Alberta's auto insurance rate cap could increase premiums by 88%

It’s no surprise that drivers in Alberta face some of the highest car insurance premiums across Canada. While the provincial government has implemented changes to the system over the years, these changes might not be as effective as intended – instead, they could be making things worse.

A new report from MNP (commissioned by the Insurance Bureau of Canada) highlights the ramifications of Alberta’s rate cap for both the past and future state of the province’s auto insurance system. Let’s take a look at all the key findings.

What is Alberta’s auto insurance rate cap?

In 2023, the Alberta government implemented a pause on auto insurance premiums, preventing any rate increase filings from being approved. The government then replaced this in January 2024 with a 3.7% rate cap increase for those classified as good drivers. To qualify, individuals must meet the following criteria:

• No at-fault claims in the last 6 years
• No Criminal Code convictions in the last 4 years
• No major convictions in the last 3 years
• No more than 1 minor conviction in the last 3 years

It’s important to note that the good driver cap applies only to auto insurance policy renewals. This means that drivers who switch insurers, add vehicles, or move to a different rating territory are not eligible.

For those who don’t qualify as good drivers, a broader 10% rate cap was also introduced. This means the Alberta Auto Insurance Rate Board (AIRB) won’t approve rate filings that result in premium increases exceeding 10%.

The impact of the rate cap on non-good drivers 

According to AIRB, about three-quarters of Alberta drivers are classified as good under the rate cap definition. But while this group is reaping the benefits of a 3.7% increase limit, claims costs for insurance companies have risen by over 5% each year, causing non-good drivers to bear a much larger share.

As of September 15th, approved rate filings from AIRB averaged 7.53% across Alberta which is nearly 4% higher than the good driver cap. Suggestively, this means that rate increases for those deemed as non-good drivers will average at least 15% – a significant rise that could create huge financial challenges.

What this means for Alberta auto insurance rates in the future

The report from MNP also projects an 87.6% increase in Alberta auto insurance premiums within the next decade as a result of the rate cap – equivalent to about a 9.5% increase each year. This projection is an average between increases both good drivers (43.8%) and non-good drivers (148.2%) could see from 2023 to 2033. It assumes that the rate cap stays in place and that no changes have been made to Alberta's auto insurance system.

In an alternative scenario in which the rate cap is removed and reforms to stabilize claims costs are implemented, the MNP report projects an average premium increase of only 36.9% (for good drivers and non-good drivers). Both groups would benefit from reforms with non-good drivers seeing the biggest benefit – a staggering decrease from the original projection of 148.2%. 

As of 2023, non-good drivers pay about 2.2 times more than good drivers for coverage. Under the assumption of the first scenario (with the rate cap system still in place), the ratio could widen to 3.7 times within a decade. 

Other implications of Alberta’s auto insurance rate cap

Beyond its direct effect on rate increases, Alberta’s auto insurance rate cap has broader implications worth considering – this includes the following:

Not being a good driver may have nothing to do with driving – There are a few reasons why a driver might not qualify for the rate cap, despite it having nothing to do with driving. As mentioned, switching insurers, adding vehicles, or moving to a different rating territory can limit eligibility. Adding family members with a poor claims record to a policy can also adversely impact an otherwise good driver.

Newcomers and new drivers may be negatively affected – Newcomers to Alberta and new drivers may also be disproportionately impacted since the rate cap is only applicable to policy renewals. Insurers may hike up premiums for both these groups in an effort to balance their books.  

Consumers may be less likely to shop around – With the rate cap only applying to policy renewals, good drivers may also hesitate to switch insurers to avoid losing the benefits of the cap. Not only does this limit opportunities for savings through comparing auto insurance quotes in Alberta, but it also puts less pressure on insurers to offer competitive rates.

The limitations on Alberta auto insurance companies

On top of that, the rate cap in Alberta has left auto insurance companies with limited profits, causing some to exit the market as a whole. Earlier this year, Sonnet Insurance Company and S&Y Insurance Company announced plans to phase out of the province for auto insurance due to limited growth opportunities. This came after Zenith Insurance discontinued coverage for Albertans in 2023.

While the combined market share of these companies is less than 1%, the issue at hand shouldn’t be overlooked. If the government doesn’t make changes, it won’t be surprising if more companies drop auto insurance coverage options or exit the market entirely in Alberta.

Ultimately, this trickles back to a negative impact on consumers. The Alberta auto insurance system benefits from a free market unlike other provinces – including British Columbia, Saskatchewan, and Manitoba – where insurance is provided by public insurers. While Alberta drivers have the advantage of shopping around in a private marketplace for more competitive rates, a decline in insurance companies operating would ressult in limited competition, potentially driving up premiums even further.

Proposed solutions from the Insurance Bureau of Canada

Aaron Sutherland, VP of the Insurance Bureau of Canada for Pacific and Western regions, emphasized the need for immediate action to remove the rate cap from Alberta's auto insurance system. He also stressed the importance of addressing key factors that drive up the cost of car insurance. This can include the ongoing severe weather and vehicle theft within the province.

“The report is clear that despite the government’s intention, the rate cap has made the affordability of auto insurance worse, not better, for Alberta drivers. It must be removed immediately before it causes any further damage”.

“Only meaningful action to address the cost pressures underlying auto insurance will improve affordability for drivers. Alberta’s insurers are keen to work with the government to take these actions.”

The bottom line

While the MNP report clearly outlines flaws in Alberta’s auto insurance system, only time will tell as to what the government will do to limit its impact on drivers and insurers. In the meantime, be sure to compare car insurance quotes with us to find your best rate – taking advantage of the free market system is one of the best (and easiest) ways to save today.

Also read

• The average cost of Alberta car insurance by age
• Flooded with claims: A severe weather summer recap
• Wildfires in Canada: The impact on the insurance industry