Federal budget “good news” for insurers

Yesterday’s federal budget brought some good news for insurers, says Paul Kovacs, chief economist for the Insurance Bureau of Canada. Three items are of particular interest: elimination of the federal capital tax; a boost to health care 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 health care funding. This funding should help ease the offloading of health care costs to insurers, Kovacs says. Auto insurance has a large health care 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 also be a boost 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, and although some critics have said the amount is hopelessly low, Kovacs says it is at least a step in the right direction.
Perhaps most significantly, the government is responding to prolonged lobbying by insurers and other industries for removal of the 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 Canada is the only country amongst the G-8 to apply such a tax, and thus insurers have criticized it as outdated.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.