Changes proposed for Alberta grid system

March 11, 2024 — ALBERTA’s auto insurance rate regulator is seeking feedback on proposed reforms to the province’s much-maligned grid system for setting premiums.

The Automobile Insurance Rate Board said that while the province considers longer-term options for auto insurance system reform, it wants to make a host of changes by 2026 to return the grid system to its original intent — in the event that it is not eliminated entirely.

Established in 2004, the grid was originally intended to ensure that new drivers could access affordable premiums. However, the number of drivers protected by the grid cap has grown dramatically and today the majority are not new drivers.

The system is unique in Canada in that it caps the premiums of high-risk drivers. This means no matter how many at-fault collisions or infractions they have, high-risk drivers will never pay more than a set maximum amount.

The Insurance Bureau of Canada said that because these drivers pay less than required for auto insurance, drivers with safe driving habits have been paying a higher premium to make up the difference.

The AIRB said that the grid needs to be not only realigned but simplified as well. It called the current design unnecessarily complex and said changes should be made to ensure it is easier to understand and administer.

The regulator also said that grid steps are often incorrectly calculated and difficult for brokers and agents to have corrected when a policyholder switches insurers.

“In practice, the grid is unnecessarily complicated to administer and limits the flexibility of insurers to distribute their premiums, resulting in unnecessary protection for more experienced drivers, which could be redistributed to safe drivers who are not currently grid capped,” the AIRB said.

It has proposed the following changes to the grid system:

• Years insured instead of years licensed: The new system would use the date when a policyholder was first insured as the basis for experience rather than the years they’ve been licensed. The grid step would be determined by the years between this date and when they apply for coverage.

• New rating territories based on postal code: Territories would be assigned based on the forward sortation area, with changes to existing definitions and the addition of a new territory called ‘between Edmonton and Calgary.

• Flat surcharge for at-fault claims: A flat surcharge would replace the grid movement for at-fault claims. This eliminates the need for positive grid steps and aligns the grid step directly with years insured. The proposed surcharge is 25% for six years on the first at-fault claim, with subsequent claims increasing surcharges calculated as 1.35 to the power of the number of at-fault claims.

• Flat discount for driver training: A flat discount would be applied instead of grid movement for driver training. This change keeps the link between the grid step and years insured while simplifying the grid step establishment.

The AIRB is accepting written submissions on the proposed changes to until May 31.

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