Insurance Bureau of Canada sounds alarm as tariff action strains auto insurance market due to rate cap
The economic impact of the U.S. trade war is adding further strain to Alberta’s embattled auto insurance market, prompting Insurance Bureau of Canada (IBC) to issue a warning to government and consumers to brace for additional challenges in the auto insurance market unless the current rate cap is eliminated.
IBC recently commissioned Deloitte to undertake an analysis on the impacts of tariffs on the property and casualty industry. Deloitte found that 25% economy-wide tariffs imposed by the United States and reciprocated by Canada would increase the price of new vehicles and replacement parts by up to 10.9% for most insurers. While such tariffs have only been partially implemented, when changes in auto sector production patterns and other factors are also considered, the impact on insurance premiums for Alberta drivers could be up to 5%.
Several areas in the auto sector have been negatively affected by tariffs, increasing the cost of vehicle repairs and replacements and straining supply chains. The negative effects of tariffs include:
U.S. tariffs of 25% on Canadian steel and aluminum went into effect on March 12, and were raised to 50% on June 3. This is raising the cost of new vehicles and auto parts.
Canadian counter-tariffs of 25% on non-CUSMA-compliant vehicles imported from the United States are increasing the cost of one-third of imported vehicles.
Auto manufacturers have begun to pause, cancel or close the expansion of their Canadian operations, placing further strain on vehicle repair and replacement supply chains and adding additional cost pressures.
"There is a lot of confusion surrounding tariffs, but the reality is they are here and are adding significant cost pressures to vehicle repairs and replacements that were completely unforeseen when the government extended the auto insurance rate cap last fall,” said Aaron Sutherland, Vice-President, Pacific and Western, IBC. “The current ‘good driver’ rate cap does not reflect these new cost pressures. Unless insures are able to account for the impact of tariffs and other growing costs in their rates, they may be forced to further reduce the availability of coverage for drivers to remain financially viable."
Even without contemplating the impact of tariffs, the Alberta government’s Auto Insurance Rate Board (AIRB) recently published benchmark loss trends to be used by insurers in new rate filings, many of which are in excess of the current rate cap. The AIRB’s latest Semi-Annual Review suggests that over the next year:
Bodily injury (legal) costs will grow an average of 9.1%;
Accident benefits (medical/rehab/income replacement) costs will grow an average of 5.5%; and
The cost of vehicle damage claims will grow by approximately 10%
“New cost pressures created by the trade dispute with the United States are piling on top of other cost pressures in the auto insurance system and creating new challenges for insurers who are paying out more money in claims than they take in through premiums,” said Sutherland. “This situation is unsustainable, and the province must act and end the rate cap before further damage is caused.”
Alberta’s insurers have been subject to a rate cap for over three years. This is the longest period of government interference in the auto insurance market in Canadian history. As a result of this rate cap, in 2024, Alberta auto insurers paid out $1.17 in claims and other expenses for every $1 they earned in premiums.
