New report recommends Alberta remove auto insurance rate cap

The province of Alberta should remove caps on insurance premiums, lower the provincial insurance tax rate and introduce a limited form of no-fault coverage, says a new report prepared for the Insurance Bureau of Canada (IBC).

The report was written by economist Jack Mintz, the President's Fellow of the School of Public Policy at the University of Calgary. It also advises against setting up a non-profit, government-run insurance system, as has been done in B.C., Saskatchewan, Manitoba and Quebec.

The provincial government has been promising changes to bring down car insurance premiums since shortly after it was elected last year.

In a mandate letter sent in July 2023, Premier Danielle Smith asked Minister of Affordability and Utilities Nathan Neudorf to provide short- and long-term recommendations to make car insurance more affordable.

Four months later, in a press conference, Smith rolled out some short-term plans, including the introduction of a 3.7 per cent rate hike cap on insurance for "good drivers." She also promised long-term reforms were coming in 2024.

This spring, the province released two studies it commissioned on the feasibility of adopting different insurance models in Alberta and asked Albertans to fill out an online survey about the changes they'd like to see in the insurance sector.

This latest report adds to that ongoing discussion.

According to Mintz, caps on insurance premiums actually lead to higher prices in the long term, primarily due to the instability created when insurance companies can't earn profits sufficient to maintain capital investment. 

"The big thing is for Alberta to get out of the price caps and the price controls, because that's actually creating a lot of mess for the industry. That's probably the most important part of my recommendations," Mintz said in an interview with CBC News.

Aaron Sutherland, the IBC's vice-president, agrees.

Price controls 'self-defeating'

"Jack [Mintz]'s voice is the latest in a growing chorus of experts telling us this rate cap isn't working. Price controls don't work, they are ultimately self-defeating, and the only way to improve affordability for drivers is to take action on the underlying cost pressures impacting insurance coverage," Sutherland told CBC News.

"If you're going to cap rates without doing that, you're going to run into really adverse consequences for the people you are trying to protect."

Sutherland says premium increases are driven by higher insurance claim payouts. With legal costs growing by 19 per cent over the past two years, the cost of accident benefits is up 27 per cent. Vehicle replacement costs and theft are both up as well. 

"The situation that we have today is that the provincial government has capped the price of auto insurance below the cost of delivering that product," he said.

As a result, Sutherland says, auto insurers are losing money and — increasingly — withdrawing from the province. Between 2013 and 2022, 10 insurance companies left the Alberta market. This year, three more have signalled their intention to leave.

"We don't expect people to shed a tear for the financial situation of their insurance company, but … what does it mean for Alberta drivers?" Sutherland said.

Along with eliminating the cap on rates, Mintz recommends the province consider a limited form of no-fault insurance for accidents involving minor injuries, where the cost of litigation can eat up most of the benefits paid to the injured party.

"The bigger stuff should have a tort option available for people to recover compensation from those people that cause accidents," he said.

That's an idea that sits well with Jackie Halpern, a spokesperson for FAIR Alberta, an advocacy group fighting against no-fault insurance that's funded by the Alberta Civil Trial Lawyers Association.

She says the report outlines a "balanced solution" for Albertans, pointing in particular to the recommendation to preserve the ability to sue for damages if serious injuries or impairments occur. She says this will ensure at-fault drivers are accountable for their actions.

"It could be a path forward for the government," Halpern said.

But she pushed back on the suggestion that legal costs are the biggest driver of insurance rate hikes. She says many factors add to the cost of car insurance, with property damage costs, the rising price of vehicles and auto theft being the largest.

"It's so easy to point to lawyers, but the insurance industry is doing its best, and so are lawyers," Halpern said.

Lower premiums in Atlantic provinces

The report opposes the creation of a non-profit, government-run insurance system. Instead, Mintz looks to the Atlantic provinces, where private no-fault systems have resulted in some of the lowest premiums in the country.

"I think it's important to maintain that competitive market, give people choice," Mintz said.

He also recommends the province reduce the current four per cent insurance premium tax to at least three per cent, "or abolish it altogether."

Mintz calls it "kind of surprising" that auto insurance gets all the attention it does in public policy discussions because, for the typical Albertan, it only accounts for about two per cent of their expenditures. 

"Taxes are far more important, and food and shelter, as an expenditure. But it is mandatory, and I think that's one of the reasons why people get concerned about the expenditure," he said.

Mintz said his report has been shared with the province and he is hopeful it will be considered as the government works toward restructuring the car insurance system.

In an emailed statement to CBC News, a spokesperson for Finance Minister Nate Horner said other reports commissioned by the province agreed with many of Mintz's findings, "particularly that legal costs were the primary driver of auto insurance costs."

"We are currently developing auto insurance policy with a focus on affordability for drivers while allowing companies to address rising costs. We will have more to say by the end of the year," the statement said.