Alberta’s insurance companies can’t afford to keep their contracts with smaller brokers because of a provincial policy that’s supposed to help consumers: caps on rate hikes.
In 2017, Alberta’s finance minister banned the province’s auto insurance regulator, the Automobile Insurance Rate Board (AIRB), from approving auto insurance rate increases of more than 5%. This rate cap applies to each insurer’s total book of business, and not to individual customers, so some customers could still see increases of more than 5% to their own policy.
The cap was initially slated to last through Nov. 30, 2018, but has since been extended to August 2019, when a provincial election is expected to take place.
Prior to 2017, the cap for increases was 10% a year.
Alberta’s cap policy was created to protect drivers from significant rate hikes, as the government works with the insurance industry to figure out how to raise rates in a way that will be sustainable for both customers and insurers.
Many insurance companies feel that the climate favours drivers and leaves the industry struggling to keep up. For every dollar that an auto insurance company earns in premiums, $1.28 is paid out on claims and expenses, Celyeste Power, vice president of the western region at the Insurance Bureau of Canada, told Canadian Underwriter on Monday.
Brokerages are feeling the heat, too. In addition to the rate caps, brokers are navigating the challenge of another provincial restriction: the “take all corners rule,” which says that brokers and insurance companies can’t reject any customer’s application for insurance — every driver is entitled to a policy.
The rule is good news for drivers (especially those with poor claims histories). But brokerages, especially smaller ones, say that it hurts them. When they are obligated to place less than desirable customers with their partner insurance companies, the insurance companies, facing the possibility of high payouts, often respond by abandoning the brokerage altogether for a bigger brokerage — one that has more insurers that it can distribute undesirable customers among.
“It’s quite often the smaller brokerage that suffers because larger brokerages may have a lot more contracts, so they have a lot more places to place business,” said George Hodgson, CEO of the Insurance Brokers Association of Alberta, in an interview with Canadian Underwriter.
“Everyone suffers, but it’s the small broker in the small town who is more vulnerable.”
“They may only have three or four contracts [with carriers] altogether,” he added. “If they lose one of the big ones, then the viability of that brokerage is in question now.”