Alberta started 2025 with its latest iteration of a rate cap for auto insurers. And the province is proposing to transition to a no-fault auto insurance regime by Jan. 1, 2027.
While auto insurers aren’t thrilled about the prospect of a prolonged rate cap, reforming how motorists can and can’t sue each other is a welcome change for the industry, which is concerned about rising auto insurance litigation costs.
But change brings confusion. Alberta’s auto insurance industry continues to await more clarity on how this reform will be delivered. Here’s what we know so far.
Alberta’s United Conservative Party (UCP) increased the rate cap on automobile insurance for good drivers to a combined 7.5% in January. Good drivers are defined as those who do not have:
- any at-fault accidents in the last six years,
- any criminal code traffic convictions in the last four years,
- any major traffic convictions in the last three years, or;
- more than one minor traffic conviction in the last three years.
That’s the same since the UCP first implemented the rate cap at 3.7% in 2024.
Rate cap realities
Under the cap, renewed Jan. 1, 2025, any insurer filing for rate increases with the province’s Automobile Insurance Rate Board will be capped at 5%. However, Alberta also allowed insurers an additional temporary surcharge (i.e., a rate rider) of 2.5% to account for natural disaster costs related to the Jasper wildfire and Calgary hailstorm.
That brings the aggregate rate cap to 7.5% in 2025. The government hasn’t confirmed if the 2.5% rate rider will be in effect in 2026, because it doesn’t yet know how NatCats might impact 2026 premiums.
“All [brokers] are hearing [from clients] is, ‘My rates are going to go up 7.5% this year and 7.5% next year.’ Well, that’s not necessarily the accurate way of depicting it,” says Caleb Maksymchuk, president of the Insurance Brokers Association of Alberta.
“The accurate way of depicting it [is], we’re going from a 3.7% good driver cap to a 5% good driver cap, and they’ve given an additional 2.5% proviso for the catastrophic losses that occurred here in Alberta this past year.”
So, that means…
Customer retention is also a driver of whether the cap limits rate increases for individual drivers, explains Matt Hands, vice president of insurance at RateHub.
If drivers shop their policies, change their vehicles, change neighbourhoods, or move into Alberta from another province, they might be subject to a new insurer’s rating methodology, so the cap won’t apply.
“As it stands, the reform basically incentivizes renewing and staying with your current insurer,” says Hands. “From an insurance company perspective…that’s great for retention, but it also hurts the consumer and the ability to shop around and have choice.”
Next stop, no-fault
The latest rate cap is intended as an interim fix before the province moves toward with a predominately no-fault model, slated for Jan. 1, 2027.
Under this proposed model, injured victims won’t be able to sue counterparties or their insurers for their injuries. Instead, insurers will pay injured drivers an amount set by the government.
Alberta drivers would have access to enhanced benefits through the no-fault model, “including improved medical treatment, rehabilitation, and income support,” the government has announced.
“For those with more serious, lasting injuries, a one-time permanent impairment benefit would provide compensation, serving a similar purpose to pain and suffering damages in the current court-based system.”
Medical and rehabilitation benefits will become unlimited for eligible expenses. This differs from the current court model, where medically necessary expenses can be claimed up to $50,000 for two years following a collision. Income replacement benefits would increase to a maximum of 90% net income, up to a gross income threshold of $120,000, until age 65.
Modelling no-fault
The new model will take a hybrid approach to no-fault; with some exceptions, it will prevent collision victims from suing drivers and their insurers.
The government’s calling it a ‘care-first’ system, which still gives catastrophically injured victims the right to sue. Injured drivers may also sue an at-fault driver who committed a criminal offence. Injured parties would also be able to sue for out-of-pocket expenses.
Beyond offering more benefits, the new model will bring faster care and lower prices, Alberta’s government says. Plus, by reducing the ability to litigate, “the system minimizes legal costs that drive up premiums.”
Alberta’s government sees litigation trends as among the biggest cost pressures underlying premiums, Aaron Sutherland, Insurance Bureau of Canada’s pacific region vice president told CU when the government introduced its reform measures in 2024.
Lawsuits and legal costs associated with insurance claims account for 20% of mandatory premiums, according to Insurance Bureau of Canada.
“Many details remain to be ironed out, but to the extent that these reforms successfully remove bodily injury cost pressures and litigation costs from the system, that may be effective in improving the price drivers pay,” he adds.
This article is excerpted from one that appeared in the February-March print edition of Canadian Underwriter. Feature image by iStock/monkeybusinessimages
