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How Alberta’s new auto insurance reforms aim for change

Alberta's government is taking steps to combat rising insurance costs by seeking to reshape the current system. Take control of your auto insurance by comparing rates online.

It’s no secret that all facets of life have gotten very expensive, and that includes the cost of car insurance in Alberta. In 2023, the average annual premium hit a hefty $1,669, making Alberta one of the most expensive provinces when it comes to auto insurance. 

After surveying over 16,000 Albertans about their concerns and priorities around auto insurance, the Alberta government has made the decision to enact major reforms. These changes are intended to make insurance more affordable and focused on care – but will they deliver? 

Let’s break down what’s changing, why it matters, and how it could affect your wallet.

 

Key takeaways

  1. Alberta’s government  is increasing their ‘good driver’ rate cap from 3.7% to 7.5% for the next 2 years - starting on January 1, 2025.

  2. The government will be working towards introducing a new ‘Care-First’ system for 2027, focused on introducing a more traditional no-fault auto insurance system, decreasing time to claim payouts and increasing compensation benefits for accident related claims.

  3. These proposed reforms are the province's most drastic attempt at salvaging their struggling private auto insurance market - where they hope this will help prevent a mass exodus of carriers by cutting costs and inefficiencies, while also helping to reduce the cost of insurance.

Why are Alberta car insurance costs so high?

It’s hard to find cheap auto insurance in Alberta, causing many drivers to ask: ‘Why are auto insurance premiums so high in Alberta?’ 

Unfortunately, there are many factors driving up these costs, and most of them are completely out of your control. 

First, there’s the growing cost of legal battles. A government-commissioned report found a staggering 48% jump in collision-related lawsuits between 2018 and 2022, costing insurance companies over $1.2 billion in settlements. These legal expenses eventually trickle down to drivers, pushing premiums higher. 

Then there’s the increasing price of vehicle repairs – modern cars come with advanced technology that’s pricey to fix. 

On top of that, Alberta has been hit hard by natural disasters, leading to a surge in insurance claims. It’s clear climate change has an active hand in shaping not only the present, but the future of auto insurance.

These challenges have pushed up claim costs for insurers, causing them to increase premiums to help cover the extra expenses.

Read more: Climate change and the impact on your insurance

Proposed government reforms for auto insurance in Alberta

Frustrated by these increasing costs, Albertans have gone to their government demanding help, and the government has heard the outcry. 

Starting in January 2025, Alberta will introduce a 7.5% rate cap on premium increases for good drivers. This is an increase over last year's 3.7% cap that the government implemented to start 2024. The key definition for this cap is what constitutes a good driver? This is someone with no at-fault claims in the past six years, no Criminal Code traffic convictions in the past four years, no major traffic convictions in the past three years, and no more than one minor traffic conviction in the past three years. 

This cap is designed to keep premiums manageable for good drivers while ensuring insurers can stay financially stable. It means responsible drivers won’t face steep rate hikes, even as insurance prices rise. 

This is part of a broader transition to Alberta's new care-first insurance system, expected to be fully rolled-out by January 2027. Unlike the current model, where drivers often face lengthy court battles to get compensation, the care-first approach focuses on medical treatment and recovery, in a more efficient system where victims will have quicker access to compensation. 

The system aims to provide increased benefits coverage, including changes to the following:

  • Medical and rehabilitation is currently limited to medically necessary expenses up to $50,000 for 2 years following a collision. This would increase to unlimited for eligible expenses over your lifetime.
  • Income replacement benefit is currently the lesser of $600 per week and 80% average gross earnings for up to 2 years following a collision. This would increase to a maximum of 90% of net income, up to a gross income threshold of $120,000, payable until age 65.
  • Insured drivers injured in a collision will now deal directly with their insurance company for any accident benefits related claims, instead of having to sue for coverage. This is more in-line with a no-fault auto insurance system.

Under this system, lifelong care will be provided for catastrophic injuries, and support for serious injuries will continue until full recovery. 

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Will this help drivers find the cheapest car insurance in Alberta?

According to Premier Danielle Smith, these changes could save Albertans up to $400 annually once the new system is in place. This would be accomplished by reducing the need for litigation, which minimizes legal costs that currently drive up premiums.

However, not everyone is convinced. Critics argue that capping rate increases might only delay the inevitable. Projections from accounting firm MNP predict that auto insurance premiums in Alberta are set to climb significantly over the next decade. 

For now, shopping around for quotes remains one of the best ways to score cheap insurance in Alberta. Comparing providers ensures you’re getting the best deal, even as the system evolves.

How will Alberta insurance changes impact new drivers and newcomers?

Not all Albertans will benefit equally from these insurance changes.

While those classified as good drivers will be sheltered by the 7.5% cap on rate increases, these caps only apply to policy renewals. This means newcomers to the province, policy shoppers and young drivers will likely face higher rates. ‘Bad drivers on non-good-drivers’ are not sheltered by this cap and will be subject to approved rate increase filings by their carrier at renewal.

Plus, adding a vehicle or moving to a new neighbourhood could also bump you out of the “good driver” category, potentially leading to a hefty premium increase. Families adding young drivers to their policies should expect similar challenges.

The impact on auto insurance in Calgary and Edmonton

As Alberta’s largest cities, Calgary and Edmonton are home to the highest concentration of drivers in the province. The new system could significantly impact urban drivers, especially those navigating increasingly congested roads. 

Auto insurance in Calgary and Edmonton is often more expensive due to higher risks of accidents and theft. With reforms aiming to stabilize rates, drivers in these cities could finally see some relief, but the long-term effects remain to be seen.

The bottom line

Alberta’s auto insurance reforms are a step toward affordability and care-focused coverage, but they’re not without challenges. While the government’s promises sound great on paper – up to $400 in annual savings, lifelong care for severe injuries, and capped rate increases – it’s unclear how well these changes will work in practice. 

For now, drivers should keep an eye on their renewal notices, compare quotes, and look for ways to reduce their premiums to help ease the financial burden of insuring their car.

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