Get In The Know: The Difference Between Government and Private Auto Insurance – How To Choose?

Get In The Know: The Difference Between Government and Private Auto Insurance – How To Choose?

Everyone wants affordable and dependable auto insurance that provides the coverage they require.  Some people think the answer to their needs is instituting a Government-run auto insurance program. Insurance Bureau of Canada helps consumers to understand the consequences and costs to them of having a Government-run program imposed on the marketplace and how this will affect individuals now serviced by Private auto insurance.  Get in the know!

Let’s establish some of the differences between an insurance program run by the Government and the Private sector.  We’ll go through these differences on a point-by-point basis so that we can see which makes more sense – Government-run auto insurance or Privately-run auto insurance. Note that most of the differences we will highlight below have the absence of competition that features strongly in many Government-run programs as the root cause of these differences.  Private auto insurers must compete with each other for business – this guarantees that their rates and products offered must be excellent!  When dealing with Private auto insurance the consumer has choices and this naturally leads to the establishment of an efficient and fair market.

Government-run auto insurance is run by an expensive and massive bureaucracy. Depending on where you are in Canada, the average cost to establish a Government-run insurance company would be $300-$500 million whereas Private auto insurance is already established and operating effectively with no new costs to the consumer or taxpayer.

If we look at the history of Government-run auto insurance programs in Canada we see that all of them (!) have required taxpayer subsidies to stay solvent and pay out claims.  It seems that Government-run programs historically fail to accurately balance the costs of providing insurance with the premiums charged.

A serious negative consequence of taking away insurance business from the Private sector and handing it over to Government by mandate is that the local, regional, and provincial investment that Private Insurers now make dries up. This “crowding out effect” impedes entrepreneurship and slows down economic growth. In Ontario, for example, investment by Private insurance totals more than $6 billion! Note that the Private insurance industry in Canada employs almost 100,000 people, either directly or through its support of the broker workforce.

Government-run auto insurance tends to deprive the consumer of innovative insurance products – having the captive market, almost like a monopolist, fails to provide an incentive for innovation – why change and improve if the business flows in regardless of what you do?  Examples are first-accident forgiveness, replacement cost coverage, and roadside assistance which were all available in Privately-run auto insurance systems long before they were adopted by Government-run auto insurance companies.

Government-run auto insurance can at times be a bit less expensive in terms of straight fees – for example consumers in Manitoba and Saskatchewan have lower premiums in dollar terms – but 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. You might pay a little less now but what are you potentially losing in the longer term?  Cheaper doesn’t mean better – it often means you simply get less coverage.

“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 auto insurance is purchased competitively in almost every jurisdiction in North America and remains the most popular way to go.  This is primarily because Private insurance rates reflect the true cost of offering coverage. Premiums in a competitive insurance market reflect the real cost of insuring a driver.

A final and important point to grasp is that Private auto insurance in Canada is already tightly regulated by law so that it operates for consumers’ benefit in a fair and equitable manner.  It’s not the wild west out there in auto insurance land– Canada’s insurance consumers already benefit from a strict framework of provincial laws supervised by a number of government agencies, including rate review boards with both federal and provincial regulators.

Insurance Bureau of Canada wants everyone to be well-informed about the Government versus Private auto insurance issues.  Once you know the facts you’ll make the smart choice!

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.

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