The Alberta government introduced an auto insurance reform in November 2024, promising rate reductions, but according to the Insurance Bureau of Canada (IBC), rates could decrease if the government removes the two taxes it has on premiums in Alberta.The auto insurance reform includes a rate cap, now in its third year, and a no-fault system, effective January 2027.The Insurance Brokers Association of Alberta (IBAA) and the IBC note that more drivers are now finding it difficult to get affordable coverage, citing the rate cap.How much premium goes to the government? What percentage?The Alberta government collects from insurance companies in two ways: the health levy and the Insurance Premium Tax (IPT), according to the IBC."Most Albertans are unaware that the province charges drivers a 4% Insurance Premium Tax (IPT) on every driver’s auto insurance policy," according to the IBC..Alberta's new no-fault auto insurance system was once opposed by Danielle Smith.The amount of tax collected through the IPT has grown by 28% since 2018, resulting in increased costs to Alberta drivers, said the IBC, noting that removing this tax would provide savings to drivers.Meanwhile, to recover health care costs, Alberta charges a levy on auto insurance, and this was set to increase by 28% in 2024.These two taxes add around $100 to every driver’s insurance policy each year, says the IBC.“The latest data suggests that the insurance companies collectively collect about $5.1 billion in premiums a year, so about $200 million would be premium taxes for auto insurance,” a lawyer at James H. Brown & Associates LLP, Karamveer Lalh, told the Western Standard Friday.“Insurance companies are also required under the Crown Right of Recovery Act to pay back the healthcare system for expenses the healthcare system incurs as a result of injuries. This is reasonable because if we did not have this, the taxpayer would have to pay the bill. So, the thinking instead is that people who drive cars are also responsible for paying for the cost of healthcare caused by injuries related to cars.”.Advocates say a no-fault insurance model in Alberta could take away victims’ rights, put a strain on the healthcare system.According to Lalh, removing the healthcare levy “would likely shuffle the expenses around either through higher taxes to recover the healthcare costs, or if they go back to the 1996 system where the government would sue for it, that would just shift the cost from one category to another.”Would the government increase the healthcare levy when the no-fault model takes effect?According to Lalh, the government has the discretion to set the premium tax rate at any level. Switching to a no-fault insurance model could influence driver behavior, which in turn may impact the healthcare levy, as this levy reflects the overall cost of accidents to the healthcare system, he added.For example, data from the Canadian Motor Vehicle Traffic Collision Statistics: 2022 shows that Manitoba and Saskatchewan — provinces with no-fault systems that Alberta is considering emulating — have significantly higher rates of injury and fatality compared to Alberta, said Lalh.Under a no-fault system, drivers are no longer held personally responsible for damages, which may reduce their incentive to drive cautiously. This could lead to an increase in accidents, resulting in more injuries, higher healthcare costs, and potentially a higher healthcare levy, he said..Alberta brokers, IBC urging government to remove rate cap, citing high premiums leaving drivers uninsured.Is this why insurers are leaving Alberta?Sonnet Insurance — a subsidiary of Definity Financial Corp. — and S&Y Insurance Company — an Aviva Canada subsidiary — and the Aviva Direct brand have exited the market. Intact Financial Corp. has publicly stated it is reducing its service in Alberta, though it hasn’t exited the market.Insurance companies tend to withdraw from markets where they face prolonged unprofitability or unpredictable costs, as they rely on stability and predictability to operate effectively, according to Lalh.Lalh said if the rate cap remains in effect while healthcare costs rise due to increased accidents linked to behavioural changes, insurers may decide to exit the market.An economics professor at Concordia University, Moshe Lander, added that insurance companies need incentives to operate, noting that when there are more providers, there is more competition, and therefore, lower prices.The rate cap states that insurance premiums will increase by 7.5% each year when the policy is up for renewal, before they go back to the 2024 levels at the beginning of 2027, when the Care-First Auto Insurance model takes effect, according to a lawyer from Crash Lawyers, Tyler van Vliet..‘Price controls create shortages’: Albertans feeling the pinch as some insurers pull out, rates increase.Under the no-fault system, victims of car accidents will not be able to sue, but they will be getting treatment for life. But residents in Alberta get a free health care system from Alberta Health Services,something taxpayers already pay for.“One of my understandings is that 20% of the cost of payouts right now is the cost of litigation, and so we believe that not only by making everyone have the same benefits payout across the board, that we'll be able to give those more generous payouts, but it will also allow us to deliver the rebates by taking out that additional 20% cost,” Premier Danielle Smith said in November 2024.Tyler van Vliet, a lawyer from Crash Lawyers, said litigation costs have nothing to do with high insurance premiums."If litigation is solely responsible for the high cost of premiums, how does removing litigation from the system lead to even higher costs? Insurance companies are already incentivized to end treatment early — the Alberta government is just removing the only check and balance that remains in the system while premiums continue to rise,” van Vliet asked.When asked about the high rates, the office of the Ministry of Treasury Board and Finance said in a statement: "Alberta is implementing a Care-First Auto Insurance system that will deliver better, faster, and cheaper care for Alberta drivers."Until that system is implemented, the rate cap will keep rates from increasing too rapidly.".Carney, Smith respond to Trump's newest tariffs: Here are the implications on the economy
