Rate filing system is causing auto premium spikes: IBC

Canada’s auto insurers are calling for a less cumbersome rate filing system in New Brunswick, currently the auto theft capital of eastern Canada, to avoid sudden auto insurance premium spikes.

“Unfortunately, the province’s outdated automobile insurance system not only fails to shield consumers from these rate spikes, but may actually contribute to them,” Graham Little, Insurance Bureau of Canada (IBC)’s director of government relations for the Atlantic region, says in a blog post.

“New Brunswick’s process for setting auto insurance premiums is one of the most time-consuming, costly and inefficient in the country. This process can contribute to large, unpredictable auto insurance rate spikes, which are particularly unwelcome at a time when affordability and predictable budgets are so important for New Brunswickers.”

Auto insurers in New Brunswick are facing the same increased costs as elsewhere in Canada. Replacing and repairing vehicles is more expensive, and the frequency and severity of weather damage has increased. Plus, New Brunswick has become “the auto theft capital of the Atlantic region,” with 788 auto theft claims in 2024 costing over $16 million.

But unlike in other provinces in Canada, to increase auto insurance rates in New Brunswick is both a costly and lengthy process, IBC says.

“With costs that can be in the hundreds of thousands of dollars and time frames that frequently exceed 10 months, the approval process encourages insurers to wait until rates become unsustainable to justify the expense and time of applying for any increase beyond 3%,” Little says.

He notes insurers’ compliance costs are built into pricing for the auto insurance product, which is then passed on to the consumer.

“Effectively, the process that was set up to protect consumers instead serves to encourage premium shocks,” Little says.

What can be done to streamline the process?

Little notes some other Canadian provinces offer “file and use” auto rate approval systems. In other words, they allow insurers to implement rate changes shortly after they file them with the regulatory authorities, provided they meet certain standards.

B.C., Manitoba, Saskatchewan, and Quebec all feature file-and-use auto insurance regimes.

Other provinces — such as Ontario, Quebec, and the Atlantic provinces — have some variation of stricter “prior approval,” or hybrid systems, in which insurers can’t use their proposed rates until the regulators approve them.

In hybrid systems, regulators allow file and use to expedite the smaller proposed increases, up to a threshold, for example, of 3% to 5%. But after that, auto insurers require regulatory approval before they can implement rate increases higher than the threshold amount.

“Other Canadian provinces have recognized this problem and have taken action to protect drivers,” Little says. “For example, some provinces allow insurers to make minor, periodic rate adjustments to help stop premium shocks. There is still oversight, but it is a more streamlined process.”   

The province’s Insurance Act is due for an overhaul, Little says.