Milke: We’re overdue for facts on auto insurance in Canada

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If Canadians wish to understand the anti-reality, fake news age that we live in, an example exists in our driveways and parkades — the automobile, and the spurious claims made about auto insurance.

I’ve followed media, advocacy and government rhetoric about auto insurance costs in Canada for two decades. The assertions are usually wrong but here’s how it happens: Some advocacy group or “public” (i.e., government) auto insurance company produces a study that claims private-sector provinces have absurdly high auto insurance costs relative to provinces where government corporations have a monopoly on basic/mandatory auto insurance.

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Such provinces (British Columbia, Saskatchewan and Manitoba) are then assumed to be relative bargains. Governments in both types of systems often step in and impose price caps on auto insurance premiums.

Thus, private-sector Alberta imposed a freeze on auto insurance premiums this year just before the provincial election. Similarly, and over the past two decades, politicians in British Columbia occasionally order the government-owned Insurance Corp. of British Columbia (ICBC) to freeze rates whenever reality (soaring repair costs, high injury claim costs, statistically poor drivers, i.e., the young, and a lack of competition) all combine to send auto insurance premiums higher.

The end effect is the same regardless of the province: The actuarial basis of insurance is thrown out in favour of short-term politics.

But freezing auto insurance premiums does not change the underlying reality. Auto insurance companies will then operate at a loss, have less available capital, or provide fewer options and less desirable coverage than they otherwise might. The same dynamic occurs in the public-sector provinces.

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In some instances, such policy also means less competition. When the Alberta government imposed its price freeze on auto insurance rates, one unnamed insurance company with 16,000 clients announced it was leaving Alberta. That was unsurprising: When politicians make the marketplace uneconomic, capital will flee to other jurisdictions.

There is a problem with activist and government-produced or government-contracted insurance reports, and not because of the source. I’ve recently written a report on auto insurance paid for by insurers, so I, too, could be accused of bias. The problem is in the methodology used.

A clear example arrived earlier this year when Ernst & Young (EY) wrote an auto insurance report for ICBC. EY used hard data (actual paid premiums) for provinces where basic/mandatory auto insurance is provided by government corporations. But EY then used internet quotes instead of available real data for private-sector provinces. That apple-banana comparison was a problem because internet quotes do not represent reality.

Predictably, the B.C. government promoted that EY report as proof that government-provided auto insurance is preferable to competitive, private-sector provinces. Wrong. The most accurate prices are ones that consumers actually pay.

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Between 2012 and 2022, here’s what the actual data shows: Ontario recorded the highest premiums in seven of those 11 years; B.C. recorded the highest premiums in four years (2017 to 2020 inclusive); and B.C. would have continued to be the highest-priced province except that it moved to so-called “no fault” insurance in 2022, a year in which it still recorded the third-highest average cost after Ontario and Alberta.

That Ontario recorded the highest insurance premiums for multiple years does not mean that insurers are gouging consumers, or that Ontario is a bad deal relative to B.C. Here’s one example: In 2022, Ontario’s total average claim size was $13,537, Alberta’s was $12,309, while B.C.’s average claim size was $4,313. In short, you get what you pay for, and in government-run provinces you get less.

Input costs matter as do real data when analyzing auto insurance premiums. Governments should base policy on that, not on what is best described as fake news and internet-derived data not relevant to real-world costs.

Mark Milke is an independent policy analyst and the author of several studies in automobile insurance in Canada. His newest report, Reality Matters: Facts about automobile insurance in Canada, was written for the Insurance Bureau of Canada.

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