One Privatization Canadians Need Badly

Thursday, October 19th, 2006
By Inya Ivkovic, MA for Profit Confidential

I already lamented previously about the cost of car insurance in Canada. The fact that I’m not the only one did nothing to improve the situation. Although rates have gone down about 14% since 2003, Canadians are still paying much more than, for example, Americans or British.

In a study conducted by the Fraser Institute, a comparison was made between ten Canadian provinces, 50 U.S. states and the UK. Apparently, Manitoba, Saskatchewan, British Columbia, and Ontario took the first four spots as most expensive to get insurance coverage. The reason? Government-regulated, monopoly-type of insurance structure systematically erodes affordability, price sustainability, and competition.

According to the study, Canadians are required to have two to ten times more insurance for bodily injury liabilities than our American counterparts. The amount of coverage is even higher for medical and income benefits in case of no-fault accidents. In terms of affordability, Canadians are again taking the back seat to Americans and British, because not only is our after-tax income less due to the country’s heavy tax regime, but also our insurers have an insatiable appetite that the government is not even attempting to curb.

What could be a solution? Having car insurance or not should not be a matter of choice. That part of government’s regulatory role is not the problem. However, giving insurance providers more or less free reign over coverage rates, particularly when people must have coverage by law, is a huge problem.

Ontario’s Prime Minister Dalton McGuinty, when first elected tried to do something about insurance rates by freezing them temporarily. But, as any politician, he couldn’t aggravate huge pools of money and political support, no matter how good the cause. So, the issue ended up on a back burner again, at least in Ontario.

Do I see light at the end of the tunnel? No, not really. Auto insurance is likely to remain a moot issue in the same way it did with high credit card interest rates. Even in the ultra-low interest rate environment, and in spite of numerous studies done suggesting otherwise, credit card companies continue to charge interest rates almost as high as during the recession years in the early 1990s. Unless Ottawa and Bay Street movers and shakers grow an altruistic heart and privatize the auto insurance sector, things are not likely to change in the insurance sector either.

Is privatization likely? Allow me to answer this question with another question. What would it take for you to give up your golden goose, if you had one?

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Tags: interest rates, market view