Automobile Insurance Regulation in Alberta - For Industry

Who regulates automobile insurance in Alberta?

The Automobile Insurance Rate Board (AIRB) regulates automobile insurance rates in Alberta, in accordance with the authority granted by the Insurance Act and regulations. The AIRB has authority to approve, reject or require changes to Alberta automobile insurer premium rating program filings. The AIRB reviews and approves rating programs for insurers selling automobile insurance to Albertans for all vehicle types: Private Passenger, Commercial & interurban (non fleet), Off-Road, Antique, Collector, Buses (Public, Private, School & Hotel), Ambulances, Campers & Trailers, Farm, Public, and Taxi & Limousines.

How does the AIRB address market challenges?

The AIRB monitors the automobile insurance market, including but not limited to, loss trends, availability, affordability, technological advancements and innovation to benefit consumers, and consumer perceptions. Industry data is collected from insurers through the General Insurance Statistical Agency (GISA). The GISA data is used during our Annual Review processes as well as for our internal analysis. We share our findings in our Market and Trends Reports.

The AIRB discusses these topics with stakeholders, and industry experts, to stay informed and proactively regulate the automobile insurance industry. The AIRB uses its understanding of the changes in the market to advise insurers prior to the development of a rate filing and in its decision making process for approval, revision or denial of rate requests.

In recent years, automobile insurance in Alberta has been challenging. Through legislative amendments made in the fall of 2020, the Government took steps to address the cost pressures which were increasing premiums for Albertans. The AIRB shares consumer concerns for the affordability of insurance and expects all insurers filing rating programs to reflect the impact of the product reforms as well as any other impacts, such as COVID-19.

During the pandemic, the AIRB actively advocated for Albertans asking insurers to provide relief in the premiums. The industry responded with rebates, premium increase deferrals, or reducing rate change impacts. The AIRB considers the unique circumstances of each insurer while maintaining a broader view to the best interests of Albertans. We recognize many insurers saw a significant decrease in their loss costs during the pandemic, however not all did. Some insurers who did find relief during reduced mobility, experienced high losses due to hail and other weather related catastrophes.

What is a rating program?

A rating program is a complex formula used by insurers to determine the amount of premium to be charged to insure a risk (vehicle). Rating programs include a number of rating variables or factors which identify levels of risk. Rating variables are the criteria an insurer uses in determining the insurance premium for a driver. Examples of rating factors include where you live (territory), claims, driving convictions, age and use of vehicle. The AIRB has the authority to prohibit the use of a rating variable when it believes the rating variable is not fair to consumers

How does the AIRB review rating programs?

The AIRB has filing guidelines used to determine the type of review to be conducted. The filing guidelines are based on the nature and magnitude of the change to the rating program being requested.

Until recently all filings required prior approval by the Board Members. With the reforms announced in late 2020, the AIRB was granted the authority to implement file and use guidelines, which it has for filings meeting specific criteria.

The development of a rate filing, especially a full actuarial filing, can take many months and cost upwards of $75,000, a cost which is ultimately passed on to the consumer. By deploying alternative filing options, the AIRB ensures insurers are maintaining their rating programs for all vehicle types and managing the costs of doing so.

A file and use filing can be used by insurers seeking to:

  • Maintain their rating programs through annual adoption of the most current vehicle rate groups. Vehicle rate groups are updated annually to reflect the current repair costs for each vehicle, year, make and model, and to include all new vehicles introduced. This maintenance is a benefit to consumers, as their vehicle will be properly rated with the most current and up to date information.

  • Update their rating program for miscellaneous vehicle classes such as Off-Road, Antique, Collector, and Campers & Trailers where they have a small number of vehicles (not greater than 1,000) written. For these vehicle types the AIRB will allow an insurer to file for a rate increase up to 3% provided it meets the other criteria for a file and use. This is a benefit to consumers, as this allows the insurers to regularly update and maintain their rating programs for these vehicle types, without the high cost of a full filing. This will result in smaller increases and enable consumers to avoid high rate shocks which can occur when an insurer does not regularly review their rating structure for these vehicle types.

  • Update their rating program for private passenger, commercial, interurban and motorcycles if they have a small number of vehicles (not greater than 1,000) written. This benefits the consumer in the same way the miscellaneous vehicles do.

A simplified filing is required where the insurer has submitted a full filing with actuarial indication in the past three years, has not been approved for rate increases using the full actuarial indication and it has been at least six months since its last approved rate change.

A full filing is required where a filing does not meet the criteria for the other filing types. A full filing includes actuarial support for the insurer’s rate need, or rate indication.

The AIRB staff scrutinize all aspects of a rate filing, regardless of the complexity or the filing guideline it is submitted under. All rating variables, discounts, and surcharges are reviewed to ensure in line with AIRB filing guidance, expectations and the law. AIRB staff will require the insurer to resubmit all or portions of their filing if there are any concerns with any component. The AIRB contracts with a consulting actuary to conduct actuarial analysis and fully vet all rate indications. An insurer will not be approved for a rate change greater than their rate indication.

Another aspect of a rate filing the AIRB scrutinizes is the consumer impact. The AIRB reviews the impact of each rate filing by the percentage impact as well as the dollar impact to all consumers in their book of business. If an insurer’s filing has a high consumer impact, the AIRB can require the insurer take steps to minimize it. The AIRB expects insurers to consider the consumer’s impact of their business decisions, and to adequately communicate all changes.

To reference recent rate approvals, implemented by insurers, please refer to our Approved Automobile Insurance Rate Board Filings web page. The most recent 12 month average rate change is under the heading "Weighted Average of Approved Rate Changes". The average rate change is updated every month.

The independence of the AIRB's consulting actuary

The AIRB contracts with Oliver, Wyman Limited to perform consulting actuarial work. The consultant has been selected because they do not perform actuarial services for individual insurers in Canada. The consultant is independent of industry stakeholders, focusing their automobile insurance work on assisting regulators.

Actuarial science is based on assumptions and choice of rate making technique. Actuaries use their judgement to assess the reasonableness of a rate indication. The consultant’s independence from the industry ensures they remain unbiased in their review and analysis of industry data to develop industry benchmarks. Our actuary’s work is critiqued by external stakeholders, some who believe their analysis is too conservative, while others too aggressive.

Application of a consistent approach and years of experience evaluating industry results both in Alberta and nationally, ensures Alberta’s Industry Benchmarks are the best estimate based on the available data and information known at the time.

What is a rate indication?

A rate indication is the percentage of rate change (increase or decrease) the insurer anticipates it requires to cover its costs in the future. Rate indications are future looking, they can not include recovery for profits or losses incurred in the past. Rate indications do look at the actual loss trends from the past, as an indicator of loss trends in the future. The AIRB requires all insurers to consider the Industry Benchmarks for each of the ratemaking components in developing their rate indication.

What is an Industry Benchmark?

Industry Benchmarks are based on the review of industry data on a semi annual basis. They are recommended by our consulting actuary and published for review and use of insurers in developing their rate indications. The AIRB publishes benchmarks for the following six rate making components.

Insurers are expected to use their own results, and explain where their results vary greatly from the industry experience. The AIRB and its consulting actuary use these benchmarks to evaluate the insurers own results when reviewing a rate indication.

  1. Loss Development Factors
    Loss development is the change in the amount reported for claims costs over time. When a claim occurs the insurance adjuster will estimate the vehicle damage and injuries to the driver and passengers based on his or her knowledge.

    Damage to the vehicle is more easily determined and the actual costs of repair are known soon after the accident. Injuries take longer to assess, and the full extent may not be known for some time. The estimate of the cost to return the injured party to their pre accident state will develop over time. The AIRB’s consulting actuary reviews the development of losses for each accident year (year the accident occurred), for a five year period to understand how the loss costs change over time, on an industry wide basis.

  2. Loss Trends
    Loss trends are projections of future accident losses based on the analysis of historical loss patterns. These factors are used in estimating the future costs for claims.

  3. Catastrophe Loading
    Alberta has a history of severe weather related losses such as hail, flood and fire. The losses during these events is often significant. Insurers will add a catastrophe provision to their rate indication, to collect premium for an average expected catastrophe to occur during the policy term. If the provision is inadequate for the catastrophic losses during a given policy year, the insurer will bear the losses.

  4. Administrative Expense & Unallocated Loss Adjustment Expense (ULAE)
    Like all businesses, insurers have administrative costs and costs for adjusting losses which may not be attributable to a specific policy or claim. The AIRB allows insurers to include a provision to cover these costs in their rate indication.

  5. Health Cost Recovery
    The Province of Alberta assesses a levy against all automobile insurers for the costs automobile accident victims’ incur in the health care system. This levy is set annually and insurers are permitted to include this cost in their rate indication.

  6. Profit
    Like all businesses, insurers are in business to make a reasonable return on their capital. The AIRB establishes a percent of premium as a target pre tax profit provision for all coverages, which insurers can include in their rate indication.