Economist urges Alberta to remove cap

Oct. 28, 2024 — ECONOMIST Jack Mintz says the Alberta government’s price controls on auto insurance, including the current premium rate cap and the grid system, are doing little to improve affordability and should be removed.

Mr. Mintz is the Palmer chair of public policy at the University of Calgary’s school of public policy.

“Freezing insurance premiums, even temporarily, is ill-advised since it will lead to higher premium hikes in the future,” he said in a report titled, ‘Alberta’s Vehicle Insurance Options.’

“The grid used by Alberta includes various price caps to protect certain drivers from higher insurance premiums, but this comes at the expense of other drivers who have to bear higher premiums such as good drivers.

“Both the rate cap and grid should be abolished immediately.”

Last year, the provincial government froze auto insurance rate filings and then this year instituted a 3.7% rate cap for “good drivers.”

The grid framework limits rates for high-risk drivers, which results in safe drivers paying higher premiums to help offset the capped rates for those covered by the grid.

The Insurance Bureau of Canada has reported that the cap contributed to a 12% rise in insurance premiums over the past two years.

This is on top of other cost pressures, which are growing above the 3.7% cap.

Over the past two years in Alberta, legal costs have risen by 19%, care and recovery costs by 27%, replacement vehicle costs by 27% for new and 9% for used, auto theft costs by 55%, and the health levy on insurers by 60%.

Mr. Mintz urged the government to consider reforms that promote economic efficiency, fairness and financial stability — principles he believes the rate cap and grid are undermining.

“Regulations should promote fairness whereby good drivers are rewarded for their behaviour and bad drivers pay more into the insurance system,” he said.

“Those who have incurred an accident due to another’s negligence should be appropriately compensated.

“Insurance regulation should ensure financial stability whereby insurance companies — private or public — earn sufficient profit to cover losses arising from accident claims and provide a sufficient return on capital for their investors to cover the cost of capital financing.”

Mr. Mintz also stressed that auto insurance customers are best served by open, competitive markets that provide a net economic gain, improved prices and greater quality of service.

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