Government Auto Insurance in Atlantic Canada: ‘Fool’s Gold?”

On a fairly routine Vancouver day in late May, I took a phone call from my colleague Don Forgeron, the vice president of the Atlantic Region at the Insurance Bureau of Canada (IBC). The purpose of his telephone call was measured in a single sentence: “We need you to come to Atlantic Canada to tell people about how much they should love their insurance companies right now.” Silence followed… “Okay, we need you to come here and tell us just what a mess the government run insurance system has been for British Columbia,” he adds.

That, I could do. The result of that conversation was a Maritime tour involving 15 towns, 20 interviews, 6,000 kilometers clocked on a rental car, and far too many trips to Tim Horton’s. The purpose of my mission was to reveal the underlying facts behind the government run auto insurance system in B.C., and the extent to which this approach has hurt taxpayers and consumers in the province over the past decade.

PUBLIC OWNERSHIP

During the course of these meetings with local business organizations and regional government representatives, I was able to communicate a few key facts that had been left out by the “gung ho” proponents of government run auto insurance. Key amongst them was the $600 million bailout that the taxpayers of B.C. had to give to the provincial auto insurer, the Insurance Corp. of British Columbia (ICBC), in the first two years of its life in the mid-1970s. This bailout was needed due to the fact that start-up costs and premiums for the new government venture had been grossly underestimated in the heat of an election campaign (does any of this sound familiar?). Not one dime of that bailout has ever been returned to B.C. taxpayers, nor has the over $750 million in foregone tax revenue since the birth of government run auto insurance in BC.

I was also able to tell Nova Scotians that these government run behemoths are in no way, shape or form, “public”, or “driver owned”. There are no shares issued, no annual general meetings, and no elections for the board of directors. The premier appoints the president of the Crown corporations, such as ICBC, and the boards are typically loaded with friends of the government of the day. In essence, the politicians become the de facto underwriters in such an arrangement.

NO “UTOPIA”

Along with many others who were consulted in the industry, I was able to successfully unmask what could be defined as a “deceitful practice” being played out by some of the political parties in their platform positioning – this being the ” Utopia” of a B.C.-style insurance product coupled with the low premium rates applied by Manitoba’s public insurer. As we all know, B.C. and Ontario have the highest average annual premiums in the country, a product of persistently high costs fuelled by rising injury claims. Manitoba, on the other hand, may have lower premiums, but one of the strictest and least generous no-fault plans anywhere in North America (a minimum $500 deductible for everyone helps somewhat as well). This illustrates the private insurance industry’s main point: that the issue on rising premiums is not ownership, but costs. You cannot talk Manitoba-style premiums without also talking about Manitoba-style benefits, a reality that the proponents of government run auto insurance deliberately choose to ignore.

SKEPTICAL PUBLIC

My tour, however, was not just doom and gloom. In addition to enjoying the famous hospitality of Nova Scotians, I found reasons for optimism for the insurance industry remaining in the region. At the ground level, people are hurting and they are angry, but the majority of them have not given up on private auto insurance. My perspective is that the vast majority of drivers in the province want the competitive market to work, and in this respect were leery of a government run “solution”. Indeed, many of them understood the fact that government inattention to the dysfunctional legal environment was a leading contributor to the cost difficulties experienced over the past two years.

Even more encouraging was the recognition of the contribution insurers make to the Nova Scotia economy. Nova Scotians instinctively understood how badly it would hurt to send hundreds of millions in private sector investment, over $40 million in tax revenue, and thousands of private sector jobs out of the province forever. They also understood the critical role that brokers play in the local economy, and why government run auto insurance was a threat to the solid customer service and family supporting jobs provided by local brokers. This clear public recognition of the importance of the broker community was perhaps the most heartening element of my tour.

LOST TREASURE

Over the past few months, the private insurance industry has done a marvelous job of coming together to defend its position in Atlantic Canada, as well as propose positive solutions to the present auto cover cost and pricing controversy. And, in this respect, there remains a great deal of work to do to achieve an equitable solution for both auto policyholders and insurance companies. Needless to say, much rests on the backbone of government to act appropriately from a regulatory reform standpoint in the quest to quell rising auto insurance costs and premiums.

But, while the political battles rage on, the old myths concerning insurance companies’ ailing investments being propped up by outrageous rate hikes remain alive and well. So too, is the “fool’s gold” promise of government run auto insurance. Like the fantasy of a “treasure map”, these outlandish concepts will remain attractive to many as long as false promises of low rates are still being made.