Posted by:
Executive Director
on May 12, 2023
Originally published in the Calgary Herald:
https://calgaryherald.com/opinion/columnists/opinion-consumer-protection-industry-transparency-needed-to-address-high-auto-insurance-costs
Written by Owen Lewis:
The past few years have been hard on Alberta families. Along with inflation and rising energy costs, large premium increases for auto insurance have been a major strain on many who continue to struggle with the ongoing affordability crisis.
Government has tried to deal with rising insurance rates through industry-friendly reforms. In 2020, Alberta introduced Bill 41, legislation that was meant to improve the overall profitability of the insurance industry. The idea was a more profitable industry would encourage new players in the market, increase competition and eventually result in decreased premiums for consumers.
Conceptually, that idea makes some sense, however it ignores the reality of the insurance industry. Greater profitability in the industry encourages bigger companies to buy up more market share, so making the industry more profitable doesn’t increase competition but has the opposite effect and encourages consolidation.
Despite government efforts, premium decreases didn’t happen but Bill 41 did generate significant one-time and enduring cost reductions for the insurance industry, saving companies hundreds of millions of dollars. Despite these savings, the auto insurance industry did not lower rates or sufficiently process rebates for Albertans. Instead, insurance companies in Alberta have experienced record profits due to increased premiums that are not in line with their costs.
To address continued high premium costs for Albertans, the insurance industry is again pushing for reforms that will reduce consumer protections, and the rights of Albertans to access the courts and challenge insurer decisions through “no-fault” insurance systems. This is taking from vulnerable Albertans, notably accident victims and claimants, to protect the profitable insurance industry. What we have learned from Bill 41 is that industry-friendly reforms only benefit insurance companies and not consumers.
It’s time for a different approach, one that includes more consumer protections and more financial transparency for the insurance industry.
While it is not commonly known, auto insurance premiums in Alberta are designed to target a seven per cent profit for companies, but insurers have been regularly exceeding that target without consequences. There are simply no legal teeth to the seven per cent profit target. In 2021 alone, pre-tax profits in the insurance industry were $1.1 billion over that target. Had the seven per cent premium profit cap been applied since 2020, a typical Alberta household would have saved more than $1,200, including $378 in premiums in 2020, $691 in 2021, and $161 (at least) in 2022.
A reform package based on consumer protections would be supported by Albertans and instil consumer confidence in the insurance market. I suggest three reform items.
First, Alberta should make the seven per cent profit target real by legislating that profits on policies cannot exceed this benchmark.
Second, establish an Alberta Insurance Premium Stabilization Fund through which industry profits collected above the seven per cent threshold can be paid into, and used to smooth out, rate increases in future years.
And third, create an insurance watchdog with a consumer protection and financial transparency mandate to oversee the insurance industry. The mandate of the watchdog should focus on promoting financial transparency in the industry, include a centralized insurance ombudsman function to oversee and direct complaints to individual companies, and comment on consolidation in the industry and provide guidance on ways to increase competition.
Albertans deserve an auto insurance system that is affordable and protects their interests, rather than those of insurers. The measures outlined will work to lower premiums and keep insurance companies honest.
This spring, voters will be watching for proposals that will make a real impact on their bottom lines. They know that Alberta’s insurance market as it stands today is not fair to consumers and it will be up to the next government, whether UCP or NDP, to take concrete action.
Owen Lewis is chair of the Alberta Civil Trial Lawyers Association and managing partner of KMSC Law LLP based in Grande Prairie.
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