Public insurance cheaper because profits aren’t main goal

The Insurance Bureau of Canada has examined our public insurer, ICBC, and found it wanting.  In their recent full-page newspaper ads, they have a plan to make ICBC better.

icbccampaign

Or, more plainly, the Insurance Bureau of Canada wants some of the action.  They  see the arrival of our new B.C. Liberal government as a sign that ICBC is a plum ripe for picking.  And they want to shake the tree.

The insurance business is straightforward — collect premiums and hope that you don’t have to pay out claims.  Profits go to shareholders.  In the case of ICBC, the shareholders are you and I.  Last year, ICBC’s investments in B.C. and road safety programs paid dividends to auto insurance holders of $100.

Dennis Prouse, spokesman for Insurance Bureau of Canada was not impressed by the dividend.  He told me that it was “reckless, irresponsible, and politically motivated,” to return the money.  Surpluses should be kept in contingency reserves, he said.  Private insurers keep a much bigger rainy day fund.   ICBC has the luxury of financial backing from the government.

ICBC insured drivers will likely have to pay that $100 back, Prouse continued.   Higher than normal accidents this year in the lower mainland are resulting in more claims, which will push premiums up.  The transit strike is being blamed for higher collision rates.  “How will drivers in Kamloops feel about returning their dividend because of a strike in Vancouver?”, Prouse mused.

Another investment that has paid off for ICBC is road safety programs. In Kamloops, ICBC funded the use of de-icing compound on city streets. The result has been a reduction in accidents, fewer claims, and greater profits for ICBC.   According to ICBC, every dollar spent on reducing hazardous road conditions saves two dollars in claims.

The idea that ICBC is innovative in road safety is plain wrong says Prouse.  Programs like Road Star, graduated drivers licences, and road safety improvements were all started by private insurers.  ICBC is simply reacting to competitive pressure, and competition is what the Insurance Bureau of Canada would like to more of.

Prouse doesn’t like the idea that private insurers pay taxes and ICBC doesn’t.  Last year, Canada’s private insurers paid $3.7 billion in taxes.  On top of that  B.C. drivers pay an auto premium tax of 3.3% that most aren’t aware of.   I don’t see that as a consideration since drivers pay the same tax elsewhere on private insurance.

The ads from the Insurance Bureau of Canada point to a Pollara poll that shows that British Columbians prefer a system which allows full competition between the government-run ICBC and private insurers (81% in favour).  But the same poll shows that 73% of ICBC claimants are satisfied with the way ICBC dealt with their claim.  Not as satisfied as Ontario at 85%,  but dissatisfaction with ICBC was connected to dissatisfaction with the NDP government.

No doubt private insurers will be able to offer reduced premiums to low-risk drivers.  If drivers don’t get in accidents and don’t file claims, the profits are easy pickings.  The catch is that private insurers will have to charge youths and high-risk drivers more than ICBC does.  As a result, high-risk drivers will choose ICBC and low-risk drivers will choose private insurers.

If ICBC is stuck with high cost claims and private insurers are left with the profitable side of the business, that will not be good for ICBC.  The Insurance Bureau of Canada claims that they want to make ICBC better.

Public insurance is cheaper for everyone because the goal of public insurance is not to make money but to provide a public service.   And ICBC can reduce injury and save more lives because of the scale of ICBC’s operation.  Since 1996, injuries have been reduced by 10% — 2,500 fewer injuries a year.

Like public health insurance, public auto insurance has less overhead and duplication of administration.   It seems to me that public insurance is a better idea.  If a private insurer is extracting a profit from insurance, and that is the goal of any business, then eventually British Columbians collectively will pay more for insurance.

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