(Vancouver) A new study released today by the Canadian Centre for Policy Alternatives urges the provincial government to reconsider its plans to open auto insurance in BC to "full competition".
The study, entitled Down the Road, warns that allowing private firms to compete with ICBC in the provision of basic auto insurance will result in a number of negative consequences, including: discriminatory rate setting based on age, gender and postal code; higher insurance premiums for hundreds of thousands of British Columbians; higher numbers of uninsured drivers; job loss; reduced investment in road safety; and substantial new costs for the provincial treasury.
"The evidence shows clearly that private insurance is not cheaper, better or safer," says John Young, author of the report. "Full competition in auto insurance is simply bad public policy."
Two weeks ago, the Consumers’ Association of Canada (BC chapter) released a study that found ICBC’s premiums to be competitive with other jurisdictions, and warned that many young drivers and families with young drivers would experience "rate shock" if basic auto insurance were opened to full competition. The CCPA study builds on the CAC’s findings by focusing on broader economic and social costs.
Among the study’s key findings:
- Under full competition, the provincial government would have to absorb a number of new costs at a time when it is under severe financial constraints. These costs include: $60 million in annual road safety investments; at least $42 million in annual Medical Services Plan costs (currently covered by ICBC); approximately $75 million in annual operating costs for the Motor Vehicle Branch; and as yet unknown costs associated with regulating and supervising the operations of private insurance companies.
- Given the private insurance industry’s record of discrimination based on postal code, and the tendency to "cream" away the lowest-risk drivers, rural motorists and drivers in lower-income areas would also likely see their rates increase.
- As a single, integrated provider, ICBC benefits from economies of scale that would be lost under full competition. A number of companies would enter the market, each with its own marketing department, senior management teams, IT system, claims administration system, etc. All of these new players and duplicated systems would increase costs for the consumer.
- Currently, ICBC targets 20% of its $6 billion investment fund to investment in BC. This policy would almost certainly be a thing of the past under full competition. Dividends to policyholders would also disappear under full competition.
- Head office jobs, as well as call centre jobs, would likely be lost to other jurisdictions.
- While some drivers in mid-life without children on their policies may find cheaper insurance premiums under full competition, the quality of coverage is frequently inferior, with negative implications for BC’s public health care system.
"A key consideration in this debate relates to the trade agreements to which Canada is a signatory," says Young. "Any decision to open auto insurance to full competition or to privatize ICBC would likely be irreversible. That’s because if a future government wanted to restore public auto insurance, NATFA and the WTO would require the payment of exorbitant and prohibitive compensation costs to private insurance companies."
The CCPA study was welcomed by groups representing both students and seniors.
Patrick Thomas, vice-president of the Council of Senior Citizens Organizations, said "People who don't learn from history, or from studies such as this one, are doomed to repeat the bad experiences of the past. Our members remember that big private insurance companies don’t have the customer’s interest at heart."
Anita Zaenker of the Canadian Federation of Students and Friends of Public Auto Insurance commented, "This study makes a strong case for keeping auto insurance public. A publicly-owned system offers coverage that's affordable for the average young person and their families and doesn't discriminate against young drivers. A publicly-owned system of auto insurance has an interest in encouraging safe driving and road responsibility, something we young drivers need more of, not less."
"During the recent election campaign, Premier Campbell promised that an extensive consultation with the public would take place before proceeding to change the way auto insurance is delivered in BC," says Young. "Those consultations have yet to begin. But when they do, the government should listen carefully so as to fully understand what would be lost in abandoning the public auto insurance model."