A new economic analysis warns that government-imposed caps on auto insurance premiums in Alberta are creating long-term damage to the market, despite their goal of providing short-term relief for drivers.
Report Details Market Strain from Price Controls
The report, published by the Montreal Economic Institute (MEI), states that rate caps instituted by both the former NDP and current United Conservative Party governments have placed significant strain on the auto insurance sector. Senior economist and report author Gerard Lucyshyn argues that these price controls distort the market and are ultimately detrimental.
"Price control will universally distort a market and is not a positive thing in the insurance industry," Lucyshyn stated. He emphasized that governments should allow the market to determine the price of risk while fostering greater competition, which would increase choice for Albertans.
Insurers Paying Out More Than They Collect
The report cites alarming data from the Alberta superintendent of insurance's annual report. It found that insurance companies are now paying out $1.18 for every dollar collected in premiums from drivers. In 2024 alone, property and casualty insurers lost over $1.2 billion on auto insurance sales, with claims and expenses exceeding premiums collected by 18%.
Lucyshyn explained that insurers respond to these unsustainable losses by cutting costs in ways that negatively impact consumers. "One of the ways that you know insurance companies try to cut their costs is by reducing the type of insurance or the amount of insurance that you have, or they might tighten up on their claim requirements. But in the end, whatever they resort to it’s bad for Albertans," he said.
Caps Push Problems Down the Road, Experts Say
Hanna Beydoun, director of auto policy at the Insurance Bureau of Canada, echoed the report's concerns, stressing the need to eliminate the rate cap. She acknowledged that caps are intended to offer immediate financial relief but argued they simply defer the underlying issues.
"The challenge with rate caps is that we see these costs continue to rise and continue to mount without any pressure valve. So there’s nowhere for these costs to go in the short-term," Beydoun explained.
The report also references a Statistics Canada finding from April 2025, noting that several insurers began withdrawing from the Alberta auto insurance market in late 2023 and early 2025. While these companies represented a small market share, their exit was linked to ongoing unprofitability and difficult conditions, with rate caps cited as a contributing factor. At the time, one-third of insurers in the province were unprofitable.
The Alberta government has currently capped rate increases for good drivers at 7.5%, a policy set for 2026, with a new system anticipated in 2027. However, the MEI report concludes that if price controls continue, insurance premiums will not reach a sustainable level for the market's health.
