2003 federal budget “good news” for insurers

The recently announced federal budget brought good news for insurers, says Paul Kovacs, chief economist for the Insurance Bureau of Canada (IBC). Three items are of particular interest: elimination of the federal capital tax, a boost to healthcare spending, and new funding for infrastructure.

In his “legacy” budget, outgoing prime minister Jean Chretien increased spending in several areas, particularly responding to provincial cries for more healthcare funding. Auto insurance has a large healthcare component, which has been growing annually in many provinces. “Some of the provinces in need of money put costs over to insurance companies,” he notes. The new federal money, $34.8 billion over five years, reduces the risk that even more costs would be given over to insurers.

Kovacs, who is also executive director of the Institute for Catastrophic Loss Reduction (ICLR), says funding directed towards infrastructure will be a boon to insurers. “A lot of property claims reflect our poor infrastructure.” The federal Liberals have allotted $3 billion over the next 10 years for infrastructure support.

Most importantly, the government plans on removing federal capital tax. Canada is the only country amongst the G-8 to apply such a tax, and thus insurers have criticized it as outdated. Kovacs predicts by the time the “inappropriate tax” is phased out over five years, insurers will save $26 million per year.