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Government-run auto insurance: highest average premiums and rising

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Release Date: February 15, 2007
Drivers in British Columbia, Ontario, Saskatchewan and Manitoba pay more for auto insurance on average than drivers in most other provinces, according to a new study released today by independent research organization The Fraser Institute.

"In a straight dollar comparison of the average cost of auto insurance premiums, three of the four most expensive provinces were those with government-run auto insurance monopolies: BC, Saskatchewan and Manitoba," said Brett Skinner, the Institute's Director of Health, Pharmaceutical and Insurance Policy Research and author of The False Promise of Government Auto Insurance.

The study estimates the average cost of personal passenger auto insurance premiums in all 10 provinces for 2004 and 2005 using publicly available data. It applies 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 the four remaining provinces.

The findings are consistent with other research that has analyzed data from previous years using various different methods for calculating average premiums.

"No matter how you slice it, most research shows that the average cost of premiums is not cheaper under public auto insurance, despite contrary claims by government auto insurers," Skinner said.

The study also found that the only provinces where the cost of auto insurance increased between 2004 and 2005 were BC, Saskatchewan and Quebec, all of which have government-run auto insurance. The largest decreases occurred in Alberta, New Brunswick and Newfoundland and Labrador.

The study points out government-run auto insurance monopolies experience a higher frequency of claims and suppress rates for high-risk drivers below the actuarial cost of insuring them. The suppression of rates for small numbers of high-risk drivers requires all other premiums to be higher than actuarially necessary to cover the difference.

However, Skinner noted that the ownership structure of the insurer is not the primary factor in determining the overall cost of auto insurance.

"One of the key drivers in auto insurance cost is how the product is defined by government. Premiums simply cover the cost of providing auto insurance. If government regulations require generous and expensive auto insurance benefits, that gets reflected in higher premium prices, whether or not the provider is government or the private sector," Skinner said.

The study notes that provinces with government auto insurance monopolies tend to require the most expensive benefit coverages and as a result, require expensive premiums.

"Whether consumers think deluxe levels of coverage are necessary or valuable is another question. Previous research comparing international auto insurance systems suggests that when consumers are given a choice, they prefer a lower level of benefit coverage in exchange for lower premiums," Skinner said.

He concludes that drivers in BC, Saskatchewan, Manitoba, and Quebec are not well served by the current auto insurance system and should be asking for change.

"They should be asking why their provinces have eliminated their choices as consumers and forced them to buy auto insurance from a costly and unnecessary government-run monopoly," Skinner said.

"Quebec drivers and taxpayers should be seeking accountability for the finances of their province's government-run auto insurer, which this study has shown are in serious long-term deficit. And drivers in other provinces should beware of misleading promises regarding the value of public auto insurance because the evidence clearly shows that competitive private sector markets produce better results for consumers."