As a regulator in Alberta, the Automobile Insurance Rate Board’s (AIRB) goal is to make sure the auto insurance premium charged in Alberta is adequate, not excessive, and not unfairly discriminatory. Albertans should feel confident the AIRB is here to protect consumers by ensuring auto insurance is accessible, equitable and sustainable for all Albertans.
Average auto insurance premiums rise due to rising claims costs. The average cost of a claim rises due to general inflation, increasing sophistication of vehicles and an increase in lawsuits. While auto insurance should be easy to understand in respect to price and coverage, it is complex and not well understood by Alberta drivers who are required by law to purchase it.
Alberta drivers often ask the AIRB why my insurance premium so high? Yes, auto insurance can be a significant expense, however another important question is what is the value for money you are receiving when you purchase auto insurance.
The AIRB regularly hears from drivers they need insurance policy information, including the change in premium, to be provided in plain language. While we cannot change the legal policy wordings, we can offer information to assist drivers understand the auto insurance coverage they are purchasing and require insurance companies to be transparent on changes in premium and to provide information to their policyholders in plain language.
This document will help readers understand the basics of auto insurance, the value for money an Alberta driver receives in the event they need to make a claim, and tips and tools to learn more about shopping the market and ways to save on auto insurance.
Understand the basics of auto insurance
What is car insurance?
There are many types of insurance you can purchase in the market; insurance for your home, car and life are three common policies most Albertans purchase. You purchase insurance to protect you against an unexpected event resulting in loss or injury, like an auto accident.
Auto insurance is a product you buy hoping to never need – but when you do need it, your insurance company will be there to help you repair or replace your vehicle and get you medical treatment if you are injured and defend you if you are sued. Auto insurance usually covers you, your passengers, your vehicle, third party drivers and their property.
Why you need auto insurance?
1. To comply with provincial law
In Alberta, basic auto insurance is required by law. It ensures the driver is financially capable of paying for any damages and injuries arises while driving. Driving without basic insurance will result in a heavy fine as well as suspension of your driver’s license.
2. To provide financial protection for you and others
Auto insurance provides financial protection against costs resulting from unexpected events. It helps the driver to pay for the repairs of their own vehicle, someone else’s vehicle or property. It also covers the medical payment for injuries and legal fees if you are sued.
3. To meet requirements of your lender
If you lease or finance your vehicle, most lenders will require you to have insurance to protect their interest in your vehicle. Often, you will be required to cover full coverage – including collision and comprehensive to ensure your vehicle is fully protected.
How does auto insurance work?
An insurance policy is a contract between you and your insurance company. You can purchase auto insurance through a broker, agent or directly from an insurance company. Refer to our Guide to Shopping the Market find out who you should contact and how to contact brokers and agents. Your broker or agent will be able to assist you on completing an application for auto insurance. An auto insurance application includes information such as your name, address, age, driving history, and type of car etc. This information is utilized to calculate your premium. Once the premium is collected by the insurance company, your auto insurance is deemed active on the date you selected.
The premiums of all policyholders are pooled together to pay claims. For an individual, the financial impact of a significant loss, like a vehicle being written-off, could be devastating. By pooling resources with others, the risk of this financial burden is significantly reduced. And because the risk is spread out over a large group, the cost of insurance is lower than it would be if individuals had to cover these risks on their own.
What you paid for insurance in any given year is not enough to cover the cost to repair or replace your vehicle. Don’t worry! Your insurance company will use the premium they collected in the pool to help you pay for the rest!
For example:
You pay $1,000 per year for your auto insurance and the cost to replace your vehicle is estimated at $40,000. You paid $1,000 for one year of insurance coverage. Your vehicle was damaged in the accident and you were not at fault, and will cost $10,000 to repair.
If you did not have insurance you would have to pay $10,000 to repair your vehicle, however with insurance, your insurance company will cover the cost for you. The value you have received, in addition to the payment to fix your vehicle is the peace of mind you do not have an unexpected bill to pay when something out of your control happens.
Although you pay auto insurance premiums every year, and hope to never need to make a claim, your premiums are used to pay the claims of those who do make a claim. Just remember your insurance company will be there to pay a claim when you need them. Without pooling, auto insurance premiums would be even more expensive.
