The Alberta Superintendent of Insurance has published new guidance, effective immediately (January 15, 2025), which requires insurers to adopt sound practices for their operations, controls and governance related to automobile insurance rating.
The guidance is a distillation of the best practices observed during a 2022 to 2024 examination of insurers to determine the extent of over-charging in Alberta. They say from 2010 until 2021, the superintendent administered 44 penalties totaling $1.99-million to 16 insurers for over-charging automobile insurance premiums.
As a result of the subsequent review, 27 of the 48 insurers examined disclosed previously unreported rating errors which resulted in premium over-charges. In those cases, the superintendent again levied $3,112,500 in penalties, this time against 21 of the companies.
Accidental errors
“The superintendent did not penalize six of the 27 insurers that over-charged because the impact on consumers was very low,” the regulator writes in the notice summarizing the examination results. The notice notes that in every identified case, the errors were determined to be accidental in nature.
In the accompanying guideline, Automobile insurance rating and underwriting controls and sound practices guideline, the regulator points out that the Fair Treatment of Customers (FTC) Guidance published by the Canadian Council of Insurance Regulators (CCIR) and the Canadian Insurance Services Regulatory Organizations (CISRO), was adopted in the province in 2019. They note one heading in the FTC guidance, in particular – the “design of insurance product” – saying this section is especially relevant when it comes to charging premiums.
Actionable and measurable policies
“Insurers are expected to have clear, well-documented, actionable and measurable policies and procedures to mitigate rating operations, controls and governance risks. These must include robust processes to prevent errors and to quickly identify, assess, correct, communicate and reimburse customers when they do occur,” they write.
Among insurers’ obligations, companies must conduct regular internal audits, as well as audits of any remedial measures. A dedicated team to review and update governance processes and stay abreast of regulatory changes is also required. Insurers are required to investigate and conduct a detailed review of any new premium anomalies reported by customers or distribution partners.
Software use to review data and identify premium discrepancies is also discussed, as are processes such as post-implementation checks after implementing rate and product changes. “Pragmatic prioritization and mitigation of risks and errors,” is discussed alongside these reporting processes. The guidance says insurers are required to establish clear processes for reporting and escalation which should include senior management.
Three-tier defense system
“Implement internal guidelines which include a three-tier defense system where rating and underwriting activities undergo multiple levels of review and challenge,” it states. The guidance also urges insurers to share these learnings across the organization to foster a culture of continuous improvement.
Under the province’s Insurance Act, an insurer who over-charges may be subject to an administrative penalty, up to a maximum of $25,000 for each individual offence. “Insurers are not obligated to report automobile insurance premium over-charge events; however, the superintendent advises insurers that self-reported events of non-compliance are more likely not to be administered a penalty or will receive a significant discount on any administered penalties compared to those not self-reported,” they conclude.