Alberta auto cap: Which insurers are suffering most?

Two recent Alberta auto insurance regulator reports express concerns about auto insurer profitability in the wake of that province’s 3.7% rate cap, as well as the future impact the cap may have on accessibility.

In its Superintendent of Insurance 2023 Annual Report, Alberta’s auto insurance regulator, the Auto Insurance Rate Board (AIRB), found auto insurer results in the province have noticeably deteriorated since the Alberta government first capped auto rate increases to 3.7% in 2023. Alberta’s government maintained this cap for ‘good drivers’ in the province in January 2024.

“Overall, in 2023 Alberta’s automobile insurance operational result — in IFRS-17, it’s called the Gross Insurance Service Ratio (GISR), which is akin to the combined ratio under IFRS-4 — deteriorated by nine points from approximately 88% to 97%,” the AIRB notes in its 2023 annual report. “This means that on average, Alberta’s automobile insurers made about 3% underwriting (operational) profit in 2023.

“While there was overall profitability, the Superintendent estimates that roughly one-third of the 67 automobile insurers that wrote Alberta business in 2023 lost money on Alberta automobile insurance.

“Of those 67, for the 40 that wrote private passenger automobile insurance (27 only wrote commercial or miscellaneous automobile insurance), the results were even worse, with three-fifths being unprofitable.”

Published results in the AIRB’s annual report show Alberta auto insurers with significant market share in 2023 (more than $90-million of auto insurance revenue written in the province) and an unprofitable GISR over the break-even point of 100% include: Certas Home and Auto (135%), The Personal Insurance Company (129%), Sonnet (125.3%), SGI Canada (123%), and The Dominion of Canada General Insurance Company, now owned by Travelers (121%).

S&Y Insurance Company, which only wrote $1.178 million of auto insurance revenue in Alberta in 2023, had a GISR of 140.83%. S&Y is owned by Aviva Canada, which also owns Aviva Insurance Company of Canada. Aviva Insurance Company wrote more than $287-million worth of auto insurance in Alberta in 2023, with a GISR of 92.56%

“Unfortunately, in 2024 two insurers decided to leave the province, Sonnet Insurance Company, and S&Y Insurance Company, which are parts of the Definity and Aviva groups, respectively,” AIRB states in its 2024 Markets & Trends Report. “While these insurers are leaving, at least one other insurer in their groups, remain in the province.

“In particular, neither of these companies are the largest in their group. Together, these insurers represented 1.26% and 0.03% of the market in 2023 respectively. Depending on where these policyholders go, we may see an increase, or even a decrease, in [market competitiveness] for 2024.”

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One thing, though, the Alberta government’s ‘good driver’ cap of 3.7% on auto rate increases does not apply to policyholders who change insurers, meaning their rates may go substantially higher if market dislocation brings them to new companies.

“We are concerned about the affordability of auto insurance for Alberta drivers,” AIRB says in its 2024 trends report. “While premiums continue to rise for Alberta drivers, they are still inadequate to cover the costs incurred by insurers in delivering on their promise to pay claims in the event of an accident.”

For example, despite 48.9% fewer auto insurance collision claims in Alberta in 2023 than in 2019 (in part attributable to more advanced safety tech in cars), the costs of auto repairs jumped by 55.5% during the same period (also partly attributable to advanced safety tech in newer cars).

Auto insurers have tried to keep pace with claims costs by raising premiums, but Alberta capped auto insurance rate increases to 3.7%. Insurers have told investors and CU over the past year that this cap is well below the inflation numbers auto insurers are seeing for car repair.

Indeed, the rate cap did not stop premium rate increases in 2023, as AIRB observes.

Following a ‘modest’ auto insurance rate increase of just 0.6% in 2022, premiums increased 5.2% in 2023, “despite the Ministerial Order preventing Albertans from seeing a price increase due to a rate filing,” AIRB’s report states.

The regulator found the average auto insurance premium in Alberta stood at $1,669 in 2023, compared to just over $1,300 in 2019.

Feature image  courtesy of iStock.com/eyetoeyePIX