Auto insurance companies keep leaving Alberta. Here's why

Albertans pay some of the highest auto insurance premiums in the country butsome insurers say the business isn't profitable here.

When Zenith Insurance decided to pack up shop last summer, Premier Danielle Smith was skeptical any other auto insurers would follow.

"I'll believe it when I see it," she said in a press conference last July. "There's obviously a lucrative market here because we're one of the few markets that operate in a free enterprise system."

Now, two more providers have left in the span of three weeks. Sonnet Insurance Company and Aviva subsidiary S&Y both recently announced plans to phase out their auto insurance businesses in Alberta, citing claim costs that exceed premiums collected as well as a lack of opportunity to grow profits.

According to a statement from the province, combined the companies make up about one per cent of insured vehicles in Alberta. It is unaware of any other insurers leaving.

In an interview on Monday, auto journalist Lorraine Sommerfeld told CBC's Radio Active that these exits are "warning signs.

"They're not good signs of what could happen. And I think your premier needs to take this a little more seriously."

Radio Active8:29Why are auto insurance companies leaving Alberta?

Two auto insurance companies announced last week that they'd no longer do business in Alberta. Automotive journalist Lorraine Sommerfeld talks about the financial pressures that influence such decisions.

In a new report this week, credit rating agency DBRS Morningstar warned other insurers could also be eyeing the exit doors.

"We believe that others may follow," DBRS Morningstar said. "Even those who do not have plans to withdraw from the market per se may be implementing cost savings measures that are reducing the accessibility and availability of auto insurance."

Aaron Sutherland, the Insurance Bureau of Canada's vice-president of Pacific and Western regions, shared those concerns.

"I think we're reaching a crisis point in Alberta's auto insurance market," he said, adding that 17 insurers lost money on the sale of coverage last year.

Long history of caps

Consumer frustration with high prices has led multiple provincial governments to attempt to offer some relief.

Under former NDPpremier Rachel Notley, during the period 2015 to 2019, annual premium rate increases in Alberta were capped at five per cent. The cap was eliminated in 2020 only to be re-introduced by the United Conservative government in 2023 in the form of a year-long rate freeze that barred insurers from filing for new rate increases for customers with clean driving records. Rate increases are now capped at 3.7 per cent.

Sommerfeld said that while caps make consumers happy in the interim, they're not a real fix because the cost of repairing vehicles continues to soar with the impacts of the pandemic, inflation, and higher rates of fraud and theft.

"The problem is they're artificial. And when you're telling a business you can only charge this much as their costs are skyrocketing something has to give."

Who's at fault?

Unlike neighbouring provinces B.C., Saskatchewan and Manitoba which all have public auto insurance systems Alberta's is a privately delivered, for-profit model.

Alberta is also one of the few Canadian provinces without a no-fault insurance model. In Alberta, collision victims who have sustained both minor and major injuries are allowed to sue the insurance company of the at-fault driver.

In the more common no-fault insurance model, the courts are generally taken out of the equation. Insurance companies are required to cover the losses of the driver they insure, regardless of who is at fault. Since each driver deals with their own insurer, there is usually no need to sue.

Aviva specifically cited litigation costs as the biggest driver of high premiums in Alberta. Sutherland said the costs are three times higher than in the rest of the country.

That's because in addition to benefits needed to repair or replace vehicles and the recovery of those injured in a collision, Albertans are entitled to pain and suffering awards.

Sutherland said Alberta is seeing more and more of those lawsuits, and while sometimes they're appropriate, too often they're seeing "frivolous claims" which create higher premiums for everyone.

"We've seen other provinces take action to reduce [litigation costs]. We have yet to see that from the province."

The insurance industry has proposed one solution, where drivers could choose to pay a lower premium by waiving the ability to sue if they sustain a minor injury. Those with serious injuries would continue to have legal recourse after an accident, just like today.

Alberta could also fully move to a no-fault model, eliminating the right to sue entirely. But that would likely decrease the overall average payout policyholders could expect to receive after a collision, Sutherland said.

Changes to come

A recent government-commissioned report suggested the answer to Alberta's woes could be a move to a public auto insurance system, which the report said could save the province's drivers hundreds of dollars a year in premiums.

But Premier Danielle Smith has said there's little public appetite in Alberta to move to a government-run model.

But there are more changes in the works. More than 16,000 Albertans responded to a recent survey on auto insurance, the province said in a statement.

"We are working on long-term reforms to make sure Albertans have access to affordable insurance and to stabilize and sustain the auto insurance industry."

Whatever the solutions are, both Sutherland and Sommerfeld emphasized changes are needed fast for consumers and insurers alike.

"There's a lot of moving pieces in this and I think we all know our insurance rates are probably never coming down," Sommerfeld said.