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To kick off the new year, State Farm, the largest insurance company in California, announced it was hiking auto insurance rates by 20 per cent. The move will affect more than five million drivers and follows years of failed regulatory interventions and an unwillingness of the state government to take action on the underlying costs driving up auto premiums.
A similar story could very well play out in Alberta. The parallels between the two jurisdictions are eerily similar.
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Concerned by rising premium levels, California introduced a prolonged auto insurance rate freeze followed by a rate cap last year.
As a result, major auto insurers have been forced to leave the state, unable to remain viable in an era of rising costs. Others have limited the number of policies they sell, often refusing to take new customers. As one observer noted: When premiums are capped below cost, insurers can’t stay in business. It’s that simple.
The Alberta government has followed its own pause on auto insurance rates with a cap that targets “good” drivers.
The insurance industry understands the government’s motivation, and agrees that action is necessary to make auto insurance more affordable. However, Alberta’s cap comes as insurers are seeing costs rise sharply. A national epidemic in stolen vehicles is forcing insurers to pay out three times as much in theft claims as just five years ago — more than $1.2 billion nationally in 2022. In Alberta, vehicle theft is up 39 per cent in the past year alone.
Legal costs associated with insurance claims have also soared 31 per cent in Alberta since 2018 and now account for about 20 per cent of every driver’s premium. Repair costs have also risen significantly due to inflation and other factors. Like California, Alberta is seeing more severe weather events — such as hailstorms, floods and wildfires — compounding other rate pressures and further straining driver premiums.
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It’s simply not sustainable to cap rate increases at a time when the underlying costs are soaring. Unless the province urgently addresses those costs, more challenges are on the horizon.
One insurer has already left the province, leaving 16,000 drivers searching for a new provider. Other carriers have begun questioning whether they can remain.
Alberta’s insurers agree that drivers pay too much for insurance. But, as we’ve seen in California, rate intervention by government does more harm than good. There is a better path forward for the province’s three million drivers.
The government controls the product that auto insurers sell to consumers. The path to greater affordability lies in genuine reform of that product. To improve prices, the province must allow insurers to offer drivers more choice in what they are buying, while doing all it can to promote greater competition between carriers.
To that end, Alberta’s insurers have proposed a reform package that could lower auto insurance premiums in Alberta by up to $325 a year.
It would give drivers more control over their coverage options, including the ability to waive a cash settlement for pain and suffering following a minor injury, while doubling the amount of pre-approved treatment and care for those injured in collisions.
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This proposal is based on an effective real-world model that has been in place in New Jersey for two decades. In that state, drivers have seen stable rates for more than 20 years. In Alberta, these reforms would establish a balance between the current system and a pure no-fault model that would eliminate the ability for those injured in a collision to sue. Rates would improve. Competition would intensify. Drivers would benefit.
Only meaningful reform can deliver a stable, competitive marketplace that offers more choice and better rates for drivers. With affordability challenges straining the finances of families across the province, urgent action is needed.
Alberta’s insurers are eager to work with the provincial government on reform efforts and to show that when companies are allowed to compete, consumers win.
Celyeste Power is the president and chief executive of the Insurance Bureau of Canada.
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January 19, 2024 at 08:04PM
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Opinion: Is Alberta following California’s path on auto insurance? - Calgary Herald
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