Albertans may see some changes to their auto insurance in January 2025, with a major overhaul of the system anticipated by January 2027.
The first changes will involve adjustments to the rate cap for good drivers, set to take effect in January 2025. Premiums for responsible drivers will see an estimated increase to 7.5 per cent, intended to account for rising legal, repair, and disaster-related costs while protecting against more substantial hikes.
Premier Danielle Smith explained, "... We did allow the insurance companies to increase year over year by 3.7 per cent, and so now that amount is going to be allowed to go up five per cent; the extra two and a half per cent that'll apply to everyone is a premium to help offset the cost of natural disasters."
Nate Horner, President of the Treasury Board and Minister of Finance, acknowledged that raising the rate cap is not ideal but added that it will be necessary to maintain a viable auto insurance market in Alberta.
"We know an increase in the rate cap is not ideal for Albertans. This wasn't something we wanted to do. It's clear that auto insurance companies are not blameless in this situation either. But the current situation is not about profitability. It's about viability," he said.
"Many companies are losing millions under the current cap system, and we have chosen to limit the cap as much as possible in the face of escalating costs."
Last November, when the province addressed previous reforms, the description of a driver with a good record was adapted from the (Alberta Automobile Insurance Rate Board) guidance for the grid rating program. This includes anyone without the following:
- 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
- More than one minor traffic conviction in the last three years
The current practice of charging higher premiums to drivers with poorer records will continue, ensuring that risk remains a determining factor in insurance costs.
By January 2027, Alberta will transition fully to what the province calls a care-first insurance model. Inspired by similar approaches in other provinces, this model will emphasize accessible care and long-term support for injured Albertans.
"Under this model, Albertans injured in a collision will have access to significantly improved medical rehabilitation and income support benefits, helping them focus on recovery instead of navigating long and costly legal battles," Horner explained.
He added that calling the new system a "no-fault" system is a misnomer.
"Fault still matters. Bad drivers will continue to pay more in premiums. Drivers will be held accountable for their actions. At the same time, it is a system that prioritizes care for injured Albertans, regardless of fault, and for the vast majority of Albertans who simply need insurance to drive on Alberta's roads, the care-first model will help their pocketbook."
According to the province, the new model aims to make insurance more affordable and shift the focus from legal battles to care and recovery. Horner noted that the existing system has been criticized for driving up premiums due to the high cost of litigation, which many feel is necessary to secure adequate compensation after an injury.
The care-first model will instead provide direct access to broader medical, rehabilitation, and income support benefits with no time limits, allowing injured Albertans to concentrate on recovery without navigating a complex legal process.
Legal action will still be possible in certain cases, such as incidents involving criminal offences or major violations, but the emphasis will be on providing support without the necessity of court intervention. This approach is expected to cut down on the time and costs associated with securing compensation, with injured parties receiving the care they need without delays.
The new model also introduces a one-time permanent impairment benefit for those with severe injuries, which would previously have required lengthy lawsuits for compensation. This change is expected to reduce the need for litigation while providing more comprehensive support.
The government estimates that shifting to a care-focused model will save drivers up to $400 per year on premiums.
What about a public insurer?
Horner said based on an independent economic analysis, a public insurer would cost Alberta taxpayers nearly $3 billion to set up, not including operational costs.
"More importantly, it would mean a substantial loss of good, paying private sector jobs across the province, potentially as many as 5,000, particularly in rural and smaller communities."
However, in response to a statistic provided by Minister Horner—the difference between what insurance companies collect from premiums and what they pay out— according to him, for every dollar the insurers take in, they're paying out $1.40, which is an average rate pressure in the system of about 17 per cent. Premier Smith noted that if insurance companies continue to leave the province, there is another option.
"If this continues, then we end up with fewer and fewer insurers, which means the result, if that plays out, is a public insurer. And so we have to try to find the right balance. We think that mitigating that increase, the way we have, is the reasonable way of going forward for the next two years till the new model comes in place, and then good drivers will see a significant decrease with the new model."
Reaction to the announcement from the Insurance Bureau of Canada
In response to the provincial government's announcement, Aaron Sutherland, Vice-President of Pacific and Western at the Insurance Bureau of Canada (IBC), issued a statement welcoming the reforms while expressing concerns about continuing the current rate cap.
Sutherland emphasized that rising legal costs are a key driver of high premiums and that addressing these costs offers the greatest opportunity for improved rates. He warned that maintaining the rate cap could harm consumers and damage the province's competitive auto insurance market.
He cited a recent report from the Alberta Superintendent of Insurance, which revealed that 60 per cent of Alberta's auto insurers suffered financial losses last year and predicted the trend would worsen under the continued rate cap. He further stated that the rate cap, which is lower than the rising cost of providing auto insurance, creates an unsustainable situation that could lead to fewer choices and coverage options for consumers.
"Unless the Alberta government removes the rate cap immediately, and premiums are allowed to return to required levels, consumer savings from any reforms will be greatly diminished, and competition will be further eroded," Sutherland said.
He concluded by expressing the IBC’s eagerness to work with the government to ensure the successful implementation of the reforms by 2027, noting that the legislative and regulatory details would be crucial to improving affordability and care for collision victims.
Criticism from NDP
Court Ellingson, NDP Shadow Minister for Finance, criticized the government's plan.
He stated, "Albertans are already paying some of the highest car insurance rates in the country. Instead of stepping up and finding ways to give people real financial relief, the UCP is letting rates climb even higher—exactly when Albertans can least afford it."
Ellingson highlighted that rate increases for good drivers are currently capped at 3.7 per cent, but the UCP's plan would raise this cap to 7.5 per cent, effectively doubling the allowable increase.
He added, "At a time when Albertans are experiencing high inflation, high unemployment, and the lowest minimum wage in Canada, this government continues to make life harder. Albertans deserve better."
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