Private Insurance Works in New Brunswick

Auto insurance is purchased competitively in almost every jurisdiction in North America. Most people believe in the free market for nearly all the products they buy. In fact, governments have deregulated several former public monopolies over the last number of years, and consumers have won every time. Thanks to competition and choice, consumers now enjoy lower long-distance telephone rates and more choice and real competition in cable television services.

Government-run auto insurance provides limited choice for consumers and no incentive for good customer service or product innovation. It is a "one-size-fits-all" solution for consumers (e.g., fixed deductibles, no multi-vehicle discounts).

In 2004, private home, car and business insurance companies had a total investment of nearly $1.5 billion in New Brunswick. Their total direct investment in the province’s businesses, including corporate shares, bonds and real estate amounted to $358 million.

Also in 2004, the NB government collected $74.2 million in tax revenue and $25.2 million in health care levies from insurers doing business in the province. A government-run insurer not paying income, capital or sales taxes would reduce provincial tax revenues by up to $18.5 million annually. In the 2003-04 budget year, the NB government projected operating at a surplus of just $7.5 million. The loss of the insurance tax revenue in that year would have wiped out the surplus and put the NB government in a deficit.

A system of private auto insurance provides powerful incentives for insurance companies to offer the lowest possible rates, strong service delivery and a wide range of policy options. Those options may include lower deductibles and replacement cost coverage. Because each policy is designed for the individual purchasing it, a key competitive advantage for any insurer is customer service.

Government-run auto insurance companies have no incentive to try to understand the needs of customers, because they have a captive market. 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 insurers.

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. The likelihood of being involved in a collision or having a vehicle stolen, geography, type and age of a vehicle, insurance claims records, other drivers in the household who use the vehicle, driver age, driving records, driver gender and traffic congestion all affect risk and claims. It's the cost of claims, more than anything else, that determines the premium level for consumers.

Unlike private insurers, government-run auto insurers have been able to increase rates without ever having to apply for a rate increase. Government insurers have increased the number of claims paid directly by the customer by increasing deductibles, and have moved more drivers into higher-priced territories by making changes to insurance rating territories.

Private insurance is well established and fully operational throughout New Brunswick. Start-up costs for a government-run auto insurance system could be massive; conservative estimates put this cost at $415 million. This money would be needed for land, buildings, staff and sufficient start-up capital to cover operating costs, as well as capital to make up for the loss of taxes and health levies received from the private industry. This "company" would be continuously financed by the taxpayers of New Brunswick. In early 1976, less than two years after its inception, ICBC, BC’s government auto insurer, required a 25% rate increase and a government bailout of $181 million ($641 million in today’s dollars). None of that money was ever paid back.

Private auto insurance systems provide vital injections of investments, jobs and taxes into regional economies. In New Brunswick, the private insurance industry directly employs 1,518 people in local communities, while supporting a broker workforce of 1,164.

The argument that is always presented by those promoting government-run monopolies is that the monopoly provides much-needed jobs. This is simply not true; in fact, jobs and investments increase when more companies compete for business.

The introduction of government-run insurance would have a significant impact on the employment of New Brunswickers by causing:

• the loss of private sector jobs in the communities throughout the province;
• displacement of workers through the creation of civil service jobs, likely centralized in urban areas; and
• shifts in the labour demand and in the distribution of skills required from employees.

Valid comparisons of insurance prices across the provinces are difficult to make because of differences in insurance legislation, highway and traffic legislation, traffic density, traffic enforcement, urban/rural ratios and average annual mileage driven. For similar reasons, comparisons are rarely made among towns and cities – e.g., Moncton, Fredericton and Bathurst. Nonetheless, overall, the average payout for claims is higher in a private auto insurance system than in a government-run monopoly