Government must take meaningful action on auto insurance

With the provincial election just a few months away, there has been a lot of discussion recently about Alberta’s auto insurance market. As record levels of inflation and rising interest rates strain household finances, political leaders are looking for opportunities to reduce costs for families and businesses. That’s a good thing.

Insurance Bureau of Canada (IBC) and its members are keen to work with government on such proposals and to bring improved – and lasting – affordability to Alberta’s 2.8 million drivers.

Unlike the pricing of food and other consumer goods, auto insurance is regulated by the provincial government, which controls many of the levers that impact its cost. For example, the government introduced reforms in late 2020 to stabilize auto premiums, and since then rates on average have increased just 2.8%.

Despite some of the recent rhetoric, auto insurance rates in Alberta are stable. However, the insurance system is not immune to the inflationary pressures facing the economy. The cost of vehicle parts and repairs alone has gone up over 13% since the start of the pandemic, not to mention the continued increases in legal fees and other costs within the insurance system.

The government can and should do more to further improve the affordability of auto insurance. But decisions must be based on facts and evidence, and the only way to truly improve affordability is to address the costs that put pressure on rates.

That is why the insurance industry has continually engaged leaders of all political parties to put forward solutions that would deliver savings for drivers. IBC have submitted a proposal that would double treatment and care for those injured in collisions, while giving drivers more control over their policy and the ability to choose new coverages. If implemented, these reforms could save drivers an average of $200 annually. A further $65 in savings could be found if the government took action to modernize the province’s regulatory system, and eliminated the subsidies that good drivers pay to cap the rates for those with a history of accidents.

Yet, in place of real reforms, we too often hear politicians resort to soundbites over sound policy. This only serves to push problems down the road. Such is the case with calls for a return of the auto insurance rate cap or rate freeze. This policy may sound appealing, but will bring little benefit to consumers – and may instead cause significant harm.

When the last provincial rate cap was in effect, underlying costs were not addressed, and pressures built up in the system. Some insurers had to reduce coverages to remain viable and ensure they could continue to pay claims. Payment plans and optional products, like collision and comprehensive coverages, grew harder for customers to find. In particular, owners of leased vehicles faced challenges securing the required coverages. On top of this, premiums still increased on average 12%.

Let’s be clear. A rate cap or rate freeze offers no savings to Alberta families, many of whom need support right now. If political leaders want to provide immediate financial relief, IBC has strongly recommended removing the 4% Insurance Premium Tax collected by the province. This tax is applied on every auto insurance policy, and removing it – similar to action the Alberta government has taken on the fuel tax – could save drivers an average of $60 annually.

Together, our proposals could create $325 in savings. Tax relief to help drivers today, while longer-term reforms – and further savings – are implemented.

The insurance industry employs 23,000 hardworking Albertans. We recognize the challenges families are facing and agree that Albertans deserve lower insurance premiums. There is no better time to take meaningful action that puts money back into the pockets of consumers. We’re ready to work with all political parties to make that happen.

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The truth about auto insurance in Alberta

Everyone wants an auto insurance system that works well for Alberta’s 3 million drivers. Recent reforms and the introduction of DCPD are a good start – and these are helping to stabilize rates.

In fact, we are already seeing rates decrease in the province.

The most recent data from the Alberta Auto Insurance Rate Board – the government’s insurance regulator – shows rate approvals have remained stable over the past 12 months.

Similarly, the General Insurance Statistical Agency’s (GISA) data also indicates average premiums in Alberta declined by 1.1% over the last 12 months (January to January). GISA is a national body of insurance regulators specifically tasked with monitoring insurance premiums in the country.

Even with record inflation, auto insurance premiums are one of the few things not adding to the increased cost of living. Statistics Canada’s data shows that auto insurance premiums declined 6.5% across Canada over the last year. This, despite the cost of vehicle parts increasing by 5%, the price for new vehicles up 7% and the cost for rental cars up 19.4% (which drives up the cost of claims) and an overall inflation rate of 6.7% in March.

Over the course of the pandemic, the insurance industry provided $3.7 billion in financial relief to home, auto and commercial consumers – a significant and unmatched effort by insurers to help Canadians when they needed it most. In Alberta alone, the industry provided over $460 million in premium relief back to their customers.

DCPD impacting premiums but benefits majority of Alberta drivers

While rates are down on average, some drivers are seeing changes in their insurance premiums based on the value of their vehicle.

On January 1, Alberta became the latest province in Canada to introduce direct compensation for property damage (DCPD) to the auto insurance market. When your vehicle is damaged and you aren’t at-fault for the accident, DCPD allows you to work with your own insurer for vehicle repairs, instead of relying on the other driver’s insurance company.

Because your own insurance company is responsible for repairing your car, DCPD better aligns insurance rates with the value and repair cost of your vehicle. While owners of more expensive vehicles may pay more for their coverage, drivers of less expensive vehicles are paying less – and that’s a fairer system for everyone. As a result of DCPD, roughly 43% of drivers are paying less for their auto insurance, and 15% are seeing no changes. An estimated 34% of drivers will see an increase in their premiums between 0% and 5%.

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Improved Affordability and Care

In these challenging economic times, Albertans need affordable auto insurance they can count on. The changes introduced by the Government of Alberta were intended to stabilize premiums and improve medical care for Albertans injured in collisions by increasing the amount of coverage available to accident victims with minor injury and increasing benefits available to accident victims with serious or catastrophic injuries. Learn more about the government’s changes to auto insurance here.

Alberta Auto Insurance Facts
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