Alberta insurers start cancelling broker contracts due to auto insurance rate ceiling

Published: January 17, 2019

Updated: February 1, 2019

Author: Luke Jones

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Alberta’s limitations on auto insurance rate increases are leading to a problem for brokers, who are losing their contracts with insurance carriers.

Under Alberta law, auto insurance providers cannot hike rates by more than 5%, which has led to plenty of lost business for brokers. George Hodgson, CEO of the Insurance Brokers Association of Alberta said many carriers have cancelled contracts with brokers because of the rate ceiling.

Alberta allows any motorist the right to auto insurance. This means any driver that applies for coverage cannot have it rejected by a broker.

“So instead, that [carrier] will say [to the broker], ‘We will cancel the contract because the book of business is not of the quality we want,’” Hodgson said.

“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. Everyone suffers, but it’s the small broker in the small town who is more vulnerable.”

The situation has not been helped by a provincial freeze on auto insurance increases. In 2017, Alberta Finance Minister Joe Ceci mandated the Automobile Insurance Rate Board to not approve an insurance industry request of a 5% rate increase in auto. Originally slated to last until November 30, 2018, the freeze was extended to August 2019.

Insurance companies are facing a similar situation in Alberta as they are in other provinces. Finances are being squeezed due to increased collisions and the growing cost of collision repair.

“The primary reason for everyone being up in arms about this is the fact that claims costs are rising substantially both due to bodily injury and the costs of repairing vehicles,” Hodgson said.

Celeyeste Power, vice president for the Insurance Bureau of Canada western says the IBC is also concerned about the ceiling in Alberta and would like to see it removed. “We are advocating pretty strongly for a removal of the rate cap by August 2019. We definitely don’t want to see it extended again.”

Hodgson believes the survival of some smaller brokerages is now at risk if insurance carriers continue to cancel contracts. “They may only have three or four contracts [with carriers] altogether. If they lose one of the big ones, then the viability of that brokerage is in question now.”