New report recommends Alberta remove auto insurance rate cap

The province of Alberta should remove caps on insurance premiums, lower the provincial insurance tax rate and introduce a limited form of no-fault coverage, says a new report prepared for the Insurance Bureau of Canada (IBC).

The report was written by economist Jack Mintz, the President's Fellow of the School of Public Policy at the University of Calgary. It also advises against setting up a non-profit, government-run insurance system, as has been done in B.C., Saskatchewan, Manitoba and Quebec.

The provincial government has been promising changes to bring down car insurance premiums since shortly after it was elected last year.

In a mandate letter sent in July 2023, Premier Danielle Smith asked Minister of Affordability and Utilities Nathan Neudorf to provide short- and long-term recommendations to make car insurance more affordable.

Four months later, in a press conference, Smith rolled out some short-term plans, including the introduction of a 3.7 per cent rate hike cap on insurance for "good drivers." She also promised long-term reforms were coming in 2024.

This spring, the province released two studies it commissioned on the feasibility of adopting different insurance models in Alberta and asked Albertans to fill out an online survey about the changes they'd like to see in the insurance sector.

This latest report adds to that ongoing discussion.

According to Mintz, caps on insurance premiums actually lead to higher prices in the long term, primarily due to the instability created when insurance companies can't earn profits sufficient to maintain capital investment. 

"The big thing is for Alberta to get out of the price caps and the price controls, because that's actually creating a lot of mess for the industry. That's probably the most important part of my recommendations," Mintz said in an interview with CBC News.

Aaron Sutherland, the IBC's vice-president, agrees.

"Jack [Mintz]'s voice is the latest in a growing chorus of experts telling us this rate cap isn't working. Price controls don't work, they are ultimately self-defeating, and the only way to improve affordability for drivers is to take action on the underlying cost pressures impacting insurance coverage," Sutherland told CBC News.

"If you're going to cap rates without doing that, you're going to run into really adverse consequences for the people you are trying to protect."

Sutherland says premium increases are driven by higher insurance claim payouts. With legal costs growing by 19 per cent over the past two years, the cost of accident benefits is up 27 per cent. Vehicle replacement costs and theft are both up as well. 

"The situation that we have today is that the provincial government has capped the price of auto insurance below the cost of delivering that product," he said.