Alberta knows auto insurers are losing money. But what about the rate cap?
Despite extensive evidence showing auto insurers are unprofitable in Alberta, the government has not yet decided on the future of the rate cap, officials tell Canadian Underwriter.
On Wednesday, the government put out an intentions paper outlining the development of its Care First model. Canadian Underwriter attended a media briefing with government officials the same day.
“Our government is continuing to study the impact of the good driver rate cap but has not made a decision about the future of the cap at this time,” a Treasury Board and Finance spokesperson told CU following the briefing.
Currently, the good driver rate cap in Alberta is set at 7.5% — which includes a 5% base cap and an additional 2.5% surcharge in 2025 due to hefty natural disaster claims from the previous year.
“While the cap has provided relief to Albertans, cost pressures in the industry (such as tariffs, inflation and natural disasters) have continued to escalate. This has [resulted] in increases in costs for insurance,” the spokesperson said.
In fact, auto insurers lost a -20% weighted average return on premium in 2024, according to a recent profit examination by Alberta’s Automobile Insurance Rate Board (AIRB).
Most insurers operating in the province reported a negative return, including some who were significantly more negative than average, though a small figure earned a profit in 2024.
For reference, AIRB’s target profitability benchmark in 2023 is a 6% return on premium, meaning insurers are flying well below the healthy financial performance metric.
Care First impact on premiums still in the air
“As stated in the department’s briefing, the good driver rate cap has resulted in real savings for Albertans since it was implemented in 2023,” the Treasury Board and Finance spokesperson told CU following the briefing.
Alberta auto premiums averaged $1,703 — the second highest in Canada, according to the most current AIRB data from July 2024. Only Ontario auto premiums were higher at $1,970.
Sources suggest the average premium amount would be much higher without the rate cap.
However, this cap on profitability has led insurers to take drastic steps to remain viable, including withdrawing from the province, breaking broker contracts, or reducing the availability of optional coverages.
Additionally, the government’s intentions paper had no estimate on how much Albertans will save in premiums once the new Care First model is implemented come Jan. 1, 2027.
A video published in April by the Government of Alberta suggests the Care First model could save Albertans roughly $400 in annual premiums, based on figures from an actuarial analysis conducted by Oliver Wyman in April 2024. But the initial $400 cost savings figure in the Oliver Wyman report was based on 2023 insurance data.
Since Oliver Wyman’s report, the province’s auto insurers have reported new cost pressures, ranging from natural catastrophe losses like those experienced from the 2024 Jasper wildfires and Calgary hailstorm, and geopolitical pressures such as U.S. imposed tariffs. That makes it unclear how Alberta’s projected premium savings from Care First may differ from its initial projections.
An Insurance Bureau of Canada analysis conducted by MNP suggests the Care First model — which will allow drivers the right to sue under certain circumstances — could cost Albertans $136 more in annual premiums.
Additionally, government announced the Care First model will introduce a tribunal system allowing Albertans to dispute their auto insurers’ benefit decisions. The government is still costing out the possible premium impacts of the proposed new tribunal.
