Alberta’s strict auto insurance rate caps are threatening both the availability of coverage and the quality of policies, according to a new report from the Montreal Economic Institute (MEI).“Price control measures might save drivers a few dollars in the short run, but they end up costing more in the long run by driving away competition and product offerings,” said Gerard Lucyshyn, senior economist at the MEI and author of the study. He urged the Smith government to scrap the province’s rate caps ahead of planned auto insurance reforms.Under Alberta’s current system, the Automobile Insurance Review Board approves annual rate increases based on criteria in its legislation. In practice, these rules have acted as strict price controls. Between 2017 and 2019, the NDP government capped all rate increases at 5%. The UCP paused rate increases for a year in 2023 and implemented a “safe driver” rate cap that remains in place for 2026..Lucyshyn warned that price controls prevent premiums from reflecting real risks, making policies unsustainable and causing insurers to either leave the market or become selective about who they cover. Since the 2023 pause, three insurance companies have exited Alberta’s auto market, citing costs that exceed premiums.Statistics Canada reports that roughly one-third of Alberta’s insurance companies were unprofitable in 2023. In 2024, the average insurer paid out more in claims and costs than it collected in premiums, sometimes spending $1.30 for every dollar of revenue.“Unprofitability caused by rate caps can lead to wilder fluctuations in prices, as companies try to make up for accumulated losses,” Lucyshyn said. .He recommended Alberta look to European insurance models, where broad rate caps are rare and regulators focus on ensuring increases reflect rising expenses.“Alberta should take inspiration from those systems rather than keep imposing more rate caps, which ultimately reduce consumer choice,” Lucyshyn said.The MEI report argues that removing rate caps would boost stability, competition, and variety in Alberta’s auto insurance market, ultimately benefiting drivers.You can read the full Economic Note here.
