How Alberta can solve capacity withdrawal from its auto market: Intact CEO

Alberta’s cap on rates for good drivers is leading to capacity withdrawal from the province’s private auto insurance market, the chief executive of Canada’s largest insurer reports.

And that’s to be expected until the province addresses a root cause of auto insurers’ rising auto claims costs — inflated legal costs, Intact Financial Corporation CEO Charles Brindamour said in a fireside chat with CIBC Capital Market Analyst Paul Holden on May 14.

“I think there’s no doubt that capacity is leaving that market,” Brindamour said, answering a question from Holden about the Alberta insurance market. “Why? Because I think inflation was higher than the cap that the Alberta government has put in place. And those who were not quick to price for that inflation are kind of in a tough spot at the moment.”

Brindamour did not mean to suggest Intact has any plans to withdraw capacity from Alberta’s auto insurance market. His remarks were general in nature, and he indicated Intact has been pricing for these inflationary pressures since 2016, so his remarks did not apply to Intact.

Brindamour listed several different sources of inflation facing the province’s auto insurers right now.

For example, auto insurers have been pricing for increases in medical costs due to bodily injury. There’s also been inflation spurred by increases in prices within the basket of goods measured by the Consumer Price Index (CPI). He cited technology-driven inflation. And then there’s inflation because of the lingering effects of the supply chain disruption caused by the COVID-19 pandemic.

But the issue of capacity withdrawal from Alberta’s auto insurance market “solves itself,” Brindamour said, when the government addresses one kind of inflation it can control — the rising costs of legal representation in the province. He noted this issue is partly a residual effect of B.C.’s auto insurance reforms in 2020.

In B.C., an Ernst & Young report in 2017 found the public auto insurer was paying more for legal costs in minor auto insurance claims than it was for treating drivers with minor injuries. And so, a central pillar of B.C.’s auto insurance reform involved giving its small claims court, the Civil Rules Tribunal (CRT) — and not the courts — exclusive jurisdiction to determine minor injuries below $50,000.

Challenged by B.C.’s personal injury lawyers, this specific reform was upheld by B.C.’s appeal court.

Now B.C. personal injury lawyers have found business in Alberta instead, Brindamour said, thus driving up auto insurers’ legal costs in the province.

“[The problem of capacity withdrawal in Alberta] solves itself when Alberta turns its attention to the real problem in the Alberta marketplace, the problem they can influence, and it is legal representation of claims,” he said.

“The automobile insurance regime next door in British Columbia’s public system, got into real trouble a number of years back [and] clamped down on legal activity,” Brindamour explained. “And so there’s been a bit of pressure from [B.C. personal injury] lawyers coming in the Alberta market and creating inflation in bodily injury. I think so long as Alberta does not act on that, there’ll be some inflation in that province. And I think they need to go to the root cause of the issue.

“I think over time, the cap will be lifted, because the inflation that is reflected in the cap, which is the CPI, doesn’t have much to do with the automobile insurance inflation.”

Feature image courtesy of iStock.com/ne2pi