MLA Report: Increase competition for lower insurance rates

By Drew Barnes on January 13, 2023.

There is no larger challenge facing most families in Alberta right now than inflation. A simple trip to the grocery store will tell you all you need to know about that.

At a time when costs are rising across the board, people are looking to government to take action. One of the most common concerns I hear from constituents, and this dates back to before the spike in inflation, is the escalation of insurance rates in Alberta.

These concerns were also reflected in a recent Ernst & Young report, which found that on average, auto insurance rates in Alberta are higher than other provinces.

Under the legislature’s dome, this issue recently devolved into a political fight over the UCP government’s decision to lift the arbitrary cap on auto insurance instituted by the previous NDP government. And while the debate was long on argy-bargy, (thanks for the turn of phrase Rick Bell) it didn’t provide much in the way of action to help Albertans in the long term. It was politics as usual.

What Albertans want to know is simply this: What can government do to roll back these costs? Having taken a closer look at the issue, here’s the lay of the land as I see it.

First, automobile insurance rates are regulated by an independent agency that was created by Alberta’s minister of finance. Legally, the province can step in to cap or fix rates. In fact, we’ve seen it happen, and the results are exactly what we’re living with today.

When the previous NDP government chose to cap rates at five per cent increases, Albertans saw exactly that – five per cent increases. However, this coincided with a reduction in the number of companies willing to provide insurance, as well as a reduced number of options for insurance customers.

When the UCP chose to lift the NDP’s cap, Albertans saw a short lived and rapid increase in rates as companies sought to recoup the losses imposed upon them. However, it didn’t take long for consumers to see the impact of reduced competition in the auto insurance industry, and combined with rising inflation, rates did not stabilize to the extent predicted by the UCP. Not even close.

The problem we see today is not entirely due to greedy profiteering, as argued by the NDP, nor is it entirely due to inflation, as argued by some in the UCP. Rather, it is the same issue we face in a growing number of government-regulated industries: a lack of competition.

Most Canadians understand that we pay more for cell phone service than those in most developed countries because, in large part, government restricts competition. If we want lower prices over the long term, we need government to open up the market and actively encourage competition.

When it comes to insurance rates in Alberta, folks know when they’re getting hosed. Heck, even the new premier recognizes there is a problem. The question is, “What are we going to do about it?”

Are we going back to the non-free market approach — price fixing and rate caps — that disrupted a functional market resulting in more insurance company mergers, less competition and fewer options for customers? I hope not.

It would make far more sense to get back to the basics of economic freedom and get serious about encouraging competition, with an eye to lower rates over the long term.

Step one would be to block any further consolidations within Alberta’s auto insurance industry. Step two would be opening Alberta’s market to competition from our neighbouring provinces. Step three would be lifting Alberta’s taxes on insurance premiums to further incentivize competition. And finally, step four, should be streamlining regulation to encourage new participants in the auto insurance market.

So what will Premier Danielle Smith and her UCP government do? Will they take the old approach, or the common-sense conservative approach? And, can they apply the same medicine and political courage to home and property insurance?

History tells us only one option leads to lower rates in the long term.

Drew Barnes is the MLA for Cypress-Medicine Hat

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