Alberta to lift auto insurance rate cap, axe right to sue in crashes: Sources

The UCP government will announce this week it's going to let auto insurers raise premiums by substantially more than the 3.7 per cent rate cap it imposed this year — part of major insurance reforms that will promise customers savings in future years by removing personal injury lawsuits and legal claims from the system, CBC News has learned.

Premier Danielle Smith's cabinet has endorsed moving Alberta to a predominantly "no-fault" insurance system, according to multiple industry sources familiar with the government's deliberations and decisions. 

In a no-fault system, accident victims do not have the right to sue at-fault drivers; instead, their own insurers pay out injury benefits based on predetermined guidelines.

This would mark the biggest reform in decades of the way Alberta car insurance benefits work. But these changes — and the premium savings that theoretically come with them — would take roughly two years to implement.

In the shorter term, Alberta drivers will likely have to shell out more for what's already, by some measures, the priciest auto insurance in Canada.

Easing the current rate cap to allow insurers to charge more money is something the sector has lobbied for to address the rising costs of providing insurance. Those pressures have prompted some smaller insurance businesses to exit the Alberta market, and Finance Minister Nate Horner has previously expressed concerns that other companies will follow suit.

Premium prices

After ordering a rate freeze on auto insurance in 2023, the government allowed companies to raise premiums on good drivers by a maximum of 3.7 per cent this year — and while the province promised further reforms to improve affordability, Horner has said that 2024's rate increase limit "is not sustainable," and such caps or freezes could not continue indefinitely.

While CBC News could not confirm the more generous rate cap coming for 2025, two sources said they understand that cabinet this month discussed doubling the rate cap to permit 7.5 per cent increases.

Reached for comment, a spokesman for Horner confirmed the reforms are forthcoming after lengthy consultations, but would not discuss any details.

"Our focus is on reducing premium costs for Albertans and ensuring that they receive faster and better care following an accident," press secretary Justin Brattinga stated in an email.

Horner is scheduled to make the announcement on Thursday, according to sources.

The UCP government has made consumer affordability a top priority, from last year's $100-a-month direct payments to electricity reforms ushered in by Nathan Neudorf, named minister of affordability and utilities.

With the suite of auto insurance reforms that sources in both the legal and insurer sides of the system expect to come this week, the UCP will effectively be announcing pricier premiums at first, with potentially big reductions down the road.

The insurance sector may protest that even a higher rate cap won't be adequate to restore insurers' financial stability after years of rising costs for injuries, vehicle repairs and legal costs, as well as government-imposed price controls.

But personal injury lawyers would likely be more vocal in their opposition to a reform they have long feared — one that reports forecast would decimate their claim volumes and jobs in their law firms.

"Obviously we're nervous," said Edmonton lawyer Norm Assiff. "This is the only issue to me, because I have a staff of 30 people."

'Taking rights away'

Bringing Alberta into a purely no-fault system could slash average driver premiums by around 20 per cent, according to estimates in a pair of government-commissioned reports released earlier this year.

It would also prompt the loss of 650 to 800 jobs in legal services, the reports predict.

During the UCP's annual convention this month, Assiff took to a microphone to call on Horner and Smith to steer clear of no-fault insurance, saying it would be "political suicide" for their party.

"You're taking rights away from Albertans," Assiff said during a question-and-answer session, referring to the right to sue for injury compensation.

"That is un-conservative. That is not what Albertans want."

He charged that Smith's team was pursuing a policy enacted by the NDP in British Columbia, and one that would give insurers too much power.

"Does anyone in this room trust insurance companies?" the injury lawyer asked fellow convention-goers.

Smith quickly pointed out that conservative Saskatchewan also has a no-fault system, and recalled talking to a Lloydminster trucking company owner who lives on the Alberta side of the city, but enjoys markedly lower insurance rates in Saskatchewan.

"There's something really broken about our system when you've got side-by-side residents living on one side of the border versus another and there's that kind of dramatic difference," the premier said.

Saskatchewan's insurance is run by a not-for-profit government provider while Alberta's is privately operated.

Horner, for his part, told the convention that Alberta is studying various models of reform, and was wary of the startup costs of adopting public auto insurance — but that consumer choices are already evaporating in this province's currently strained system.

"After multiple years of caps and our attempts to bring affordability to the system in the short term, the pressure in the system is real," Horner said. "I can tell you that companies have left and more will."

The province's reports showed that Alberta could bring consumers the biggest savings by adopting a fully public insurance system like Saskatchewan, British Columbia and other provinces have: average annual premiums could be $732 lower if the province adopted Manitoba's government-run, no-fault system. It would also cost the provincial government nearly $3 billion to set up a Crown corporation for insurance.

If Alberta retained private insurers but copied Manitoba's no-fault system for claims, the average premium savings could be $385, the reports stated.

The level of savings, however, would depend on what allowances the Smith government makes for lawsuits to continue under the forthcoming reforms.

Industry sources say the province has explored options to allow some severe injury victims access to the courts, but there's a pressure point for government: as such loopholes get wider, any premium reductions would likely get smaller.

Advocates of no-fault insurance say the system helps shorten and simplify the claim settlement process, as well.

But NDP Leader Naheed Nenshi said the "worst possible option" is privately delivered no-fault insurance.

 "Which basically will reduce payments for a little while, before they creep back up, but it will also take away people's right to sue if they're badly injured in an accident," he told reporters at the Legislature.

"It is time for us to look at a public option," Nenshi added, while stopping short of endorsing a public monopoly insurer like the other western provinces have.

While adjustments to the rate caps will drive prices higher this year, the bigger reforms to bring in no-fault will take longer to implement, industry sources said. They will require provincial legislation next spring or autumn, as well as a bevy of new regulations and systems of devising injury benefits. 

On top of that, insurance companies would need one or two years to implement these changes, Aaron Sutherland, vice-president of the Insurance Bureau of Canada, told CBC News.

But flexibility to hike rates must come sooner, he said.

Three auto insurers have pulled out of the province in the last two years. The latest report by the provincial superintendent of insurance shows the once reliably profitable sector has been showing severe strain.

"While there was overall profitability, the superintendent estimates that roughly one-third of the 67 automobile insurers that wrote Alberta business in 2023 lost money on Alberta automobile insurance," the report stated.

The office forecast "this worsening trend in automobile insurance to continue through 2024," thanks to continuing costs and the provincial rate cap.

'Ball is in their court'

Sutherland said litigation and higher vehicle repair bills have driven up the cost of providing insurance, as has the health levy the government applies to cover medical costs.

"When the cost is growing at double digits, but you're only allowed to increase the price at 3.7 per cent, you're going to run into challenges," he said.

Even Intact, the largest auto insurer in Alberta, has expressed concern about pursuing further business in a rate-capped environment.

"Every month where you're in a position where there's more inflation than the cap, our own appetite in this province is reducing — I would say at a pretty good speed at this stage," Intact Financial CEO Charles Brindamour said in a corporate earnings call in July.

"We think there are very clear solutions on the table. We shared those with the government. The ball is in their court."