberta. For so many auto insurance customers across Alberta, this has created a frustrating experience.
What Can Be Done?
The insurance industry is in talks with the government in an effort to find an alternative to continually increasing auto insurance rates. The amount of inflation on bodily injury claims alone is unsustainable. Once companies are rate adequate, if things continue the way that they are going, we would need to take a 9% increase every year just to keep up with the increasing claims costs.
To lower insurance premiums there need to be some changes in the following areas:
- Minor Injury Legislation
- Section B Coverages – these are for pain and suffering and whiplash type circumstances.
Every week Albertan’s are seeking more and more legal representation to cover off these types of claims because the minor injury cap isn’t working for most Albertans.
Albertans don’t want to see rate increases, the government doesn’t want to see rate increases and the insurance industry doesn’t want to have rates be unaffordable or have consumers not be able to get the coverages they want. To manage this, we really need to work on fixing the issue of claims costs for everyone.
The insurance companies and associations of Canada and Alberta are working with the Government to address these issues for the consumer. The new government has already been working on new initiatives within our industry, including the approval of digital pink cards. So, we are confident that they will continue to work towards solving some of the biggest issues facing auto insurance today.