Lack of competition means B.C. drivers forced to pay high auto insurance rates

If the B.C. government is looking for a policy issue that’s sure to be a winner with voters, it need look no further than the issue of the province’s high auto insurance rates.

Contrary to the myth promoted by public auto insurance monopolies and their supporters, B.C. drivers pay higher premiums relative to drivers in most other provinces, a fact confirmed by a new comparison of automobile insurance premiums across all 10 provinces. The average premium paid by B.C. drivers exceeded $1,100 in 2009.

That is the second highest rate of all provinces. The average premium in 2009 was slightly lower than premiums in the previous two years, which exceeded $1,200. Nevertheless, B.C. drivers paid the highest average rates in 2007 for their insurance coverage and the second highest in 2008.

In contrast, average premiums in Alberta never exceeded $1,000 during these same three years except for 2009 in which the average premium was $1,004. Insurance was even more affordable across all four Atlantic provinces, where average premiums never exceeded $800 in any of the three years examined in the study.

What can be done in B.C. to improve affordability? The B.C. auto insurance market is dominated by the Insurance Corporation of British Columbia, a government-owned insurance company with a monopoly over the provision of basic coverage, which includes personal injury and liability coverage. In other words, the provincial government refuses to allow any other insurer to offer coverage for personal injury or personal liability.

Past studies on the affordability of auto insurance by my colleagues have consistently found that insurance costs less in provinces where insurance is delivered through an appropriately regulated, private sector insurance market where insurers compete against each other to attract business. From 2007 through 2009, the four provinces where auto insurance has been most costly and least affordable are B.C., Manitoba, Ontario and Saskatchewan. With the exception of Ontario, which has significantly high claims costs per passenger vehicle for a number of reasons including the prevalence of insurance fraud, what these provinces have in common is the presence of a government-run auto insurance monopoly.

Insurance is more affordable in Alberta and the Atlantic provinces which have private sector markets. The only province with a government-run insurance monopoly that performs well in affordability is Quebec where the monopoly is limited to bodily industry leaving the rest of insurance coverage to the private sector, and where mandatory insurance coverage requirements are lower.

The results of this new comparison, as well as previous versions by my colleagues, are not surprising. In contrast to government monopolies, in order to survive and earn a return on capital, private insurers must be efficient in all aspects of the business, including claims management, pricing strategies, and customer service. In private sector insurance markets, insurers have to compete for their customers, and a big part of that is providing competitive pricing. Individual insurers develop their own risk rating systems to price policies, which are approved by local regulators.

Drivers in B.C. should be asking why the provincial government continues to restrict consumer choice and forces them to purchase auto insurance at rates higher than necessary. Maintaining ICBC as a government monopoly has served no public interest objective and has been a disservice to B.C. drivers. A move to an appropriately regulated competitive market is long overdue.