Ontario
needs public auto insurance
By
Howard Hampton
Leader
Ontario
NDP
For
Ontario’s six million drivers, auto insurance is a necessity like Hydro
and water: If you want to drive, you have to purchase auto insurance –
it’s the law.
It's
painfully clear to automobile insurance holders that premiums have gone
through the roof in Ontario. What's less clear is why this has happened
and what needs to be done to protect the wallets of Ontarians.
For
example, in Vancouver, where auto insurance is provided on a non-profit
basis, a family with one young driver and a perfect driving record,
running a 1996 Toyota Camry, would pay $1,298. In Toronto, that family
would pay on average $2,553 -- just about double.
Since
then, the already substantial gap between Ontario’s private system and
British Columbia’s public system has widened considerably.
What's
going on here?
Insurance
companies claim Ontario auto insurance premiums have skyrocketed in the
past two years because of out-of-control medical and rehabilitation costs.
This
is simply not the case.
The
real explanation for the obscene rise in auto insurance costs can be found
in the returns insurance companies received on their investments in
stocks, bonds and other financial instruments. In the 1997 -2000 period,
investment income from these sources averaged just under nine per cent
annually. By 2002, investment income for the industry had declined to just
over two per cent. In other words, over the past two years Ontario drivers
and other insurance policy holders have had to make up for the decline in
'Big Insurance’s' investment income resulting from a bad stock market.
Another
reason for the higher rates in Ontario is that as a matter of policy,
private insurers charge higher rates on the basis of age, gender, marital
status and location. Private auto discriminates so if you are young, male,
or single, you pay more. It’s that simple.
So,
how has this played out in recent years?
In
Alberta and the four Maritime provinces which, like Ontario, have private
auto insurance systems, Statistics Canada says premiums have exploded by
between 58 per cent (P.E.I.) and 70 per cent (New Brunswick).
Contrast
this with the record of public auto insurance in the three western
provinces. While auto insurance premiums in Ontario have risen by over 20
per cent in the past year, premiums in Manitoba, British Columbia and
Saskatchewan have risen between six and 10 per cent. And this follows
about 5 years in which rates didn’t increase at all in provinces with
public systems.
The
reason for the better performance by public auto insurers in the past few
years?
·
Public auto insurers invest more in stable municipal and school bonds and
less in the volatile stock market. Therefore, drivers under a public
system don’t have pay higher premiums to insurance companies in order to
make up for a decline in the stock market
·
Public auto insurance uses profits to increase driver benefits, reduce
premiums and absorb losses rather than distribute these profits as
dividends to shareholders;
·
Public auto insurance is far more efficient because there isn’t the
administrative duplication that exists when there are forty or more
companies offering the same basic product as there is in Ontario.
Marketing costs are significantly lower under a public auto insurance
system and these lower costs are passed on to drivers.
·
Under a public system, your premiums are based on your driving record not
on your age, gender, marital status or location. In a public system, good
drivers don’t subsidize bad drivers as they do under an Ontario style
private system.
The
NDP believes Ontario drivers would see an immediate 20 per cent reduction
in premiums for government required auto insurance under a public auto
insurance system. This immediate reduction in rates would be followed by
long-term rate stability.
Ontarians
should not be paying for 'Big Insurance’s' over-reliance on stock market
income.
Clearly,
public auto insurance in Ontario is an idea whose time has come.