Alberta drivers will soon see significant changes to their auto insurance system, starting January 1, 2027, with the introduction of the 'Care-First' system. However, leading to these changes, rate caps for good drivers will increase starting January 2025.
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Rate cap changes for 'good drivers'
In January 2025, 'good drivers' will have their rates capped at capping their rate increases at 7.5 per cent.
This includes a five per cent annual cap and an additional 2.5 per cent allowance for costs related to natural disasters, such as the 2024 Jasper wildfire and Calgary hailstorm. In 2024, good drivers had their rate increases capped at 3.7 per cent.
Drivers who did not receive this cap in 2024 due to insurer timing will have their rates capped at 3.7 per cent in 2025, provided they still meet the good driver criteria at renewal. A good driver is defined as someone without at-fault accidents in the last 6 years, criminal code traffic convictions in the last four years, major traffic convictions in the last three years, or more than one minor traffic conviction in the last three years.
The transition to a 'care-first' system
The new 'care-first system,' set to take effect in 2027, will offer enhanced benefits, foster care, and reduced litigation. According to the government, it will improve medical, rehabilitation, and income support benefits, with unlimited coverage for eligible lifetime medical expenses.
Income replacement benefits will also increase, covering up to 90 per cent of net income for those seriously injured, payable until the age of 65. The goal is to provide faster care and reduce reliance on lengthy legal processes, which can delay recovery.
Additionally, the new system is expected to stabilize and even lower drivers' premiums by cutting legal costs.
Reports guiding the changes
Two reports, commissioned by the Alberta Treasury Board and Finance, were authored by consulting firms Oliver Wyman and Nous Group to help guide the upcoming policy changes. These reports explore alternative insurance models and their potential impact on premiums, government costs, and the broader economy.
Oliver Wyman’s report highlighted the potential savings from shifting to a no-fault insurance system, where drivers receive compensation for their own injuries regardless of fault. In this scenario, British Columbia’s public no-fault model could reduce premiums by 38.6 per cent, and Quebec’s hybrid model (which combines public insurance for bodily injury with private insurance for vehicle damage) could cut premiums by 25.3 per cent.
However, a private no-fault model, similar to that in New South Wales, Australia, could result in a premium increase of 11.2 per cent. The Insurance Bureau of Canada (IBC) also suggested a more modest approach, proposing adjustments to Alberta’s current system, such as tighter limits on court claims, which would lower premiums by about 7.1 per cent.
Meanwhile, the Nous Group’s report focused on the broader economic impact of the changes. Transitioning to a public insurance model could involve significant costs, including an estimated $100 million to $500 million in operational expenses and an initial capital injection of approximately $2.3 billion.
There would also likely be job losses in the private insurance and legal sectors, although increasing public sector jobs could offset these. Switching to a public model could reduce tax revenue, with a drop in insurance premium tax revenue estimated at $163 to $171 million annually.
Key differences between tort and 'no-fault' systems
Alberta’s current system is a tort-based model, meaning that at-fault drivers (or insurers) are liable for damages and injury costs. While this system offers extensive compensation options, it also increases costs due to legal disputes. In contrast, a no-fault system, where drivers receive compensation from their own insurer, eliminates the need to establish fault and generally leads to lower premiums by removing legal expenses.
Public vs. private insurance delivery: Pros and cons
The reports also examined the pros and cons of public versus private insurance delivery. Public models, like those in British Columbia and Manitoba, generally result in lower premiums due to reduced operational costs and the absence of profit-driven motives. However, these systems require substantial government involvement, raising concerns about long-term sustainability. On the other hand, private insurers offer more flexibility and consumer choice, but their need for profit often leads to higher premiums.
Impact on coverage and benefits
The potential reforms would affect both the cost and the level of coverage available to drivers. In Alberta’s tort-based system, compensation for catastrophic injuries is limited by insurance caps. A shift to a no-fault or care-based system could increase coverage limits for catastrophic injuries and improve access to medical benefits, rehabilitation, and support without the legal hurdles currently involved.
MNP Study on Alberta’s auto insurance premiums
An MNP study, separately done for the IBC and released late this fall, examined several factors driving up premiums in Alberta, including technological advances in vehicles, rising legal representation, increased auto theft, extraordinary weather events, and higher health costs.
The study also highlighted the Alberta government’s actions, such as introducing a rate freeze in 2023 and the 3.7 per cent rate cap for good drivers in 2024. Despite these measures, the report said that premiums have continued to rise, with the average premium increasing by 5.2 per cent in 2023 and another 6.8 per cent in the first eight months of 2024.
The MNP study also raised concerns about the impact of the rate caps, particularly for younger drivers and newcomers to Alberta, who often face higher premiums due to a lack of driving history. It was projected that by 2033, non-good drivers would pay 3.7 times more than good drivers, compared to the current ratio of 2.2 times.
Additionally, the rate caps have made it more difficult for drivers to switch insurers, as they lose the benefit of the cap when changing companies. The study noted that this reduces consumer choice and decreases competition in the market.
Reactions to the government’s proposal
The Insurance Bureau of Canada (IBC) expressed mixed reactions to the Alberta government's reforms. Aaron Sutherland, Vice-President of the IBC, supported the reforms but warned that continuing the rate cap could harm the competitiveness of Alberta’s auto insurance market. He noted that rising legal costs are a key factor driving premiums higher and that addressing these costs could help make rates more affordable.
On the other hand, NDP Shadow Minister Court Ellingson criticized the government's plan, arguing that Alberta’s auto insurance rates are already among the highest in Canada. He expressed concern about the rate cap increase from 3.7 per cent to 7.5 per cent, pointing out that this would worsen financial pressures for Albertans already dealing with high inflation and unemployment.
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