Why is auto insurance so expensive in Alberta? - MoneySense (2024)

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Auto insurance in Alberta has been in the news recently with Premier Danielle Smith’s announcement that insurance rate premium hikes for “good drivers” will be capped at 3.7% as of January 1, 2024. The government chose this percentage to match Alberta’s inflation rate in September 2023, the rate a month before the news was announced on November 1.

Good drivers, according to the new reforms, include licensed residents aged 16 and up in Alberta except those who have had:

• 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 reason for the insurance rate increase cap is to combat auto insurance costs in Alberta, where premiums are rising, according to the Insurance Bureau of Canada (IBC). How do the premiums stack against the rest of the country? Let’s take a look.

How much do Alberta drivers pay for automobile insurance

In 2022, the average yearly auto insurance premium in Alberta was $1,587. Contrast this to the neighbouring provinces of British Columbia ($1,411) and Saskatchewan ($1,347).

In fact, the only province whose drivers paid higher premiums was Ontario at an average of $1,683. (Slide the columns right or left using your fingers or mouse to see even more data, including the eastern provinces.)

Source: IBC

Why auto insurance is expensive in Alberta

Car insurance is becoming more expensive across Canada. If you ever need a small-talk topic, commiserating over your increasing vehicle insurance premiums despite a squeaky-clean record is a safe bet across the country.

That said, Alberta’s high premiums are unique in the country because of sky-high accident claims and legal costs.

Let’s look at those premiums again, versus average claim size in neighbouring provinces.

Alberta premiums have gone up specifically due to soaring legal fees and other costs associated with lawsuits following accidents, which is not the case in other provinces. That’s thanks to a culture of litigation in the province, which isn’t as present in the rest of Canada.

Over the last 10 years, the average size of accident benefit claims increased by 147% in Alberta, compared with 53% or less in other provinces. Put plainly, claims are higher in Alberta than elsewhere in Canada, due to bodily injury claims and escalating legal costs in Alberta.

The province of Alberta has consistently had the highest claims frequency for third-party liability, accident benefits, comprehensive and collision coverages, says a report from consulting firm MNP commissioned by the IBC.

Huge auto-insurance legal costs are to blame as well. These costs have gone up in the province by 38% since 2018 and account for about 20% of the premiums drivers pay for mandatory auto insurance coverage in Alberta.

“This is equivalent to nearly $200 for each policy annually,” the IBC has stated in a recent report.

Another contributing factor, according to MNP, is the increasing cost and length of car repairs. A Toyota RAV4 bumper costs $4,144 to replace today, up 50% from $2,769 in 2017. Also, 24% of auto sales in Alberta are of trucks, which is higher than the national average of 18.1%.

Supply chain issues have slowed down auto parts replacement, as any car owner who’s had to cool their heels for a part to arrive at their mechanic can attest to. This waiting has had a knock-on effect of making car rental lengths longer in Alberta as well.

Source: IBC

So is the Alberta insurance premium rate cap a good thing?

Insurance industry insiders don’t think the new rate cap of 3.7%, effective January 1, 2024, is a good strategy. The IBC has been vocal in its criticism in an official release stating the provincial rate cap will threaten the competitiveness of the auto insurance system, strain the availability of coverage while ultimately doing little to lower the price Alberta drivers pay for mandatory insurance.

An Alberta-based insurance colleague (I’m a journalist as well as an insurance broker) told me he would prefer to see a system that prevents lawyers from profiting so heavily from insurance companies. Capping auto rates, he told me, does not fix the issue: Insurance companies can’t afford to lose that money.

And insurance companies in Alberta are indeed losing money on auto insurance. For every $1 in premiums paid to an insurance company, the insurance company has paid out $1.03 in claims over the last decade. Tally it all up and this has resulted in a $111 million loss.

How Alberta drivers can save on auto insurance

Critics of the new Alberta auto insurance reform believe that regulations tackling the claims payout process and increasing coverage options instead of a cap would serve Albertans by potentially shaving off an average $325 from yearly premiums.However, the proposed regulations won’t offer immediate relief to consumers, so here’s what you can do.

• Use Alberta’s official grid rate calculator from the Automobile Insurance Rate Board to check your maximum premium. Insurance companies in Alberta have to compare a driver’s rate under their current rating program to a driver’s rate calculated by the grid and charge you the lesser of the two rates.
• Be loyal to your insurer. Many insurance companies offer a discount to longtime clients.

• Keep your car maintained and safe, like installing winter tires and an anti-theft device, to reduce premiums.

• Compare auto insurance quotes using online rate comparison tools, contacting an insurance broker or by calling insurers directly for rates.

• Drop collision coverage on older cars. A car approaching its lifespan may not be worth covering if it gets damaged. A rule of thumb is that you can drop collision coverage if premiums cost more than 10% of a vehicle’s value.

• Use winter tires. Winter tires are not just for heavy snow, they are for extra grip in extreme cold conditions.

• Bundle your car insurance with other policies like tenant’s or homeowner’s insurance.

• Install an anti-theft device. After-market devices can reduce your premiums, but be sure to let your insurer know.

• Check your municipality’s anti-car theft tips tailored to your neighbourhood.

• Call your insurance company. Sometimes a phone call can unearth savings because you’ve reached an age milestone, or are driving less distance than when you bought the plan.

• Drive less (only when you need to), and drive safely.

Read more about recent Alberta personal finance news:

• Alberta Pension Plan: Why Alberta wants to leave the CPP—and what would replace it
• Whynowmight be a good time to be a first-time home buyer in Alberta
• Where to Buy Real Estate in Canada: Edmonton
• Where to Buy Real Estate in Canada: Calgary