After Alberta election, what’s next for auto insurance?

With the United Conservative Party’s Danielle Smith re-elected as Alberta premier, the industry is hoping for both long- and short-term solutions to the auto issue, especially since the province’s “rate pause” makes it harder for drivers to secure coverage and may lead to insurers withdrawing capacity. 

For Insurance Bureau of Canada, those solutions take shape in a proposal that could reduce drivers’ premiums by as much as $325 on average, the association told Canadian Underwriter in an interview Tuesday.  

Danielle Smith was re-elected as Alberta Premier on Monday in a close race against the NDP, led by former Alberta premier Rachel Notley. Smith first became premier in October, succeeding Jason Kenney. Her party instituted a “rate pause” for Alberta drivers until the end of 2023.

At the time, the industry called the rate freeze “disappointing” and “not the best option” for auto consumers. More recently, in an earnings call, Definity made noises about the freeze possibly forcing the insurer to deploy its capital elsewhere, since the insurer is not “rate adequate” in Alberta auto. 

“The rate freeze is really just making it more much more difficult to get coverage for many drivers while not doing anything to improve affordability,” said Aaron Sutherland, Western and Pacific vice-president at IBC. “We sharpened our pencil to [explore] what can be done to start to bend the cost curve down for both the industry and its consumers. And that’s where we came up with our Enhancing Care and Expanding Choice proposal.” 

Insurance Bureau of Canada’s Enhancing Care and Expanding Choice proposal would give drivers more choice in their coverage options and save consumers about $200.  

Alberta “drivers have very little choice and control over their policy,” Sutherland told CU. “Alberta has essentially a one-size-fits-all approach to what you have to purchase. We think people should be given more options and the ability to tailor their coverage for themselves. That’s where you can really start to see savings.”

Second, in its proposal to come up with ways to produce $325 in savings, IBC is calling for the Alberta to remove or restructure its grid rating framework. 

The grid framework is a rating program for auto insurance in Alberta that assigns a rating to each driver. The longer you go without an accident, the lower the grid rating, and the lower the premiums.  

“The grid framework…essentially caps premiums for high-risk drivers,” said Sutherland. “But in doing so, that means every other driver is paying a subsidy to keep the premiums of high-risk drivers down. 

“If you have a history of infractions, tickets and collisions, you’re going to pay a little bit more [in premiums], and that’s an incentive for you to pay more attention on our roadways and just improve your driving behaviour. The grid prevents that.” 

If the grid framework was restructured or removed, good drivers could save another $65 in premiums, Sutherland estimates. (That’s on top of the $200 savings obtained through offering more choices in the auto policy, noted above.).  

In addition, IBC wants the Alberta government to remove its 4% insurance premium tax on all auto insurance policies — equal to $60 per driver — for more immediate policy savings. This completes the full $325 in savings. 

On the rate freeze front, Sutherland says increases are still flowing through to consumers, causing them confusion. “The rate freeze came in January, but rates had already been set for the next 12 months. So, it’s going to be quite a while before consumers actually see the impact of that, and instead you’re going to see rates that were approved throughout most of last year that are still flowing through.”  

At the same time, carriers are facing the challenge of deciding whether to withdraw capacity in the province or become less financially viable.

Although rate freezes have occurred in other provinces before, Sutherland said Alberta’s is exceptional because no policy is in place for insurers to appeal to their regulator if the policy is harming their company financially.  

“Some carriers are particularly caught out facing extreme financial hardship from it,” Sutherland said. “We need some kind of exemption provision for those companies while this policy is in place so that they can appeal it and try and get…[the] rate [that allows them] to remain viable in the marketplace. 

“That’s going to be a big piece of our advocacy and our conversations with the next government, once we see the cabinet and others sworn in, in a few weeks’ time.” 

Feature image by iStock.com/Solidago