Do you know the Difference between Government & Private auto insurance? #GetInTheKnowON

Do you know the difference between Government and Private auto insurance? I honestly never thought too much about insurance until recently. I mean, I know I need it. I buy it and am covered, but what does any of it mean? Who determines the ‘rules’? Hopefully these series of IBC posts will inform you as much as they are informing me. After all insurance is a must and we should all know more about it, right? Information is power and who doesn’t want to be powerful?

Every once in a while, someone suggests that having the government own and

operate a province’s car insurance business is “The Answer” to the insurance

problem of the day. Insurance Bureau of Canada addresses some of the myths

related to government-run vs. private auto insurance systems.

IBC has been working to make insurance less confusing. Their Time to Talk campaign is all about showing Ontarians how insurance works….and what it means for them. Have you seen the commercials?

Now to compare the two.

Government – run Auto Insurance

Huge start-up costs. Depending on where you are in Canada, the average cost to establish a government-run insurance company would be $300-$500 million.

Huge bail-outs. All government-run auto insurers in Canada have required taxpayer subsidies as a result of charging too little in premiums and having insufficient start-up funds.

Reduced private sector investment. Private home, car and business insurance companies directly invest in the provinces in which they do business. In Ontario, for example, insurers’ investment in the province totals more than $6 billion.

Limited choice for customers Government-run auto insurance provides a “one-size-fits-all” solution for consumers (e.g., fixed deductibles, no multivehicle discounts).

Lack of product innovation. Government-run auto insurance companies a captive market share. Product innovations such as first-accident forgiveness, replacement cost coverage, and roadside assistance were all available in privately run auto insurance systems long before they were adopted by government-run auto insurance companies.

Fewer benefits. While it is true that the government-run insurers in Manitoba and Saskatchewan have lower premiums in dollar terms, consumers in these systems have far fewer benefits. In Manitoba, for example, an accident victim who is catastrophically injured has no right to sue for economic losses – including future lost wages – that are over and  above a predetermined amount.

“It must be noted that drivers there have had the choice to opt out of no-fault and chose to be in a tort system since 2003. Very, very few drivers chose this option. BC is a tort jurisdiction. In fact, on paper the benefits are quite rich. There is no cap.”

Private Insurance

Competition works. Auto insurance is purchased competitively in almost every jurisdiction in North America.

Insurance rates reflect true cost. Premiums in a competitive environment reflect the real cost of insuring a driver. Auto insurance premiums are set based on a host of factors that affect the frequency and cost of claims.

Employment. Private auto insurance systems provide vital injections of investments, jobs and taxes into regional economies. The private insurance industry in Canada employs almost 100,000 people, either directly or through its support of a broker workforce.

What few people realize is that insurers provide car insurance within a strict framework of provincial laws and that they are supervised by a number of government agencies, including rate review boards and both federal and provincial regulators. Car insurers deliver a product that is defined by these laws and regulations.

Interesting fact

Here’s a fun fact from Rick Doust from IBC in response to a question about women drivers. ‘The accident claims statistics show that young women are much better drivers than young men. Data shows that young male drivers have more claims, and thus greater costs to pay for those claims. It works this way: the provincial government has approved the ratings of drivers

based on their accident frequency. Insurers can only deal with at-fault accident and conviction information for all licensed drivers, as this is the basis for rating auto insurance. ‘

Who knew there was so much to learn about insurance. Knowledge is important and we all need to know the facts to make the right decisions for our family. I appreciate IBC taking the time to inform us and help us make the right choices for our family.

For my information you can read IBC’s Blog and follow on Twitter and Facebook

 

Disclosure

Although this post has generously been sponsored by Insurance Bureau of Canada, the opinions and language are all my own, and in no way do they reflect Insurance Bureau of Canada.