A new study suggests government-run auto insurance monopolies in BC, Saskatchewan, and Manitoba are charging too much for auto insurance.
The Fraser Institute released the study Monday and it shows Ontario with the highest premiums at $1,281, followed by BC at $1,113 (in 2009, the most recent year for which data are available), $1,049 in Saskatchewan, and $1,027 in Manitoba. The lowest average premium, $642, was found in Quebec.
“These results are consistent with previous reports that suggest government-run auto insurance monopolies are less efficient than auto insurance provided by a regulated, competitive market,” said Neil Mohindra, director of the Fraser Institute’s Centre for Financial Policy Studies and co-author of The Personal Cost and Affordability of Automobile Insurance in Canada, 2011 Edition.
“Although Ontario recorded the highest average premium, that comes as a result of higher claims costs per vehicle stemming from high levels of insurance fraud, and relatively severe regulations in rate-setting as well as mandatory minimum liability and accident benefits laws.”
The study notes that insurance fraud is rampant in Ontario, with fraud investigators characterizing Toronto as the center for organized crime rings that carry out a number of fraud scams. It also points out that Ontario announced reforms in November 2009 that are expected to lower the minimum coverage for some benefits, a move that should lower Ontario’s regulatory severity in 2010.
While Quebec consistently has the lowest premiums of any province with government-run insurance, Mohindra points out that Quebec’s public monopoly is restricted to selling basic coverage only, while the private sector delivers 100 per cent of the optional auto insurance market. Additionally, Quebec has a pure “no-fault” system for bodily injuries, which does not allow injured parties to sue at-fault drivers for pain and suffering or additional costs. It also requires lower levels of coverage for bodily injury and third-party liability than other provinces.
Of the remaining provinces, Prince Edward Island had the second lowest average premium ($695), followed by New Brunswick ($728) then Nova Scotia ($736). Newfoundland and Labrador and Alberta each had an average premium of $749.
The study estimates the average cost of personal passenger auto insurance premiums in all 10 provinces for 2009 using publicly available data. Varying interprovincial definitions for reported data make calculating comparable average premiums difficult.
Government auto insurers do not publish audited data in a format that permits a simple calculation of average premiums in their provinces that can be directly compared to other provinces. In order to estimate and fairly compare the average cost of auto insurance in every province, the study applies (by estimation) the same data definitions that government regulators require from private-sector insurers in six provinces to the published data of the government auto insurance monopolies in four provinces.
The cost of auto insurance in each province is also measured by calculating the average premium as a percentage of GDP per person, the average premium as a percentage of personal income per person, and the average premium as a percentage of personal disposable income per person. In all cases, Ontario, along with the public auto insurance monopolies of BC, Saskatchewan, and Manitoba, are among the most expensive.
The study also points to evidence that taxpayers, including non-drivers, are subsidizing government auto insurers in some provinces. Quebec was among the worst in this regard, having accumulated a deficit of $2.6 billion by 2009, a cost equal to $417 per adult resident of Quebec. In BC, taxpayers help fund the Insurance Corporation of British Columbia (ICBC) through an infrastructure spending program.
“As long as the private-sector insurance industry is open to competition and consumer choice is protected, the portion of auto insurance premiums that are earned as profits cannot result from excessive prices, but instead come from cost efficiencies achieved by successful claims management, pricing strategies, customer service, and good business management,” Mohindra said.
“Drivers in BC, Saskatchewan, and Manitoba should be asking why their governments have eliminated consumer choice and are forcing them to purchase auto insurance at rates higher than necessary.”
About the Author (Author Profile)
Markham began his journalism career writing columns in the mid-1980s for Western People Magazine, then reported for a small Saskatchewan daily. He has spent most of his career in media and communications, likes to dabble in politics, was actively involved in economic development for many years, thinks that what goes on in the community is just as important as what happens provincially and nationally, and has a soft spot for small business (big business, not so much). Markham is a bit of a contrarian and usually has a unique take on the events of the day.