Alberta Auto Insurance: Issue Backgrounder – Fall 2023
A. The Recent History of Auto Insurance in Alberta:
Insurer-friendly Reforms Didn’t Help Albertans
In 2020, due to rising consumer premiums the Alberta government passed Bill 41. This law made “industry-friendly” changes designed to improve the profitability of auto insurance companies. The intent was to encourage new players in the market and increase competition, eventually resulting in lower premiums for consumers.
However, that intended result did not happen. The reforms DID generate significant cost reductions for the insurance industry, saving those companies hundreds of millions of dollars and resulting in record profits. However, despite these savings the auto insurance industry did NOT lower rates or sufficiently process rebates for Albertans. Instead, they kept these profits for themselves, and greater industry profitability resulted in larger companies buying up even more market share, ultimately reducing competition.
To address continued high premium costs for Albertans, the insurance industry is now once again pushing for reforms that will reduce both consumer protections and the rights of Albertans to access the courts and challenge insurer decisions. In today’s climate of rising costs for everything, it is not acceptable for Albertans to have their consumer protections reduced and at the same time be paying higher premiums simply to support the expanded profitability of large insurers.
What we have learned from Bill 41 is that industry-friendly reforms disproportionately benefit insurance companies, NOT Albertan consumers.
B. Straight Talk:
The Auto Insurance Industry in Alberta is Highly Profitable.
While it is not commonly known, auto insurance premiums in Alberta are designed to target a seven percent profit for companies. However, in recent years insurers have been regularly exceeding that target without consequences.
The industry is expected to achieve pre-tax profits of around $800 million in 2023. However, these projected profits of approximately 18 percent surpass the benchmark profit margin of seven percent. To align with the benchmark, a reduction in premiums is required for 2023. Since 2020, the auto insurance industry in Alberta has experienced or will experience over $2.9 billion in profits IN EXCESS of the seven percent provision. Industry profits are also expected to remain very healthy and well above recent averages moving forward.
Insurers saved considerable amounts during the Covid-19 pandemic due to reduced driving volumes (and associated claims). Until now, there has been anticipation for a return to pre-pandemic driving patterns. Our analysis indicates that changes in working and driving practices are now permanent and that industry profits will remain excessive in the future without changes.
C. The Insurance Industry Proposal:
Shuffling Their Costs onto The HealthCare System
In 2023 the insurance industry has proposed additional reforms to benefit themselves even further.
The insurance industry’s proposal is for a hybrid no-fault auto insurance system that would negatively affect injured Albertans and impact their ability to receive appropriate compensation for the injuries suffered due to the negligence of another driver.
The industry indicates their reform proposals are trying to control “legal costs.” The suggestion is that a major driver of premium costs is claims for bodily injury and the compensation for those injuries, but evidence suggests otherwise. Since 2016 bodily injury claims costs have remained stable and recently declined significantly when adjusted for inflation. Despite this fact, the industry continues to push for further reforms that would decrease the ability of injured Albertans to get the compensation and care they deserve.
Medical professionals don’t support this idea. Why? It’s because no-fault or hybrid no-fault auto insurance systems do not improve care for injured Albertans but INSTEAD result in poorer treatment outcomes. No-fault insurance systems, by broadening the pool of beneficiaries, undercompensates those with severe and chronic injuries, while sometimes paying fraudulent claims. This situation would neither better treat Albertans who suffer injuries from automobile accidents nor save costs but would instead reward bad drivers and serve to transfer costs out from the insurance system and onto Alberta’s already overburdened health care system.
No-fault auto insurance systems put the interests and wellbeing of at-fault drivers ahead of drivers who sustain actual injuries from accidents. Thus, the insurance industry proposal is not supported by the data and will not result in enhanced care for Albertans.
D. The FAIR Approach:
More Consumer Protections and Financial Transparency for Albertans
FAIR believes it is time to take a different approach to insurance reforms. Albertans deserve more consumer protections and financial transparency in the insurance industry.
We recommend the following:
- Turn The Existing 7% Profit Target Into Law. – The 7% profit target for insurers is a good and balanced policy that has not been enforced. Had a seven percent profit cap been applied since 2020, Alberta households would have seen a reduction in premiums and paid on average $527 less in premiums in 2020, $830 less in 2021, and $700 less in 2022. If this benchmark is applied in 2023, our analysis indicates a reduction in premiums is required resulting in an average decrease of $430 per household in private passenger auto premiums. In total the average Alberta household would have saved over $2000 in the past three years if the proposed 7% profit cap had been in effect.
- Establish an Alberta Auto Insurance Premium Stabilization Fund. – This proposed fund, through which industry profits collected above the seven percent threshold can be paid into, could be used to process rebates to consumers or to balance off rate increases in future years, thus protecting Albertans from rate shocks and sudden fluctuations.
- Put a larger focus on consumer protection and industry transparency for the Government Regulator. – Albertans would be well served if the existing government regulator – The Alberta Auto Insurance Rate Board (AAIRB) – was reformed to oversee the insurance industry with a larger focus on consumer protection and financial transparency. The expanded mandate should focus on promoting financial transparency in the industry; include an insurance ombudsman function to oversee and direct complaints regarding individual companies and concerning business behaviour; comment on consolidation in the industry and provide guidance on ways to increase competition.