What the Alberta NDP’s auto rate freeze would mean for insureds and insurers

Alberta brokers and insurers believe a New Democratic Party proposal to freeze auto insurance rates won’t solely reduce auto premiums and will instead make it harder for drivers to obtain coverage, auto insurance experts tell Canadian Underwriter.

A better solution to reduce auto insurance costs would be through reforms — and by addressing rising costs within the system, industry leaders suggested.

“The rate [freeze] is trying to make things better for drivers but because it doesn’t deal with the cost in the system, it only ends up making it worse,” said Aaron Sutherland, vice president, western & pacific at Insurance Bureau of Canada.

Alberta NDP justice critic Irfan Sabir introduced Bill 206, the Insurance (Private Passenger Vehicle Premium) Amendment Act last month. If passed, it would freeze Alberta’s auto insurance rates for one year.

“The UCP [United Conservative Party] removed the cap on auto insurance and premiums skyrocketed by 30%. Insurance companies raked in the profits as Albertans pay among the highest auto insurance in the country. An Alberta NDP Government will freeze auto insurance rates,” Alberta NDP leader Rachel Notley tweeted in December.

But the proposed bill follows in the footsteps of Alberta NDP’s previous rate cap, wherein premium increases were capped at 5% between 2017 to 2019. The cap kept insurers from raising rates to keep pace with escalating auto claims costs. The UCP let the cap expire in 2019.

A rate freeze would not deal with the rising costs of auto collision repairs, or bodily injury or accident benefits costs within the auto insurance system, which are the factors driving rate increases, explained Sutherland.

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“We are seeing double-digit growth in the cost of vehicle repairs and replacement parts. So, it’s getting much more expensive to repair vehicles following collisions. That’s quite a bit different than the last time we saw a rate cap.

“Yet at the same time, we continue to see an increase in bodily injury costs as well as accident benefit costs. And so if we don’t do something to pull those costs out of the system, things like a rate freeze are going to cause real challenges for Alberta drivers, and for insurers as they strive to remain viable, given some of the cost pressures that they’re seeing.”

Canada and the U.S. are also experiencing a shortage of collision repair technicians, which is causing longer and costlier claims for auto insurers, a recent whitepaper by The Romans Group LLC said.

A rate cap or freeze would also mean that in order to stay financially viable, insurers would be forced to limit drivers’ optional coverages, such as collision or comprehensive coverage. This could affect drivers who lease vehicles, since their leases often require such optional coverages, Sutherland said.

The Insurance Brokers Association of Alberta has been vocal about the impact a rate freeze would have on insurance affordability.

“Bill 206 is disappointing news for Alberta’s drivers. Rate caps simply don’t work. They do nothing to reduce costs within Alberta’s insurance system, and simply push problems down the road while making it difficult for many drivers to obtain the coverage they need,” IBAA president Barry Haggis said in a news release.

“Instead, we need to work together — brokers, insurers and government officials — to identify ways to bring lasting affordability improvements for drivers.”

Sutherland said IBC has made auto reform proposals to the government which are expected to create short- and-long term insurance savings for Alberta drivers.

“We’ve put forward a proposal that would give drivers more choice in the coverages that they purchase, more control over their policies and the ability to find savings of up to $200 in their premiums, on average,” Sutherland said.

Such a proposal would take time to “flow through the [legislative and regulative] system,” he added.

“In recognition of that, and the fact that Albertans are feeling the financial pinch today due to inflation, we’re suggesting to the government that they look at the insurance premium tax — which is a 4% tax that’s charged on every auto insurance policy — and consider the removal of that to drive near-term financial relief for drivers.”

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