Cost of record-breaking hailstorm adds to crisis facing auto insurance system

$900 million in unexpected claims, alongside a rate cap, may contribute to insurers leaving Alberta 

EDMONTON, AB, Sept. 19, 2024 /CNW/ - Insurance Bureau of Canada (IBC) is warning that the massive volume of auto insurance claims from the recent Calgary hailstorm could create an economic environment that may push even more insurers out of the province due to the rate cap.

The August 5 hailstorm is now the second-largest insured loss event in Canadian history. It caused roughly $2.8 billion in insured damage and 130,000 insurance claims. Over half of those claims – about 70,000 of them – were for damage to vehicles; it's estimated that auto damage claims alone cost $900 million.

 "The Calgary hailstorm will add $900 million in unexpected claims cost pressures at a time when Alberta's auto insurance system is in crisis due to the province's rate cap," said Aaron Sutherland, Vice-President, Pacific and Western, IBC. "Under the rate cap, auto insurers are unable to recover from the growing cost of claims over the past two years. This has created a dire economic environment that has forced several companies to leave Alberta's auto insurance market, limiting competition and choice for consumers. Unless the rate cap is removed, the high number of new claims from the hailstorm will contribute to Alberta's already tenuous market conditions, which may result in more insurance carriers making a similar exit from the market."

Prior to the hailstorm, auto insurers had already paid out more in claims and expenses in 2024 than they had received in premiums. This led to a stark warning from Morningstar DBRS, a leading credit rating agency. It stated:

"[A] handful of insurers have left over the past five years. We believe that others may follow. Even those who do not have plans to withdraw from the market per se may be implementing cost savings measures that are reducing the accessibility and availability of auto insurance, given the lower relative profitability of the Alberta auto product and its uncertain future."

The significant, unexpected cost of the Calgary hailstorm exacerbates the risk of carrier withdrawal due to the rate cap and is a clear example of why it's urgent that the government remove the rate cap to restore competition and choice for consumers. If more insurers leave the Alberta market, affected consumers will be forced to find new, typically more expensive coverage elsewhere. This is a key reason why insurance premiums have risen 12% over the past two years despite government rate interventions.

Alberta's auto insurance system is facing significant cost pressures, all of which are growing well in excess of the government's 3.7% rate cap. Over the past two years:

• Legal costs have grown a projected 19%.
• The cost of delivering care and recovery benefits to those injured in a collision is up about 27%.
• The cost of new and used replacement vehicles has grown 27% and 9%, respectively.
• The cost of auto theft is up 55%.
• The Alberta government's health levy on auto insurers is up a staggering 60%.

"We've seen this time and time again: Rate caps simply don't work and ultimately hurt drivers," said Sutherland. "Premiums have continued to climb and the availability of coverage has diminished. No business can operate when the product they sell costs more than the price they are allowed to charge for it. It's time that Alberta's rate cap is removed."

Alberta's insurers have put forward reforms that will deliver immediate and long-term relief to drivers. The proposed reforms will help mitigate cost pressures while enhancing the care and benefits available to those injured in a collision. To learn more, visit www.betterwaytosave.ca.

Insurers continue to assist customers with needed repairs and financial support, and IBC encourages anyone with questions about their claim to call IBC's Consumer Information Centre at 1-844-2ask-IBC (1-844-227-5422).

Key facts about Alberta's auto insurance system and the rate cap:

• In 2024, following a year-long "rate pause," the Alberta government implemented a 3.7% cap on auto insurance rate increases for those it defined as "good drivers." This was announced as a short-term measure while the government explores reform options to improve affordability.
• The rate cap limits Alberta insurers' ability to reward the best drivers with lower rates. Insurers now need the premiums they collect to subsidize high-risk drivers who should receive a higher increase than the cap allows.
• Under the cap, the underlying cost pressures impacting auto insurance premiums go unaddressed. As a result, premiums have increased an average of 12% over the past two years.
• Alberta has experienced a number of major hailstorms since 2020, with insured damage now exceeding $5.4 billion, including $1.54 billion in damage to vehicles.
• Rate caps have been tried in Alberta and elsewhere before, with the same result: less choice and more expensive coverage for drivers. The only way to improve affordability for drivers is to address the cost pressures impacting premiums. Learn more at: betterwaytosave.ca.

Questions about a claim?

• IBC encourages consumers with questions about their Calgary hailstorm claim to call IBC's Consumer Information Centre at 1-844-2ask-IBC (1-844-227-5422).

About Insurance Bureau of Canada

Established in 1964, Insurance Bureau of Canada (IBC) is the national industry association representing Canada's private home, auto and business insurers. Its member companies make up the vast majority of Canada's highly competitive property and casualty (P&C) insurance market.

As the leading advocate for Canada's private P&C insurers, IBC collaborates with governments, regulators and stakeholders to support a competitive environment for the P&C insurance industry to continue to help protect Canadians from the risks of today and tomorrow.

IBC believes that Canadians value and deserve a responsive and resilient private P&C insurance industry that provides insurance solutions to both individuals and businesses.

For media releases, IN Focus articles, or to book an interview with an IBC representative, visit ibc.ca. Follow us on LinkedIn, X and Instagram, and like us on Facebook. If you have a question about home, auto or business insurance, contact IBC's Consumer Information Centre at 1-844-2ask-IBC. We're here to help.

SOURCE Insurance Bureau of Canada

Media Contact: Brett Weltman, Manager, Media Relations, IBC, [email protected]