By Brian Lee Crowley
This commentary appeared Wednesday, June 4, 2003 in the Halifax Chronicle Herald and Moncton Times & Transcript and an edited version appeared Saturday June14 in the St. John’s Telegram.
DRIVERS are rightly angry about the rising cost of auto insurance. Big premium increases like those of the last year or two hurt people's pocketbooks and divert their money from things that are more important to them. That damages their standard of living. So, car insurance today is an issue fraught with emotion. But emotion is never the best basis on which to settle complex public policy issues, especially when the costs of an ill-considered and hasty decision are likely to be with us for a very long time to come.
It is always when emotion is at its highest that people are vulnerable to the latest scheme that sounds like it will solve the problem with the wave of a magic wand. And nationalization of the car insurance industry is the flavour of the month in this category. To hear its advocates tell the story, nationalization will lower costs, improve service, eliminate "excessive" profits, and perhaps cure SARS too.
But here's the key question to ask those people pushing nationalization today: Why didn't Bob Rae do it?
Bob Rae was the NDP premier of Ontario. He won office in the early 1990s with a handsome parliamentary majority. State monopoly car insurance had not only been long-time NDP policy, but Rae himself had campaigned for it.
But the NDP faced the discipline of power, the fact that they and all the citizens and taxpayers of the province had to live for a long time with the consequences of what they were going to do. And the government began to realize that those consequences not only were not positive, but were disastrous.
You cannot conjure a state-run insurance scheme out of the air. There are huge start-up costs. You have to borrow hundreds of millions of dollars to create a new organization from the ground up and to fund the new insurance liabilities. Borrowing rises while tax revenues decline. You have to cause major employment dislocation, as all the dozens of private-sector insurers close down their operations, some of them significant regional head office operations, and leave the province.
All of the people in communities around the province who live from selling auto insurance lose significant revenue, as the state-run government schemes cut back on commissions to agents.
Taking responsibility for auto insurance also meant that now the electorate would blame politicians for every bad experience with a claim that goes wrong or with premium increases. And the politicians knew that there would be premium increases, because an insurance scheme can only pay out in claims and expenses as much as it takes in premiums.
Here in the Maritimes, for example, insurance costs are rising, chiefly due to the rising cost of claims for various kinds of non-permanent injuries awarded by the courts. Insurance certainly is not rising because the companies are making excessive profits. Indeed, premiums are rising because companies have lost money recently. Costs have risen faster than premiums.
At election time, though, it is tempting for politicians who have a monopoly on car insurance to freeze or even reduce insurance premiums, and jack them up between elections, or else keep them artificially low for too long. Either way, the outcome is usually a bail-out funded by taxpayers or drivers, or both, whether through straight transfers of tax dollars or through driver's licence fees, gasoline taxes or other means. This kind of politically motivated premium behaviour is easily observable in several of the Western provinces, such as B.C., that have state-run car insurance.
One of the ways that these provinces make their insurance appear cheap compared to elsewhere is to force drivers to shoulder more insurance risk, while leaving premiums unchanged. This is done by simply raising the deductible you pay when you make a claim. Most people in the Maritimes have quite low deductibles, but in the provinces where car insurance has been nationalized, the minimum deductibles are very high: $500 in Manitoba and $700 in Saskatchewan for both collision and comprehensive coverage. That's far more risk than Maritimers have been willing to bear when given the choice.
And that's really the key issue: choice. When we're dissatisfied with our premium, or the service we get, or the level of our deductible, we can shop around. We can get multiple vehicle discounts. We can get an insurance agent who works harder for us to get a good deal out of the company. None of these things are available under government monopoly insurance.
Don't believe me? Then ask Judge Coulter Osborne of the Ontario Supreme Court. Premier Rae asked him to study the NDP's proposed state car insurance and report back with his recommendations. Judge Osborne, after extensive inquiry, found "... there are no benefits to the taxpayer or consumer to converting to public auto insurance."
Want to nationalize car insurance? Tell it to the judge.
Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think tank in Halifax. E-mail: firstname.lastname@example.org