Canadian Underwriter

Where Canadians rank among their global peers in how much premium they pay

May 8, 2021   by David Gambrill

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Canadians tend to pay higher premium for insurance than citizens in many, if not most, other developed nations, according to a recent report from the C.D. Howe Institute.

Three years in the making, the report is authored by Alister Campbell, a senior fellow at the C.D. Howe Institute, and Farah Omran, an economist and former policy analyst at the C.D. Howe Institute. [Campbell is also president and CEO of the Property and Casualty Insurance Compensation Corporation (PACICC), although he authored the report in his role at C.D. Howe Institute.]

In auto insurance, Campbell and Omran attribute the higher premiums paid in Canada to “ineffective government intervention,” particularly in B.C., Manitoba, and Ontario.

In personal property lines, the unexpectedly high premiums Canadians are paying may be the result of a combination of several different factors, the authors state. The explanations are likely “a combination of naturally risk-averse Canadian consumers, the costs of higher prudential capital requirements, and the absence of government mechanisms common in many other developed nations to support consumers facing catastrophe risk (e.g., earthquakes, flooding) – leaving consumers to absorb a higher total share of risk from these types of event through higher risk transfer premiums.”

The report, The Price of Protection: Benchmarking Canada’s Property & Casualty Industry Against its Global Peers, is particularly noteworthy for benchmarking a number of key insurance industry metrics across Canada, including public auto regimes, and comparing them with similar insurance metrics in 31 Organisation for Economic Co-operation and Development (OECD) countries.

To compare how much Canadians were paying relative to policyholders in OECD countries, authors essentially looked at the gross direct written premiums for commercial liability, auto, and property lines over four years — from 2015 to 2018 — as a percentage of Canada’s GDP.

Looking at all three major lines of business combined, “we find that Canada is the highest premium-paying country, albeit very close to the U.S.,” the authors found. “Canada’s auto, property and liability gross written premiums from 2015 to 2018 amounted to 2.7% of its GDP on average, compared to an OECD average of 1.6% and a G7 average of 2%. These results indicate that Canadian ratios are generally in line with our North American neighbour, but higher than other G7 peers.”

Looking at the three main lines of business individually, Canadians paid the highest of 31 OECD countries in auto insurance (gross written premiums as a percentage of GDP exceeded 1.4%), second-highest in property lines (0.95% of GDP), and fifth-highest in commercial liability lines (0.31% of GDP).

In the auto insurance line, three jurisdictions stood out as being the culprits for the high national average.

“As we have already seen, Canadians on average pay higher costs for auto insurance than drivers in other countries as a percentage of GDP,” the report states. “But province-by-province comparisons of personal auto insurance show that there are substantial differences, with the amount drivers pay in three provinces (B.C., Manitoba and Ontario) pulling up the Canadian average.

“Indeed, it is likely that these three outlier provinces (with their meaningful share of total premiums paid for auto insurance) are the primary reason for Canada’s high international ranking.”

The report notes that Canadians are paying more for auto insurance despite the core products being offered by a highly competitive industry, with normal claims payouts (a benchmarked loss ratio of 66%, about average among OECD countries), and generally lower insurer ROEs.

Also, Canadians pay higher premiums in both public auto and private auto regimes, meaning the business model may not be the main reason for the higher premiums. Instead, the authors cite how the product is regulated.

“For auto insurance, the issue appears to be directly correlated with ineffective government intervention – either in the form of government monopoly providers (e.g., B.C. and Manitoba) or self-inflicted consequences of over-regulation (Ontario),” the report states.

In personal property lines, the reasons for higher premiums are tougher to discern, the authors observed. The report benchmarked the premiums paid per home across the provinces; by that metric, Alberta homeowners paid the most.

“Given the devastating wave of natural catastrophes experienced by that province over the last decade and the severe underwriting losses incurred by the Canadian insurance industry, this result is probably not surprising,” the report states.


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