INDEPTH: INSURANCE
Insurance: Private vs Public
Dan Westell, CBC News Online | October 15, 2003
An auto insurance company reports profits of $77 million for the first half of this year, eight times the amount it made in the same period in 2002.
Probably just another one of the rate-jacking private companies that have been "collecting record profits on the backs of consumers and businesses," as the Consumers' Association of Canada (CAC) characterizes them.
Not quite.
The big profit jump was reported by the Insurance Corp. of British Columbia (ICBC), a provincially-owned auto insurer.
It's one of the four in Canada – along with those in Manitoba, Saskatchewan and Quebec – where low rate increases, compared with private companies that serve the other provinces, have stoked a raging debate about auto insurance premiums. It's a topic so hot that it's played a big part in four recent provincial elections.
Voters and drivers have noticed that rates in "public" insurance provinces have been going up relatively slowly, while those in "private" provinces are zooming.
Higher industry profits are an obvious suspect, but the numbers don't support the charge, the Insurance Bureau of Canada (IBC) says. While B.C.'s government system made a profit, the private auto insurers in Ontario, Alberta and the Atlantic region lost money in the first half of the year, the industry lobby says.
Academics who study insurance, like Anne Kleffner at the University of Calgary and Mary Kelly at Wilfrid Laurier University in Waterloo, Ont., agree.
Many auto insurers, with Quebec's provincial system being a notable exception, are paying about 90 per cent of the premiums out as claims, Kelly said. Add the cost of running the business, and auto insurance is a money-losing proposition.
The problem
A decade ago, vehicle costs accounted for slightly more than half of the more than $4 billion the private companies paid out. Last year, vehicle claims were up significantly from 1993, but medical costs had rocketed far above vehicle repairs, to more than $4.4 billion.
So while the number of Canadian traffic deaths has been cut in half over 25 years, from more than 6,000 in 1975 to 2,800 in 2000, and the number of vehicle damage claims has fallen in step, injury claims keep going up.
Not only are there more claims, especially soft tissue injuries like whiplash; for the private insurers, many of the claims are much more costly than they are for government agencies because of the different payment systems.
For example, two-thirds of soft tissue accident victims in Ontario are still off work 18 weeks after the crash; but in the Quebec government system, only 21 per cent are still off the job after 18 weeks.
The lost wage bill is much larger per person for Ontario's private insurers than for Quebec's public system.
The Council of Atlantic Premiers (CAP), which released an auto insurance study in early October, concluded "the core problem of increases in premiums is and has been consistently identified as the increase in bodily injury loss costs."
Public insurers are facing that pressure; in the same report that detailed its first-half profit, ICBC said the number of lower-cost claims dropped because of good weather and higher deductibles, but "this was offset by a 9.3 per cent increase in the average costs for higher-value claims."
Higher rates are one solution to increased costs. The provincial officials who regulate insurance rates have agreed with that. But now the issue's become political, cost controls – that is, reducing payouts through legal and regulatory changes – are on the agenda.
Public vs. private
So if the higher medical costs are driving the premium jumps, why haven't the public insurers faced the same pressure to raise rates as the private companies? Even by the IBC's numbers, rates are up 27 per cent in the past five years. (The CAC says some rates are up 70 per cent.)
The CAP believes the answer is not related to ownership, but to legal issues and the kinds of payouts.
"The low levels of premiums in the public models in Canada … are primarily due to the nature of the benefit plans, rather than the nature of the supplier," the report said.
The different times off work for soft-tissue injuries in Ontario and Quebec are an example of different benefit plans.
There are also clear savings in systems where the right to sue is limited, "no matter who is the supplier," the CAP said.
Quebec is the only province that forbids lawsuits (several others limit them) and "for two decades, it has, on the evidence, achieved the elusive goal of premium stability," report said.
The other factor driving rates is timing. There's a cycle in the insurance business, with periods when rates stay constant and periods when insurers raise rates to catch up with costs. Over 10 years, the private companies have had more stable rates than the public ones, says Darrell Leadbetter, a senior policy analyst with IBC.
The public insurers had a payout problem a decade ago, he said. Now it's the private companies' turn.
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