the Davids and the Goliath

Since Saskatchewan’s decision to introduce public auto insurance in 1946, the advancement of government insurers across the provinces has been a sharp thorn in the side of Canada’s private property and casualty insurance industry. The “socialist disease” of government-run auto plans — as referred to by one backbencher in the Ontario Conservative government of the 1970s during a debate on controlling spiraling insurance rates — spread from Saskatchewan to Manitoba, British Columbia and then Quebec following with its own semi-public version in 1978. Recently the Insurance Bureau of Canada (IBC) stepped up lobbying efforts to sway public and political opinion to opening these markets. The drive has mainly been in the west, resulting in counter-attacks by government insurers.The private versus public insurer war looks like it is about to turn ugly.

The slinging match between private companies and the provincial insurers recently escalated with a series of newspaper advertisements trumpeting the results of two studies suggesting that government insureds are getting a better deal than “non-nationalized” insurance consumers. “I have no idea where they got their numbers from,” Lindsay Olsen, the ICC’s regional representative for B.C., states flatly.

She is referring to the ad campaign highlighting the results of the first study, conducted for the Saskatchewan Government Insurance (SGI) by Runzheimer Canada, an international management consulting firm specializing in managing corporate relocation costs.

The Runzheimer study — according to figures released by SGI — show premiums for a driver of a 1998 Ford Taurus were lowest in three of the four provinces with public plans ($1,023 in Regina, $1,185 in Winnipeg, and $1,334 in Vancouver). Montreal, under Quebec’s split no-fault system, was only slightly lower than Toronto, $2,276 compared to $2,351. The rates assumed at least four years of claims-free driving and the purchase of basic auto insurance with $1 million liability coverage, a $500 comprehensive deductible and a $250-$350 collision deductible.

The rate comparison was conducted by Windsor, Ontario-based Compu-Quote Inc., provider of the AutoRater package and other rating software products used by brokers across the country. According to a news release issued by ICBC, that comparison indicates that rates for a single, male, 30-year-old Vancouver owner of a 1998 Chevrolet Cavalier are lower (at $1,160) than those in Toronto ($1,429) and not considerably higher than what the same driver would pay in Calgary ($1,036). Take 10 years off the age of that driver in Vancouver and he would pay less than half that rate at $1,245 of the $3,256 he’d pay in Calgary and about a quarter of the whopping $4,906 premium charged in Toronto.

Apples and oranges

“They [the studies] are a piece of fiction … or something smellier … solely intended to convince the residents of those provinces that they’re getting a good deal,” Alan Wood, the IBC’s regional spokesperson for the prairie provinces, says dismissively. “They’ve been very sneaky. Of course they’ve compared apples and pomegranates and then come out with this outrageously misleading ad campaign that completely misinforms their own car owners and taxpayers.”

He suggests both studies were rigged by the government insurers that commissioned them. In the three western public-plan provinces, Level 4 or four years of claims-free driving, which is what the Runzheimer report was based on, are among the best rates available for that rate group nationally (for example, after four claims-free years, B.C. drivers get a 40% discount on their basic Autoplan rates and the same reduction on optional coverages, such as collision and comprehensive, when they buy the latter from ICBC).

Wood insists SGI chose that Level 4 group “to look good” and completely ignored the fact that private insurers give far better rates for five or six years claims-free.

Merit 4 level rates in Alberta, for example, are comparatively high, Wood adds, “because there’s a good reason for it. With only four years of claims-free driving there are problems with those drivers. But anyway, they represent only about 5% of the drivers in Alberta.”

In addition, both Olsen and Wood looked askance at the comparison rates cited for Alberta, especially the $1,947 premium quoted in the Runzheimer study for the ’98 Taurus owned by a Level 4 driver. “When we pull those same numbers up by Compu-Quote, they (the private insurers’ rates) are roughly half what those ads are claiming,” Olsen says.

Wood adds that his office gets “an incredible number” of calls from people moving into Alberta from B.C. and the other western provinces who insist a mistake has been made on their insurance quote, that “it’s far too low”.

A second look

To sort things out, CU asked Compu-Quote about the comparison conducted for ICBC. CEO John Savage says his company provided the public insurer with a number of rates available from private insurers for the various groups cited. ICBC obviously averaged those to come up with the numbers used in its ad campaign.

When Compu-Quote repeated the exercise at our request, lower rates than those cited by ICBC for Toronto, for example, were found for every age group. For example, premiums as low as $968 were found for the 30-year-old, single male driver of the ’98 Cavalier (as compared to the $1,429 used by ICBC).

And, Savage points out, the higher rates cited in most of the other comparisons can obviously be attributed to private insurers’ treatment of the young, high-risk groups. Take the 17-year old male out of the house living with the couple in their 40s in Toronto, for instance, and that rate drops from the $2,684 used by ICBC to about $900. (The ICBC doesn’t increase rates for young, occasional drivers.)

Quiet stirring

Wood believes the public insurers’ public relations campaigns are a response to the fact that the IBC has been “quietly stirring the bulrushes” in Manitoba and Saskatchewan in an effort to educate consumers about the potential cost-savings that could be gained by ending the state monopoly. It’s a long haul he says, partially because both provinces have been largely closed shops for 25 years, with their crown corporation insurance arms raking in an estimated 98% of the car insurance premiums. With the vast majority of drivers not finding it worthwhile to shop the private market for extension coverage, few insurers can afford to maintain much of a presence in the regional auto market. So the public and, to a large extent, even insurance brokers, have “no idea how the private side operates,” he insists.

That misunderstanding extends to the issue of high rates for youth, especially young male drivers in “free Canada” as the IBC’s spokesperson calls it. He says if older drivers in provinces with public plans realized to what extent they were subsidizing younger, higher-risk groups, they’d likely be much more open to considering a private alternative. This is another public education priority for the industry: in the news release announcing the rate study results (and citing the $4,900 premium a single, male 20-year old driver of the Cavalier would pay, according to CQ), the ICBC said: “These comparisons also illustrate that private insurers continue to discriminate on the basis of age and sex of the owner, even if he or she has a good driving record.”

The war is forcing public insurers to reduce rates

The IBC believes its lobbying is achieving success in B.C. The way the insurance industry sees it, since the Social Credit government opened up the PD market, the growing presence of private insurers has forced the ICBC to make its rates more competitive and introduce discounts for better risks. (For example, this January, the Corporation introduced its “Roadstar Gold” level, which kicks in after 15 years of no at-fault claims and amounts to a 20% discount on optional coverages such as extended third-party liability, collision and comprehensive. That’s on top of the Roadstar status given at the nine-years-claim-free mark, w
hich knocks 5% off the basic Autoplan and extended third-party liability and 10% off optional coverages).

Keeping up the pressure

But private insurers aren’t stopping there. According to Olsen, the IBC is continuing to lobby the province to blast the market wide open, citing public opinion polls that show 57% of B.C. residents support “outright privatization” while 81% believe there should be more competition in auto insurance.

In fact, Wood adds, the B.C. lobby effort is part of a general campaign mounted by IBC after it adopted the official position that governments should get out of the insurance business altogether. The Bureau has put more emphasis recently on including export insurance and workers’ compensation in that definition of the “insurance business.” He believes the ground for nurturing the seed of workers’ comp privatization is especially fertile in Alberta, where Ralph Klein’s gung-ho government of hard-core, free-enterprise fans has indicated it’s open to persuasive argument. That idea is also being circulated around Ontario’s Queen’s Park, where Premier Mike Harris is as well known for laying out the welcome mat for privatization proponents.

Bad taste of privatization

It is a harder sell in provinces like Manitoba, where controversy and anger about the recent privatization of the provincial telephone system still linger. And, as Wood admits, changing the auto insurance systems in Manitoba and Saskatchewan isn’t a burning issue for a public preoccupied with cutbacks in health care, education and other public services. “With their car insurance, it’s partly a `better-the-devil-you-know’ attitude,” he adds. “And partly a convenience issue when you’ve only one supplier to deal with.”

Of course, there is also the argument raised by the original architects of public plans that it’s preferable to see any profits accumulated by government insurers going to initiatives like road safety at home, rather than having the extra money shipped offshore to the foreign parents of many Canadian insurers.

While acknowledging that point, Wood points out that private insurers paid the Alberta government $50 million in premium taxes in 1998, employed 10,000 people and put $1.3 billion in paid-out claims back into the provincial economy. And, it’s taxpayers who are potentially on the hook when government insurers have to pay out more in claims than they take in through premiums, as has been the situation for the past several years in Saskatchewan, for example, where SGI ended 1997 with a deficit of nearly $98 million. (Although this had dropped by nearly $30 million in June 1998, the latest figures available.)

Shaking up the numbers

Olsen also questions ICBC’s reported operating surplus of $14 million in 1997, which the government insurer largely chalked up to its investment in road safety. Noting its $.5 million loss a year earlier, the fact that the province’s drivers “are the poorest in the land,” and the creative accounting policies employed by B.C.’s government in the past, Olsen says she questions whether any surplus actually exists.

Rob Brown, a professor of statistics and actuarial science and director of the University of Waterloo’s Institute of Insurance and Pension Research, points out another potential issue with insurance plans administered by crown corporations that are still subject to the political machinations of governments: those billion-dollar pots of reserves. “They are large gobs of money that are just too tempting, especially to deficit-burdened governments. We’ve seen it happen before, with the Canada Pension Plan and the Unemployment Insurance Fund to name a few. The politicians decide those reserves are actually bigger than they need to be…despite what the actuaries say…or should actually be considered surpluses and, whoops, they…disappear into general revenues.”

The industry obviously believes that the stars have come into alignment as far as favoring a major privatization push. With governments having turned increasingly to the right on the political spectrum, taxpayers revolting against the repeated need to bail out publicly managed enterprises, with auto insurance rates having stabilized in most other provinces and few other avenues to growth left available, a prolonged siege at the gates of Canada’s government insurers could force an entry for private insurers.

Married Female,42$1,096$1,819$2,684

Single Male 17

Married Male 55

Married Female, 52$1,096$897$1,186