Earlier this year the government of Alberta implemented a freeze on auto insurance rates. With few options to improve rates in the near-term, it was an understandable — if unfortunate — decision and clear political winner. But what will it cost Albertans in the long run?
We’re beginning to find out.
Recently, Alberta’s Superintendent of Insurance confirmed that at least one company is withdrawing from the province’s auto insurance market. Some insurers are being forced to limit or restrict the amount of coverage they can offer to remain viable. The result for Alberta drivers: less choice and less competition. Meanwhile, the cost of providing insurance continues to mount within our system.
To be clear, no insurer wants to stop operating in Alberta. They have invested heavily in our province because they believe in the Alberta Advantage and recognize the key role we play in Canada’s overall growth.
But insurance companies aren’t immune to the effects of inflation and supply-chain issues. Anyone who is in the market for a new car or needs a repair will tell you that the cost of repairing and replacing damaged vehicles is soaring. Legal costs related to auto insurance claims are also on the rise — up an eye-watering 79 per cent in recent years. It’s unsustainable.
In the face of these pressures, a government-mandated rate freeze makes it increasingly difficult for insurers to keep doing business in Alberta.
This will not come as a surprise — either to government or Albertans. You can’t simply intervene in a market and freeze rates without some effect on drivers. We need only look to the last jurisdiction to do this — California — to see where such policies lead. By freezing insurance rates for two years, that state’s government has forced a number of major insurers to close their offices and stop providing insurance to customers. Those that remain are struggling, and some have had to reduce the amount of protection they provide to drivers in the state.
So how do we avoid following in California’s footsteps? How do we move forward to reduce the cost of auto insurance while ensuring the system is sustainable for the long run?
That goal is hindered by Alberta’s one-size-fits-all approach to auto insurance today, in which everyone is forced to purchase the same coverage, regardless of circumstance or personal preference. It’s time to change that and give Alberta drivers more choice.
That’s why Alberta’s auto insurers — people who live and work in this province — have put forward a proposal that would fix our antiquated system and give drivers more control over what they are buying. It would protect the right to sue for proper care and benefits after an accident. And it would double the amount of treatment and care provided in the event of an injury during a collision.
Here’s the best part: When linked with improvements to the province’s regulatory system, as well as eliminating the hidden tax drivers pay on their auto policy, these reforms would save Alberta drivers an average of $325 a year.
Albertans are known to be fierce advocates for free markets and strong competition. Oversight is essential, but the province’s auto insurance system is overregulated. It limits choice and undermines competition. Worse, it lines the pockets of lawyers instead of prioritizing care for victims.
We can do better. Today, there are fewer insurers operating in Alberta than in the Maritimes, despite Alberta’s vastly larger population. The time has come to cut red tape — and politics — out of the auto insurance system and create an environment that encourages insurers to enter the marketplace, not leave it.
By doing so, we can reverse the current trend. We can increase choice and competition across the province — all while improving rates for Alberta drivers.
Aaron Sutherland is the vice-president of Western and Pacific Regions for the Insurance Bureau of Canada.