Alberta’s Auto Insurance System Faces Crisis
Alberta’s auto insurance system is approaching a critical point. Legal costs tied to auto insurance claims have surged by 103% over the past decade. Additionally, vehicle theft costs have risen by 55% in just two years. Repair and replacement costs for damaged vehicles are also increasing at a double-digit rate. Adding to these challenges, the devastating hailstorm in Calgary on August 5 resulted in an unexpected $900 million in auto insurance claims.
Unsustainable Business Model
As these expenses continue to escalate, insurers are now paying out more in claims and expenses than they are earning in premiums. This year, insurers have lost an average of 10 cents for every dollar in premiums collected. This situation is clearly unsustainable; no business can thrive when the cost of providing its product exceeds the price it can charge.
Government Actions Fall Short
The provincial government oversees the auto insurance system but has taken only limited actions thus far. In 2023, the government froze rates, and this year, it introduced a cap on rates for “good drivers.” Unfortunately, neither of these measures has produced the desired results.
Rate Caps Drive Insurers Away
With significant pressure on premiums, the rate cap has prompted some auto insurers to exit the market altogether. Others have narrowed their coverage options to remain operational. As a result, drivers are forced to seek new and often more expensive insurance from different carriers. This trend is a major factor in the 12% increase in rates over the past two years, despite government interventions.
Impact on Good Drivers
What about good drivers? Regrettably, the rate cap requires insurers to charge the best drivers more to subsidize those whose rates are capped but should otherwise be increased. This approach undermines the principles of a competitive insurance market. It is clear that changes are necessary for a fair and sustainable auto insurance system in Alberta.
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