Canada’s auto insurers barely tread water in 2024

Canada’s auto insurers teetered on the brink of unprofitability throughout 2024 — and sometimes fell over the edge, according to a new report by Statistics Canada.

The detailed report explores many different reasons why auto insurers have seen their claims costs increase over the past year, even as auto theft has reportedly decreased.

The Net Insurance Service Ratio (NISR) in Canada’s personal auto lines “surpassed 80% in nearly all quarters [of 2024] and provinces and exceeded 95% in several quarters,” the Stats Canada reports states. “According to the industry, [an] NISR above 80% indicates potential unprofitability, given that this ratio is largely driven by claims and does not take all general business and operating expenses into account, leaving little room for profit once factored in.”

The NISR is a new measure akin to the combined ratio, which was calculated by adding expenses and claims costs, and dividing by premiums. Any result of 100% is break-even, and any score above 100% is unprofitable. NSIR is different in that it includes net reinsurance costs and excludes general and operating expenses.

StatsCan’s says Canada’s auto insurers collectively had an NISR over 100% in the first quarter of 2024. And while it gradually declined throughout last year, it remained above 90% throughout.

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Across the country, Newfoundland auto insurers were unprofitable in 2024 Q1, and hovered at a break-even 100% during the final two quarters of the year.

Auto insurers in Central Canada, Quebec and Ontario have shown gradually increasing profitability following extremely high NISRs in early 2023. Quebec’s NSIR was more than 100% in 2023 Q1 and Ontario’s hit 100% in 2023 Q2. But both provinces have had NSIRs above 80% for the past two years.

Alberta’s auto insurers posted an NISR above 100% throughout all of last year.

“Approximately one-third of insurers in Alberta were unprofitable during [2023-25], and they have indicated that the [province’s] rate caps are, in part, a factor in the capacity withdrawal and the proportion of claim costs allocated to legal fees increasing,” the Statistics Canada report notes. “In November 2024, the Alberta government announced the end of the rate cap and auto insurance reforms to transition to a pure no-fault system, permitting annual 7.5% increases, which can take effect throughout 2025. The new no-fault model is expected to take effect in 2027.”

As far as public auto insurers go, Insurance Corporation of B.C. was unprofitable through 2023 Q1 to 2024 Q1. Its NISR dipped to just above 80% in the third quarter of last year, but then increased to near 95% in 2024 Q4. StatsCan shows Saskatchewan Government Insurance (SGI) was unprofitable in 2024 Q1.

Overall, the report provides a detailed overview of several culprits for the auto insurance claims costs increases.

They include:

• In extreme weather, most notably Calgary’s record hailstorm last year, autos and homes are equally susceptible to damage.

• An increase in traffic and commute times when people returned to the office after the pandemic.

• Vehicle prices increased from a low of 45.1% in Alberta to a high of 85.5% in Quebec from 2019-2024.

• Costlier repairs for electric vehicles, and the fact that more of them are now on the roads in Canada

• An increase in parts, maintenance and repair costs for private passenger vehicles, which can contain up to tens of thousands of parts.

• Vehicle safety features, despite lowering fatality rates, have led to increased claims costs.