How the Rate Cap is Affecting Alberta Drivers

October 17, 2024

The auto insurance landscape in Alberta is undergoing significant changes, particularly affecting drivers’ premiums and claims costs. Recent trends indicate a troubling rise in legal expenses associated with auto insurance claims, impacting both premiums and the overall affordability of coverage for drivers. Let’s explore how the rate cap is influencing the financial dynamics for Alberta drivers, highlight the implications for good drivers versus those who do not meet the criteria, and discuss the potential future changes that may arise as the government works toward a solution. Understanding these factors is important for navigating the evolving auto insurance market in Alberta.

Legal costs for auto insurance claims in Alberta have hit a record high, averaging $100,000 per settlement. This is a major factor behind the projected 87.6% increase in auto insurance rates for good drivers over the next decade despite the 3.7% rate cap. Now, let’s break it down…

Good drivers benefit from the rate cap but still face significant increases. Even though good drivers benefit from the 3.7% rate cap, they could still face significant increases in their auto insurance premiums due to several factors, such as:

Rising Legal Costs: Legal costs related to auto insurance claims in Alberta are averaging $100,000 per settlement. These high costs contribute to the overall increase in premiums.
Increased Claims Costs: The frequency of lawsuits following collisions has risen by 48% between 2018 and 2022. When claims are litigated, legal costs often exceed the compensation for pain and suffering, driving up the overall cost of claims.
Higher Incidence of Auto Theft: Auto theft claims in Alberta increased by 55% between 2021 and 2023. This rise in theft claims adds to the insurers’ costs, which are then passed on to policyholders.
Medical Health Levies: Higher medical costs associated with treating injuries from auto accidents also contribute to the rising cost of claims.
Rate Cap Limitations: The 3.7% rate cap applies only to policy renewals for good drivers. It does not cover new policies, drivers switching insurers, adding vehicles, or moving within the province. This means that any changes to a policy could result in higher premiums.
Economic Factors: Inflation and other economic factors can increase the cost of repairs, medical treatments, and legal fees, all of which contribute to higher insurance premiums.
While the rate cap helps to limit increases for good drivers, it doesn’t address the underlying issue of rising claims costs. As these costs continue to climb, even good drivers will see their premiums increase over time.

To qualify, drivers must have no at-fault claims in the past six years, no Criminal Code convictions in the past four years, no major convictions in the past three years, and no more than one minor conviction in the past three years.

Impact on Other Drivers:

Drivers who don’t meet the “good driver” criteria could see premiums rise by more than 148% over the next decade.
The rate cap does not apply to new policies, drivers switching insurers, adding vehicles, or moving within the province, leading to potentially higher premiums.
Increased auto theft claims, higher medical health levies, and litigation costs are driving up premiums.
The frequency of lawsuits following collisions has increased by 48% from 2018 to 2022, with legal costs now more than double the cash payments for pain and suffering.

Alberta’s government is working on a long-term solution, with a reform proposal expected before the next provincial election in October 2027.
Insurers warn that claims costs are the main driver of premium increases, and an honest conversation about these costs is necessary.

While the rate cap provides some relief for good drivers, it does not address the underlying issue of rising claims costs. This means that premiums will continue to increase, especially for those who do not qualify as good drivers.